MIAMI BEACH, Fla.–What might the financial landscape look like in 2034, the 100th anniversary of the Federal Credit Union Act?
Newly released research from the Filene Research Institute is seeking to offer some direction.
Taylor Nelms, senior director of research with Filene, shared details of the organization’s research titled “The Credit Union of the Twenty-First Century” during a session at CO-OP’s THINK 19 Conference here.
The report probes five macro-economic issues, including:
The Precarious Future of Work
For those without a high school degree, more than 50% are not looking for a job and don’t figure into the employment statistics, he said. “Even for those who are working, quality, stable jobs have become even more scarce. From 2005-2015, nearly all growth in employment has come from contingency workers. That’s going to become the norm over the next few decades, and it introduces new challenges.”
Rising Income Volatility
The inability to match your income with your earnings on a weekly or longer-term basis is only growing, he said. “A third to a half of all Americans struggle in some way with income variation, which effects their ability to save and build a buffer for financial shocks. As a result, people are making ends meet in other ways, mostly by entering into cycles of indebtedness.”
Inequality in Income, Wealth and Access.
Even though income has ticked up, it has not kept up with productivity growth and increasing living expenses, Nelms said. “It leads to a lot of people living paycheck to paycheck. This is true about wealth, too, which is everything you own. The distribution of wealth in the U.S. economy is vastly unequal.”
The result is a “two-tailed: economy in which many younger people have entered the workforce but are carrying high debt loads, while Baby Boomers are in pre-retirement and retirement (if they can afford to retire). “What you have are divergent needs of these two populations,” he said.
CU Membership Growth & Consolidation
Consolidation among credit unions and of itself is neither good nor bad, but it has implications for service “as more and more members are grouped into fewer and larger institutions,” he said.
Nelms said the new Filene research also probes five technology trends, including:
Payments: This is an increasingly important gateway to financial services, he said. “Payments are often the first thing you’re doing in interacting with a financial institution. It’s not a checking account anymore,” Nelms told the meeting. “That’s also the area where we’ve seen a great deal of success by new entrants.”
Dovetailing of Digital and Analog Experience: This is about combining mobile access and in-person interaction. “There is a lot of discussion around the future of the branch, and we’ve found it continues to play a really crucial role, but a changed role. It’s more of a backstop and flagpole. People want to know it’s there, and it also serves to raise awareness.”
The Rise of New Interfaces: Voice and Video. “We see the rollout of video tellers as being a really crucial trend, and voice interaction, which is pretty limited at this point but will become more important over time.
The Rise of Data: This has numerous implications, beginning with the governance of data, noted Nelms, saying he expects regulation will be coming on data and “it behooves us all to get out ahead of that curve.”
Rise of Autonomous Transportation and Disappearance of Auto Ownership: “It really mirrors the shift to renting to multi-generational households in the U.S.. If you’re thinking about your own bottom line as a credit union, these two trends are crucial.”
Evolution of FOM in a More Dynamic World: “What really constitutes a common bond these days?” asked Nelms. “We concluded that credit unions do not and cannot serve preexisting communities. Really, what credit unions are doing today is making and maintaining communities. It’s deceptively simple but it has implications.
“As we pushed on this question with many parties, they concluded that maybe membership is no longer necessary, which is pretty radical. What does membership really look like in the face of a vast transformation? We need to be thinking about who are the communities that make up our membership.”
New Business Model Considerations
According to Nelms, CUs must also consider:
- The historic advantages CUs have enjoyed on experience and culture are being eroded due to new players and deep and rising financial stress.
- People want to improve their credit, but they need guidance and when they start looking they are often confused and exhausted. They want good advice for the future but don’t know who to trust.
The 21st Century CU
Nelms said Filene believes the needs of present and future members can be met in number of ways, but they rely on a few fundamental transformations:
- CU of the 21st century sells service rather than any product or product mix
- The CU business model will have to start with financial needs, rather than solutions
- The business model must embrace convergence, rebundle financial services under a single brand, and offer financial consumers a first port of call
- The model will shift from being a simple funds intermediary to a platform
Four 21st Century Business Models
Finally, the new Filene report suggests four different types of business models moving forward:
- Concierge. High-touch, platform based coaching and financial management
- Relationship. This is the historical CU model, including community building
- Automated Banking. Low touch, highly efficient. Automates routine tasks and chores. “This is where the big banks are heading. I think one point we miss in talking about 21st century banking is how exhausting it can be for most people”
- Ambient Banking. “This may be the most science-fictional, low touch channel agnostic, pushes financial services to the background of becoming almost atmospheric. Think about what Uber and Lyft do really well. They do payment really well. It automates payment and pushes it to the background”