Sizing Up the Wrong Competition

As Amazon's potential foray into banking continues to make headlines, it is obvious that competition in the financial services industry looks different than it did 10, or even five, years ago. Financial institutions are now finding themselves being compared to and evaluated against organizations outside the scope of their typical competitors, such as Venmo, Uber and Airbnb. These technology companies are dictating how the customer experience should look and feel, and consumers are expecting their financial institutions to keep up.

Despite this influx of new players in the space, many credit unions continue to benchmark their products and services only against other peer and competitor credit unions. Such a narrow view can limit the innovation and growth that credit unions embrace. As large national and regional banks, fintech companies and even partnerships between the two are leveraged to offer advanced features and experiences to consumers, credit unions must be able to implement competitive and innovative services to remain relevant.

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Credit unions that refuse to raise the bar and push themselves to compete on a new level risk lagging behind and failing to innovate in ways that are needed to attract and retain members. This is more than just a hypothesis. A recent Harris Poll, sponsored by D3 Banking Technology and conducted online among more than 1,600 U.S. adults who have used digital banking in the past 12 months, found that more than three in 10 digital banking consumers (32%) are willing to switch financial institutions for one that offers an easier to use digital banking service. Given this fact, any gap between what a member expects and what they actually find in their credit union's digital experience is more than just a minor disconnect.

The good news is credit unions' unique approach to financial services markets gives them an inherent advantage. Their dedication to the community and commitment to member service makes credit unions an obvious choice to those who don't want to feel like "just another number," something customers of large institutions tend to experience. This advantage rings especially true with younger generations.

We have observed that a majority of millennials have a distrust of large banks as they tend to associate them with 2008's global financial crisis and the resulting state of the job market. These young people also tend to care more about their local communities and making a difference than previous generations, which aligns well with credit unions' philosophy and mission. However, millennials (and Gen Zers who will follow them) are also extremely digitally savvy, making an advanced digital user experience high on their list of priorities. They will be unforgiving of a poor digital experience.

To elevate their ability to compete with the banks and fintechs, credit unions must make digital the primary channel for differentiating their business model while also satisfying the digital expectations of their members. They can successfully do so by conducting their proper due diligence on what those members expect whenever they log in. To accomplish this, one of the first steps credit unions must take is to give digital proper representation at the decision-making table.

Identifying Digital Initiatives

The first and most critical step that must be made is to understand what members want in their digital banking experiences. The Harris Poll/D3 Banking survey found that more than half of digital banking users feel it is important for financial institutions to provide mobile deposit (70%), P2P services (66%) and mobile account opening (51%) as part of their digital banking offerings. These services have become the new "table stakes" for credit unions wishing to attract and retain members.

The survey also shows that more than half of digital banking users find it important that financial institutions' digital offerings allow them to check recent transactions (52%) or balances (52%) without entering a username or password. Many large national banks and fintech giants are working to alleviate this burden by offering voice authentication or biometric identification for customers using digital access points. Given the fact that roughly one-third of digital banking users indicate it is important that financial institutions provide voice-related services, including voice-activated app use (33%) and voice alerts (39%), it is mandatory that the digital strategy for credit unions include voice interface and authentication technology. This technology is no longer something in the distant future, but a functionality that will be required in the near term for credit unions seeking competitive differentiation.

Designating a Digital Delegate

There is another critical requirement credit unions must meet to survive in the digital revolution. It can be tempting for credit unions to place digital initiatives on the back burner, especially as other priorities such as compliance, security and IT challenges demand attention. To prevent digital from getting lost in the shuffle, credit unions should designate an executive-level digital delegate to sit at the decision-making table. This digital delegate's role should be focused on bettering members' digital experience, which includes overseeing digital transformations, selecting appropriate digital tools and platforms for the institution, and leading the credit union's digital team.

A perhaps even more significant responsibility of the digital delegate is to anticipate where the industry will be in five or even 10 years in the future and figure out how the credit union can successfully prepare for and manage the digital experience based on those changes. Having a digital delegate in the C Suite ensures that digital is given proper consideration and budget allocation when important strategic decisions are being made.

Credit unions that continue to play it safe with their digital offerings and fail to challenge themselves to compete on new levels will find themselves poorly positioned in the future – not just concerning growth but also in terms of retaining the members they have today. While investing in a digital transformation may seem risky to some credit union executives, sometimes the biggest risk is to do nothing, especially when it comes to an institution's digital strategy. There are many reasons why consumers, and especially younger generations, want to bank with credit unions – don't let mediocre digital offerings be the reason they go elsewhere.