SCOTTSDALE, Ariz.—Despite all the attention being paid to threats from fintechs, an on old nemesis actually remains credit unions’ biggest concern, a new study shows.
A new report from Cornerstone Advisors reveals that credit unions this year are placing less emphasis on non-traditional lines of business and are heavily focused on mortgage lending and consumer lending, where bankers are a big threat.
In a list of top 10 growth priorities in the report—“What’s Going On in Banking 2017”, which polled hundreds of CU executives—mortgage lending and consumer lending ranked no. 1 and no. 2 respectively, while non-traditional lines of business is last. The study’s finding runs counter to the strategy many analysts have been advising credit unions to adopt—expanding services to bring in new revenue streams to address a changing financial marketplace.
The study, in fact, shows that credit unions have deemphasized attention to non-traditional business lines, as in 2015 and 2016 the same study ranked non-traditional business lines seventh each year.
Mortgage Lending No. 1
At the same time, mortgage lending as a growth priority moved from No. 4 in 2016 to no. 1 this year, bumping consumer lending from the top spot to second.
“Credit unions are not seeing a major revenue impact from the fintechs, but they are seeing a big revenue impact from the big banks,” said Sam Kilmer, senior director with Cornerstone, adding the lending focus addresses bank competition. “So when they look at the big banks they see a revenue loss. When they look at the impact of fintechs, it is really about how fintechs are impacting their members’ experiences, changing service delivery expectations.”
Credit union emphasis on sales and marketing efforts moved from fourth to third in the study in the past two years, which Kilmer says indicates CUs want to do more with lending.
“What is happening is a doubling down on sales and marketing, better sales and marketing of what credit unions do well—classic consumer and mortgage lending,” said Kilmer.
The study’s author, Ron Shevlin, director of research, said CUs are going “back to the basics.”
“This is more than just the fact mortgage lending rose to top of the chart, but also at the bottom we find non-traditional lines of business,” said Shevlin. “Over the past couple of years there has been this talk among credit unions about what new products and services can we offer, new sources for revenue. Well, it seems that talk really did not go anywhere, and CUs decided to just go back to the basics and focus heavily on products and services they have.”
Shevlin said this decision is not a necessarily a mistake, however, he sees it as a potential warning sign that credit unions are not recognizing the importance of diversifying the revenue stream, noting that new product development efforts are lacking at most credit unions.
“My sense is that, overall in the industry, there is not a strong competency or organizational capability around new product development,” Shevlin said.
Kilmer said he would not disagree with that thinking. But he also said the findings do not suggest credit unions are ignoring the impact of fintechs.
“My take is that credit unions don’t see much revenue impact yet from fintechs, but they do see how these innovators are changing members’ expectations of service delivery, and are taking action there,” said Kilmer. “Fintechs are more tech than ‘fin,’ and are more focused on using technology to reduce service delivery pain points.”
Not Just Fintechs
But it’s not just fintechs relying on greater use of technology to improve service delivery, the big banks are doing a good job of this, too, pointed out Kilmer. He said that technology and superior service delivery are helping the big banks grow their business, even among consumers who indicate banks are not their preference
“The big banks are increasing their business and growing their satisfaction rates among consumers who say they don’t like them, and they are using digital to do that,” said Kilmer.
Shevlin said he “struggles” now with saying whether credit unions’ lack of attention to alternative revenue streams will hurt them.
“Today I don’t feel comfortable saying this approach—focusing on doing an even better job with core lending and not paying more attention to new revenue opportunities—is good or bad for credit unions,” said Shevlin. “I think only time will tell. If the lending market does not live up to expectations in the next few years and credit unions fall short on revenue and profit goals, I guess we will look back and say it was bad that they did not place more emphasis on non-traditional lines of business.”