PARADISE ISLAND, Bahamas—A “red warning light” should be flashing over the top of credit union buildings if they can’t solve the growing and changing financial challenges of their members, insists one person.
Adam Lee, incubator director at the Filene Research Institute, said credit unions need to find ways to help improve members’ financial lives, as so goes members’ financial health so goes the future of the credit unions that serve them.
Addressing WOCCU’s World CU Conference, Lee pointed to major technological, sociological and economic trends affecting consumers’ balance sheets, suggesting ways CUs can help, including changing their banking model.
“Credit unions need to pay attention to these trends that are occurring today and create products and services to address them,” he said.
Lee said the first trend credit unions must recognize is the “precarious future of work.” He described how more than 30% of U.S. workers today don’t have a steady paycheck from one employer, choosing either to freelance, start their own business, or piece together a number of jobs.
“This, in part, is the gig economy,” he noted.
Reason for Concern
What credit unions should be concerned with from the trend is that fields of membership, for CUs that are not community based, are at risk.
“People are moving away from that single-source employer,” Lee said. “The Gig Economy now represents $3.7 trillion in revenue annually.”
With income volatility also comes concerns over members’ ability to pay their loans on time, and to also save money, Lee added.
To help members who don’t have steady paychecks, Lee said more CUs should offer small-dollar payday alternative loans to prevent members from taking higher rate and often predatory payday loans.
“Only 10% of credit unions offer a payday alternative loan,” said Lee. “So there is a great opportunity here. CUs should also consider offering unemployment insurance and healthcare insurance products through third-party providers.”
Another trend impacting credit unions and their members are disparate needs from two growing demographic segments. Lee pointed to the increasing number of older Americans and the needs of Millennials.
He noted that Filene research shows many younger adults have far more debt than their Boomer counterparts had when they were young. He also said many Boomers today find themselves without the resources to retire.
Lee recommended credit unions develop budgeting and “income smoothing” products for young adults and small-dollar lending products, prescription drug assistance and even debt consolidation for older Americans.
Need to Evolve
In addition to adding products and services to address these trends, Lee said credit unions will need to evolve their current banking models to one or more of four new types: concierge banking, relationship banking, automated banking, and ambient banking.
With concierge banking the credit union places the financial well-being of their member at the forefront of every transaction, Lee explained.
“So it’s not about the transaction, it’s about how does each transaction help members meet their broader financial goals—always uncovering the true hidden need,” he said.
Relationship banking, as with concierge banking, is very “high touch,” explained Lee.
“The credit union focuses on relationships, values and authenticity,” he said. “The credit union’s mission becomes an explicit part of the members’ decision-making process. Trust is built through credibility and capability.”
Two Models to Consider
Lee said the following two business models meet the needs of younger consumers.
“Automated banking is low touch but personalized,” said Lee. “It leverages artificial intelligence to automate processes and reduce costs. Member facing technology is also used to save members time. Member data is the fuel for automation—from routine tasks and natural language processing to advanced risk assessment and decision-making.”
Ambient banking is low touch and “hands-off,” explained Lee.
“The member experience becomes channel agnostic—the credit union becomes part of the background,” Lee said.
As an example of how ambient banking works he cited the case of an FI assisting the consumer, but behind the scenes.
“I drive to the donut shop and when I arrive my car’s voice response system, which is linked to my credit union account, tells me I don’t have enough money in my account to pay for the donuts,” Lee said. “But it does tell me I have room on my credit card, so the credit union has helped me out, stayed in the background, and all ends well. The credit union has blended into the everyday environment.”