Co-op CU Growth Outlook
A Co-op Solutions research study in partnership with EY and Filene Research Institute
Bridging member needs and payments strategy to deepen trust
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The new member centricity
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CU focus: earnings, experience, expense
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2022 Outlook2022 outlook
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Why this research is important
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Let’s dig in
Opportunity for CUs: a roadmap for success
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2022 outlook
What you'll gain
This research is designed to help credit unions set their growth strategy, both in terms of net income and share growth among existing and potential members. Done in partnership with EY, we surveyed 2,000 credit union members and 1,000 prospects across the country representing a broad spectrum of geographies and demographics.
Co-op Solutions commissions an annual consumer study to understand how the fragmented financial services consumer market behaves to drive usage, loyalty, and ultimately, market share. This proprietary research is designed to help credit unions set their growth strategy, both in terms of net income and share growth among existing and potential members. Done in partnership with EY, we surveyed 2,000 credit union members and 1,000 prospects across the country representing a broad spectrum of geographies and demographics. In addition, this year we partnered with Filene Research Institute to gain a unified understanding of key credit union leader perspectives and find the opportunity gap between the consumer and credit union POV.
Co-op Solutions commissions an annual proprietary consumer engagement study to understand how the fragmented financial services consumer market behaves to drive usage, loy alty and ultimately market share. This research is designed to help credit unions set their growth strategy, both in terms of net income and share growth among existing and potential members. Done in partnership with EY, we surveyed 2,000 credit union members and 1,000 prospects across the country representing a broad spectrum of geographies and demographics.
In addition, this year we partnered with Filene Research Institute to gain a unified understanding of key credit union leader perspectives and find the opportunity gap between the consumer and credit union POV. Co-op’s goal is to help credit unions be the most essential and sought-after brand of financial services in the market today. By helping you make every experience matter, we can build engagement, interaction and loyalty and grow the credit union movement.
Co-op’s goal is to help credit unions be the most essential and sought-after brand of financial services in the market today. By helping you make every experience matter, we can build engagement, interaction and loyalty and grow the credit union movement.
In addition, this year we partnered with Filene Research Institute to gain a unified understanding of key credit union leader perspectives and find the opportunity gap between the consumer and credit union POV.
We conducted a survey to understand the current market trends and what factors played into member and prospect product choices
3,000
2,000 Credit union members
1,000 Credit union prospects
Members and prospects surveyed
Our opportunity: Close the gap between where CUs are focused and what members need.
CU Focus: Earnings, Experience, Expense
2022 Outlook
Up next
2022: Fintechs made it happen
2021
Fintechs are taking over the market by harnessing payments products
2022
FRAGMENTED RELATIONSHIPS Respondents are evaluating multiple financial institutions to meet different needs.
CONSUMERS ARE MORE DIGITALLY ENGAGED Consumers are interacting with their financial providers via digital channels now more than ever.
DIGITAL ECOSYSTEMS ARE THE MAJOR COMPETITOR Fintechs and their ecosystems have become even more formidable competitors to credit unions, surpassing regional and national banks as their biggest threat.
2021: Consumers wanted more digital engagement 2022: Fintechs made it happen
Fintechs have captured primary financial relationship status
FINTECHS ARE GROWING FASTER THAN ALL OTHER INSTITUTIONS
RESPONDENT PRIMARY FINANCIAL RELATIONSHIP FROM 2021 TO 2022
Digital payments: adoption, and its importance, continues to take hold and is accelerating
CONSUMERS USE DIGITAL PAYMENTS
Note: A year over year difference of 3% is statistically significant
In 2021, credit unions lost market share to both traditional banks and fintechs. The trend continues in 2022 with fintechs gaining more trust while CUs are staying stagnant.
66
66% of consumers use some form of digital payments
But only 16% of members do this directly with their credit union
16
%
Model pressure: digital transformation and changing competitive landscape are profound
The banking relationship has become increasingly transactional.
•
Banking has been transformed by high levels of product commoditization.
Service is increasingly difficult in digital channels and loyalty to traditional financial institutions has eroded.
In 2021, credit unions fell behind banks in consumer satisfaction for the third year in a row.
