Consumers Believe Credit Unions Lag Digitally; But Do They?

Source: American Banker

A recent survey found U.S. credit union members were more satisfied with their financial institution than customers at large national banks, by 13 percentage points, yet consumers hold accounts far more often with large nationals, by 24 percentage points.

Major reasons, according to the survey by the digital consultancy Mobiquity, appear to be the hassle of switching accounts and the limitations of smaller institutions’ digital offerings compared to national banks. The survey was conducted in December and included more than 1,000 U.S. consumers.

Experts generally agreed that credit unions’ size, rather than their not-for-profit status, explained why they lag behind large banks in terms of digital transformation. Some said the best thing they could do about it was seek partnerships with fintechs, and others promoted a focus on other factors they could use to differentiate themselves from banks.

Many in the industry rejected the premise that credit unions actually lag behind large banks in digital offerings.

“Credit unions as a whole are perceived to lag behind, but that is more due to a lack of awareness as to what is happening in the credit union industry as a whole as the larger banks more naturally interact with more consumers due to their size and get more national press,” said Ben Maxim, vice president of digital strategy and innovation at Michigan State University Federal Credit Union.

For credit unions hoping to improve their digital offerings, forging a partnership, rather than building the solutions themselves, is often the best approach, notes Maxim. Many credit unions work with fintechs to bring their members the services they would get at a large bank.

Credit unions have a motivation to modernize, according to Greg Mesack, senior vice president of government affairs for the National Association of Federally-Insured Credit Unions, and the struggles credit unions have with digital transformation is not unique.

“I think a lot of times it has to do with the size of the depository institution,” Mesack said. “I think a credit union and community banks probably have equivalent digital services, but I think both of them are going to be challenged to compete with a Bank of America or Wells Fargo.”

Others went as far as to say that credit unions outperform similarly sized banks in terms of their digital products.

“In our experience, credit unions are often more digitally savvy than their banking counterparts, especially when we’re talking about community institutions,” said Dan O'Malley, co-founder and CEO of the digital lending platform Numerated. “I think credit unions’ focus on their members is what has led them to always be forward looking when it comes to technology.”

Greg Michlig, executive vice president and chief engagement officer at Credit Union National Association, also said credit unions have “superior digital offerings” when compared to like-sized banks — but maybe not large banks.

“Scale and resources, from both an operational and strategic standpoint, underpin any financial institutions' ability to offer a robust digital platform,” Michlig said. “Many credit unions direct a proportional amount of resources towards digital, but with a restrictive capital model based on the not-for-profit credit union charter, credit unions have fewer resources available than the large banks.”