Credit unions carry several advantages over big banks. Accountholders tend to view credit unions as more trustworthy and less likely to engage in predatory lending since credit unions are member-owned. However, the old-fashioned community-oriented model of many credit unions may be threatened by the increasing pressure to expand and adopt new technology.
To learn more about how credit unions fit into a rapidly evolving financial landscape, PaymentsJournal sat down with Todd Clark, CEO of CO-OP Financial Services.
Credit unions and new technology
Credit unions are increasingly interfacing older technology into modern technology. Most credit unions still use ISO 8583, an international standard for electronic transactions initiated by cardholders. “It’s kind of like electricity—it works,” Clark said about ISO 8583. “Until you see a real advantage from a cost perspective, why would you want to upgrade?”
Many credit unions may be hesitant to “rip-and-replace” their core systems—data storage, financial transactions, customer relationship management, etc. Instead, credit unions are layering new tech on top of existing systems. Companies like CO-OP enable credit unions to adapt to more progressive industry standards.
“Earlier this year, we introduced digital card issuance,” Clark continued. “In the event of something lost or stolen, I can push credentials right into your Apple Wallet, or into your Google Wallet, and allow you to continue using your card anywhere that accepts tap and go.”
Credit unions and cloud-based data storage
Credit unions face a particularly big push to integrate cloud-based software into their business model. Card management and data storage are among the biggest focus areas for credit unions. Clark explained that to help CO-OP better serve over 3,000 credit unions, it has moved its Springboard application onto the Azure cloud. Springboard gives credit unions an easy-to-use means of accessing cardholder account information in real-time.
“The cloud comes with tools, but you have to know how to use those tools to help you keep your space safe,” Clark clarified. “It adds a whole new layer of complexity, but it also adds a whole new layer of opportunity.”
Collaboration between CO-OP and credit unions also enables a network effect—the more people use credit unions, the higher credit unions are valued, and the more they are valued, the more people use them, further increasing value.
Credit unions and fintech
Both credit unions and fintech companies can seem like attractive alternatives to big banks, especially for millennials. Clark pointed out that according to 2021 research performed by EY and commissioned by CO-OP, PayPal was found to be the most trusted financial brand for 25 percent of credit union members, as opposed to an actual bank or credit union. However, fintechs can also carry an added insurance risk.
“Most of the people who are switching over… have never seen banks or credit unions fail,” said Clark. “They don’t realize the value of that insurance… that money you keep on file at Venmo, or at Starbucks or at PayPal, is not insured.”
Credit unions also bring the added benefit of personal human touch. “What credit unions have is an enormous amount of loyalty from their members, and they’ve got that touch and feel,” Clark went on. During the height of the COVID-19 pandemic, while many banks were pulling back on credit lines, credit unions leaned in and offered support to struggling members. Some credit unions, for example, offered loans without underwriting. Such acts can help build trust between financial institutions and their client base.
When credit unions layer new technology over existing systems, consumers get the best of both worlds—a person-centric model and the infrastructure to thrive in an evolving market. Organizations like CO-OP have the capital to invest in their own fintech, which they then offer to participating credit unions.
How credit unions can stand out from the pack
Another key component is the understanding that members may not stick to just one financial institution. Credit unions often need to offer incredible perks to stay competitive with banks and fintechs. Fraud protection is one important area where credit unions can differentiate themselves, in addition to state-of-the-art digital payments solutions and member relations.
Credit unions should also focus on creating great UI/UX. Investing time and energy into building an appealing user interface that matches the functionality of digital applications can go a long way towards retaining members—if a credit union is easy to engage with in the digital space, people are more likely to keep using it.
Credit unions and the future of digital acceleration
Perhaps surprisingly, credit unions are coming off one of the best years they’ve ever had. “2020 was supposed to be the end of the world, but actually, I haven’t talked to a single credit union that didn’t have a banner year,” shared Clark.
For credit unions to keep up their growth, they will need to continue adopting new technologies such as tap cards and digital wallets. Even as a few large merchants such as Walmart are still holding off on accepting those forms of contactless payment, more and more businesses and consumers use them every day.
“The investment in technology will pay off in the long run, there’s no doubt about it,” said Clark. “It’s very clear that members are willing to adapt.”
Credit unions have already carved out a unique space in the financial world. Credit unions—especially with support from CO-OP—can offer locally tailored assistance to their members, as opposed to more impersonal financial institutions like fintechs and neobanks. Credit unions also have regulatory oversight in the same way as banks, which is a security measure that many fintechs are unprepared to manage. But there is always room to evolve.
“I think we’re going to see consolidation,” Clark concluded. “We’re going to see a little bit of branch transformation, and I hope that we can see, continuously, credit unions lean into their digital properties.”