Source: American Customer Satisfaction Index, Finance Study 2020-2021
Pressures on the traditional credit union business model
Accelerating competition
New delivery channels and new consumer expectations
High product commoditization, difficulty differentiating
Diminishing returns on established revenue drivers
Fixed and growing costs
Significant macroeconomic headwinds threaten the CU model
INSTITUTIONS ARE TRYING TO GROW THEIR LENDING BUSINESS, BUT ARE STRUGGLING WITH THE ‘HOW’
Credit union leaders face multiple pressure points
EARNINGS: EVOLVE THE MIX
EXPERIENCE: DEEPEN MEMBER ENGAGEMENT
EXPENSES: MANAGE INFRASTRUCTURE TRANSFORMATION
DECISION MAKING: CAPACITY IS LIMITED
Diversify lending products and lend more deeply to members – pre-approvals, alternative credit data, new acquisition channels. Then, grow non-interest income through payments revenue.
Deliver seamless omnichannel delivery for member satisfaction and new member attraction.
Data: Leverage transaction and other forms of data to understand member needs. Tech Stack: Integrate tools and technology to enable omnichannel delivery to consumers.
Advise and help prioritize roadmaps and provide a nimble architecture for future transformation.
Declining net-interest margins narrow opportunities to drive growth through lending
Source: Filene analysis of NCUA 5300 call reports
EARNINGS
Non-interest income has become crucial to financial institutions’ balance sheets
But fees (overdraft, NSF, ATM, etc.) are facing growing regulatory attention, consumer backlash, and market competition, especially from digital neobanks.
Source: Filene Research Institute, “Overdraft Protection Programs: Credit Union Best Practices” (2022)
Many financial institutions have developed a strong dependence on ODP to sustain their non-interest income. Maybe we have relied on this source of income for long enough. Maybe we should develop better products to address margin compression and consumer needs.
Earnings: rethinking and remaking pricing and fees
Patty Campbell President & CEO, Christian Financial Credit Union
But leaders see that traditional credit union differentiators are under threat from new competitors at the same time that they are being transformed by digital delivery.
Digital-first providers are acquiring customers with best-in-class user experience
Sources: PYMNTS.com & Optherium, “Digital Banking” (September 2021); American Banker, “Humanizing the Bank Customer Experience” (2021)
EXPERIENCE
CU FOCUS: WHAT’S ON YOUR MINDS…
1. Earnings: Evolve the Mix
Diversify lending products and lend more deeply to members – pre-approvals, alternative credit data, new acquisition channels Then, grow non-interest income through payments revenue
2. Experience: Deepen Member Engagement
Deliver seamless omnichannel delivery for member satisfaction and new member attraction
3. Expenses: Manage Infrastructure Transformation
Data: Leverage transaction and other forms of data to understand member needs
Tech Stack: Integrate tools and technology to enable omnichannel delivery to consumers
4. Decision Making Capacity is limited
Source: Filene
CU FOCUS REMAINS FOUNDED IN LENDING
TWO CHALLENGES:
Connecting consumer needs and CU focus wins back trust, engagement and the relationship – all to grow market share
Credit unions are the only PFR type with significant declines over the last year.
Payments Relationship Decline
with a credit union PFR would consider leaving it because the products / services do not meet their current needs
41
of respondents don’t expect their credit union to have the digital payment products that are right for them
78
Members left their credit union to work with another type of provider because of lack of digital options.
LACK OF DIGITAL OPTIONS
Consumers trust fintechs over credit unions to serve their digital payment needs and wants
CREDIT UNIONS HAD STATISTICALLY SIGNIFICANT DECLINES
PRIMARY PAYMENTS RELATIONSHIPS
Where credit unions are investing in 2022 to overcome the gap
TECHNOLOGY
DATA
VALUE PROP
TALENT
Digital and mobile banking (onboarding, loan origination) Humanizing the digital experience (chatbots, contact centers) New personal financial management capabilities
Data aggregation and systems integration Business intelligence for targeted marketing and personalization
Financial well-being DEI and community social impact
Higher wages and more specialized expertise up and down the org chart
Source: Cornerstone Advisors, “What’s Going On in Banking 2022”
EXPENSES
Expenses: going back to foundations and investing in infrastructure.
