​One third of Canadians – over ten million people – are members of local credit unions.1 The secret of their success is in the personal service model they offer. Customers feel nurtured and supported in small scale, community-established institutions. Larger financial organizations have often struggled to develop the same levels of meaningful, personal customer interaction that Canadian credit unions are known for from coast to coast.

However, the winds of technological change are blowing across the financial services industry and complicating the picture. Digital innovations are expanding banking service models with new conveniences, efficiencies and modes of customer contact built on technology, not personal connection. Competition is heating up too, as fintech players are entering the marketplace and using customer data to offer new kinds of wealth, savings, and credit services.

While the need to innovate quickly presents some challenges for credit unions, digital transformation also brings many opportunities.

Evolving inside an evolving industry

First things first: avoiding technological change is not an option. Credit unions need to keep up with national and international regulatory standards to stay compliant. Another critical priority is payments modernization, which will require organizations to innovate, adopt digital channels and transition their core infrastructures to remain competitive. Furthermore, open banking has recently received the endorsement of the federal government, giving consumers more options for sharing their financial data between financial institutions. The earlier credit unions familiarize themselves with the opportunities of open banking and open data, the more they can use these innovations to better understand their customers, identify their needs, and give them more choice. Credit unions already have closer proximity to their customers than other financial institutions and are therefore well-positioned to leverage open data even more than their competitors.

While most credit unions are already offering digital banking platforms and keeping up with technological upgrades, the pandemic drove home the need to think about digitization holistically. Credit unions know they need to make the right investments in the right architecture and acquire the right set of underlying technologies to embrace and support open banking to its fullest potential. The challenge is scale; smaller organizations have less investment capital to make big changes.

Blending physical and digital

As financial institutions increasingly embrace virtual service models, many wonder what will become of the credit union's bread and butter: the neighbourhood branch. Even after full-scale digital transformation, they're unlikely to disappear. During the pandemic, which saw a dramatic escalation in digital service options, credit unions kept physical branches open to the extent they were permitted, as their membership placed high value on the in-person experience.

More concerning for credit unions is the diminishing value of physical branches to younger demographics. But that doesn't mean millennials and Gen Z aren't potential credit union customers. They, too, highly value personalization, but they expect it to come through digital channels with real-time capability, transparency, and flexibility. As credit unions develop and expand their digital offerings, they need to design their tools to engender that same level of trust. What's most important is anticipating and fulfilling customer needs completely, whatever the channel, which increases customer satisfaction.

Credit union members tend to remain members for a lifetime. And as millennial and Gen Z customers' career and life journeys change, they'll encounter the need for in-person investment consultations, safety deposit boxes and more. Future credit union members will seek quality service options that span the physical and the digital, and that are agile, flexible, personalized, and secure regardless of the format.

As credit unions digitally transform, they may maintain fewer branches, reduce their square footage, or switch to mobile branches or pop-ups. But they'll probably keep making phone calls. When your whole industry relies on trust, real-world contact is not going to disappear.

Competing for core membership

The biggest challenge for credit unions today is the need to grow their memberships in the face of mounting competition. Big banks are growing bigger and challenger banks, with growing success abroad, are entering the North American market. Fintechs that started out in payment processing are scaling up and diversifying into wealth management, deposits and credit services.

As expert digital service providers, these challengers are turning customers' heads and introducing some competition to the credit union ecosystem. At the same time, fintechs are now seeking the kind of physical presence and personal connection that are customary for credit unions. The younger generation have shown they want more autonomy over their finances, direct control over investments, and the transparency and flexibility that's driving fintech popularity. Forward-thinking credit unions would do well to start viewing emerging fintechs not as competitors, but as partners.

Finding synergies for success

Teaming up early with a fintech would give credit unions a strategic advantage in the innovation space. A synergy with the right fintech firm could bring proven data-driven tools, personalized video, investment data, dashboards and more to the table. They could capitalize on the relationship to grow their customer base without having to start from scratch on digital development. That's a powerful path forward for a credit union that's striving to innovate.

Timing is key, however. If Canadian credit unions don't stick their neck out and drive these partnerships, they may be at risk of stagnating and falling behind. A survey of what's happening in more mature markets gives an early indication of what's likely to happen here. Some newcomer digital banks in the UK and in South America have recently surpassed traditional banks in size. A "wait and see" approach won't cut it in Canada, as open banking takes off and the market grows more competitive.

5 things credit unions can do now to survive and thrive

  • set up a framework for listening to your members
  • be open to partnerships with fintechs instead of going it alone
  • adopt a future-focused mindset regarding the needs of your membership
  • based on that due diligence, make strategic investments in personalization – not just technology, but products and services
  • don't just recognize the need to invest in digital innovation, make it a strategic priority; outline the specific steps to be executed, delegate responsibility, attach accountability

Prioritizing digital transformation

Local credit unions have a unique opportunity. They're already ahead of the game in terms of customer connection, customer experience, and trust. They can now start to merge that personalized experience with expanded digital offerings.

Adopting the infrastructure, acquiring knowledge and training personnel will take some heavy lifting, but the time to make a move is fast approaching. With a future-forward mindset, credit unions can leverage the moment – and their special strengths – to grow their membership and their businesses with innovative offerings for years to come.

To seize the moment and see what the future has to offer, contact our credit union advisors.

1 The Ultimate Guide To Credit Unions in Canada 2022, Savvy New Canadians, June 2022

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