Core conversion CRM systems More creative middleware
SOLUTIONS BEING EXPLORED
Interoperability Integration Flexibility Speed Security
KEYWORDS
What do the systems and processes of a member-first, digital-first credit union look like? What kinds of technologies should we be investing in?
QUESTIONS FROM LEADERS
The new member centricity agenda
1. Know your members like never before Lifestyle Enablement
2. Be their choice for every moment Primary Financial Relationship
3. Embrace the power of connection Digital Ecosystem Acceleration
DATA ACTIVATION
PAYMENTS STRATEGY
CONVERGING TECHNOLOGY
“THE CREDIT UNION DIFFERENCE”
Member focus: Consumer trust is shifting to tech capability
Members want financial wellness based on real-time needs and behaviors
Digital tools that drive active and daily engagement is key to defending and capturing market share
Digital payments are a required expectation
Win consumer trust in credit unions’ capability to deliver the digital tools they want and need.
Members want financial wellness based on real-time needs and behaviors.
Digital tools that drive active and daily engagement is key to defending and capturing market share.
Digital payments are a required expectation.
Support members in their everyday financial activities
Deposits
Transactions
Lending & REPayment
80
of people’s interactions with their financial institution are through payments.
Source: Accenture, “Five Big Bets for Retail Payments in North America” (2019)
Digital payments: All demographics are switching to more digital forms of payment and engagement
BNPL is playing a larger role in the 18-24 age-group’s lives, and has replaced some of the credit card usage
Cash and debit still play a large role in respondents’ transactions
Credit usage has increased with older demographics
Virtual payment methods like virtual wallet, payments apps, and Bitcoin usage increase for younger demographics
Digital tools/active engagement: Grow market share and usage with active digital tools
Digital tools/active engagement: Drive interaction and activate money management, financial well-being
Financial wellness outcomes: Help me understand my financial position and take action
92% of people who conduct structured evaluations feel prepared for any life event, compared to only 77% of those who don’t conduct financial evaluation
Spending behavior, personal trends, and the ability to cross-manage your finances lead financial wellness expectations.
1 2 3
Spending behavior Personal trends Cross-manage finances
View spending behavior
View personal trends
Cross-manage your payment/financial sources
See my loyalty + points
Obtain actionable insights
Credit union leaders are seeking to build on long-standing strengths and find new momentum
Locally rooted
People-first relationship banking
Foundation of trust
Agile adapters
Long-term strategizers
Low (3-7 years)
Auto Loans
Mortgage
High (Weekly)
Checking/Savings
Very High (Daily)
Debit/Credit
Earnings opportunity: constancy of presence
Competitors have leveraged payments to drive 60% more product penetration and gain market share
Consumers are looking across providers for the best products
JOURNEY TO CHOOSING FINTECHS
DIGITAL PAYMENTS IS KEY TO GAINING MARKET SHARE
It is clear that banks and fintechs that have embraced payments and digital capabilities have seen outsized growth in new account openings, deepening of wallet share, and gained daily relevance in the eyes of consumers.
Payments as the source of transactional data necessary for data analytics investments
Chief Experience Officer $1B credit union
Our goal far out is that payments will not necessarily be a source of revenue itself. [...] Other companies will do payments for less or for free. Instead, we will monetize the transactional data. [...] Maybe we don’t need interchange and we don’t need fees, because when someone joins they bring enough with them that we understand what they need.
VP $3B credit union
I want more robust data. Then I can really segment the market […] to make sure we are getting penetration in all parts of the market and then ultimately personalization. That’s the end goal.
In addition to organic growth, the total addressable market reveals that a comprehensive payments-focused strategy can drive significant incremental loan and deposit growth
INCREMENTAL DEPOSIT GROWTH
INCREMENTAL LOAN GROWTH
Digital payments + consumer behavior = lending behavior
INCREMENTAL OPPORTUNITY FROM BNPL
% of BNPL Purchases
Source McKinsey Digital Payments Survey 2021
By combining traditional demographics with more personalized life needs, we create a better model: Lifestyle Banking
Credit unions can become more relevant and personalized in how they serve members by merging traditional demographic segments with data that informs lifestyle, life events, and existing solution engagement.
Through Lifestyle Banking, credit unions can provide members and prospects with more cohesive experiences and curated value propositions. Delivering at the right place, right time, and right channel.
Dimensions of a value-based ecosystem
Consumers are demanding a more integrated value proposition and comprehensive solutions; credit unions must evaluate new business models to provide this value
Integration of new capabilities and products seamlessly into your solution portfolio to improve speed to market and create new revenue pools
Source “How can mastering ecosystems transformation performance?” EY 2022 Ecosystem Study
Expansion of value proposition through 3rd party partners to deepen wallet share and new members
Improvement of operational efficiency Improve operational efficiency by extracting value through 3rd party partners
26
of prospective members considering to start a relationship with a credit union already have an integrated ecosystem with an operating account, card and digital payment with their PFR Of this same group,
37
would want the same ecosystem.
EXPANDING VALUE PROPOSITION = 2x REVENUE High performing ecosystems have the ability to increase each category an additional 2-3%
HOW DO WE PRIORITIZE AND ENABLE GROWTH?
FIRST UNDERSTANDING, THEN ACTIVATING
MEMBERS
% Member market share when offering basic features and additional features
+34%
Of member market share increase
1.7x
Growth rate in market share
PROSPECTS
% Prospect market share when offering basic features vs. Additional features
+40%
Of prospect market share increase
2.3x
NOTE: Basic offering only: includes the eight basic features listed on previous slide; Impactful features: includes 10 features listed on previous slide
* Market share * Interchange income * Cross-product-line growth
BRIDGE THE GAP BETWEEN CURRENT STATE SOLUTIONS AND CONSUMER EXPECTATIONS
Active payment engagement + Financial well-being = People helping people value prop
We feel like we have to stop being all things to all people. For decades [we’ve said that] we’re the cheap, low-cost provider of everything you want. Our vision document will change. What can we try that will be completely different?
Activate daily engagement to win market share
EVP & Chief Strategy Officer, $1B credit union
ENABLE DAILY AND LONG-TERM FINANCIAL WELLNESS JOURNEY
USE PAYMENTS TO CREATE DAILY CONSTANCY
INCORPORATE DIGITAL PAYMENT OPTIONS
• Virtual wallets • Contactless payments • P2P • POS purchasing integration (BNPL)
• Asset aggregation tools • Bill Simplification • Account Reminders
• Spending habits • Personal trends • Financial cross-management • Budgeting and goal setting tools
ENABLE MEMBER ACTIVATION AND TOP OF WALLET STATUS
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UTILIZE PAYMENTS TO DEEPEN MEMBER RELATIONSHIP
DEVELOP MEMBER DATA INSIGHTS
• Understand purchasing patterns • Fraud management • Product usage and opportunity • Product roadmap prioritization
• Connect payments to lending • Centralized HUB for financial aggregation – deposits and loans • Capitalize on inherent trust
• Relationship and loyalty benefits • Account reminders • Budgeting and goal setting tools • Financial well-being
Create financial transparency and help members take action
Drive 4.9M in incremental member acquisition opportunity
Source: Filene Research Institute, “For the Long Run: Leveraging Reflexive Opportunities in Consumption Journeys” (2020)
Three-year projection of 4.9M total members can be converted to a new credit union solution assuming appropriate investments in recommended growth levers
3M incremental new members acquired from credit union prospects
1.9M CU members would deepen their relationship by adding an additional credit union
Projections represent incremental growth above and beyond current organic rate of customer acquisition growth
Projections represent incremental growth above and beyond current organic rate of customer acquisition.
3M incremental new members acquired from credit union prospects.
Three-year projection of 4.9M total members can be converted to a new credit union solution assuming appropriate investments in recommended growth levers.
1.9M CU members would deepen their relationship by adding an additional credit union.
Learn more
(as described by credit union executives)
1. Earnings
2. Experience
3. Expenses
To begin strategic planning around the new member centricity, contact a Co-op representative today or visit coop.org for more information about an ecosystem designed for member centricity.
Thank you to our contributors
Co-op Solutions helps your credit union leverage the latest technology and insights to strengthen member connections and propel growth. We unite innovative thinkers with deep experience in the credit union and payments industries to incite progressive ideas built around consumers’ financial needs. The result is a continually evolving portfolio of seamless and secure solutions designed to help your credit union reach both top of wallet and top of mind status.
Filene is a proven thought leader in the Credit Union Movement. Its body of work and integrity makes Filene indispensable for credit unions. Filene is on the forefront of pertinent research regarding future trends and technological advances that will affect the operations and strategic initiatives of credit unions.
At EY, our purpose is Building a better working world. The insights and quality services we provide help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
CO-OP SOLUTIONS
Ubiquity
Convenience
Ease of use
Value
Security
Co-op Solutions took an interdisciplinary approach to this report using subject matter experts across the fields of payments, strategy, digital experiences, member experience and more to create a comprehensive and data rich report to help your credit union and your members. Together, we can make every experience matter.
FILENE INSTITUTE KEY CONTRIBUTORS
EY CONTRIBUTORS
Taylor Nelms | Dr. Taylor C. Nelms is an anthropologist and ethnographer with more than ten years of experience studying consumer and cooperative finance in the United States, Latin America, and around the world. As the Senior Director of Research at Filene, Taylor manages a team of researchers and a portfolio of partnerships with leading scholars to pursue cutting-edge, actionable research that explores people’s changing economic lives, the business of financial services, and the past, present, and future of money and technology.
Melissa Wrapp | Melissa is a cultural anthropologist of property, design, and race. Her ethnographic research explores the relationship between practices of experimentation in South African housing design and broader shifts in racialized property relations and activist practice post-apartheid. The latest from her work at Filene includes, A New Project Reimagining Financial Trust in the Digital Age, The Next Generation CUSO, Beyond Legacy Lending: Strategies for Loan Growth and Inclusion, Opportunities and Risks of Conversational AI.
Nikhil Lele | As a Leader in EY Americas Financial Services Office (FSO), Nikhil leads the digital transformation agenda for consumer financial services spanning banking, wealth management and insurance. He works extensively with consumer finance clients to help develop customer strategies and new value propositions that drive growth and competitive advantage. Critical importance is placed on driving digital and technology strategies to help clients modernize and transform into platform-based enterprises. He also leads EY NextWave Financial Services agenda, which focuses on setting a vision for the future of the financial services industry.
Rob Mannamkery | Rob is a Senior Manager in the Financial Services Consulting practice of EY LLP. He has over 14 years of experience in serving financial services clients with a focus on Business and Digital Strategy and Enterprise Transformation. He works with multinational and regional banks, wealth and asset managers, and insurers to develop their strategic vision through the lens of their business objectives and digitize their business and operating model to support the strategic vision.
Katherine Watts | Katherine has over five years of experience developing digital platforms with most of her focus revolving around financial services and digital strategy. Katherine has helped with designing operating models and loyalty programs, transaction and fraud monitoring, ML capabilities, data analysis, rolling out compliance policies, and developing and scaling onboarding procedures.
Additional resources
Chief Strategy Officer $800M+ credit union
Payments, to a member, means their ability to access the money they have with us and get it where it needs to go with as little friction as possible. That piece, friction, is what drives their perception of who we are.
“CFPB Launches Initiative to Save Americans Billions in Junk Fees,” Consumer Finance Protection Bureau, January 26, 2022. https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-launches-initiative-to-save-americans-billions-in-junk-fees/
“Is the United States Over Overdraft Fees?” The Regulatory Review, January 22, 2022. https://www.theregreview.org/2022/01/22/saturday-seminar-united-states-over-overdraft-fees/
“Lessons Learned from a Challenging Year (Part 2),” by Marc Rapport, Callahan & Associates https://www.creditunions.com/articles/lessons-learned-from-a-challenging-year-part-2/
Accenture, “Five Big Bets for Retail Payments in North America” (2019) “How Chime is Dominating Digital Banking (And All of Banking),” by Ron Shevlin, Forbes, November 16, 2020. https://www.forbes.com/sites/ronshevlin/2020/11/16/how-14-billion-chime-is-dominating-digital-banking-and-all-of-banking/?sh=1d6efaf42210k
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