NEW YORK CITY–McKinsey & Co. has published a new paper the company says offers insights into how credit unions can attract and retain younger members, noting that even though some generations are “not big fans,” there are also “significant opportunities.”
Titled “Six imperatives for credit unions to secure their future,” the recommendations are drawn from McKinsey’s 2023 Consumer Financial Life Survey of roughly 5,000 people, which found that while credit unions have maintained a stable market share overall, their share of new account openings is falling, and they are losing ground with younger generations.
Six Imperatives
Among the “six imperatives” highlighted as a means to appeal to the demographic are:
- Emphasizing credit unions’ history of commitment to social impact, a principle that appeals to many Gen Zers and millennials.
- Meeting younger consumers where they are, namely digital channels. (#FinTok the personal-finance community on TikTok has amassed five billion views, the company noted).
- Investing in personalization and digital banking.
- Upgrading core technology to enable digital strategies. (The largest US banks invest nearly 100 times the amount spent by credit unions with more than $500 million in assets.)
- Using AI to improve the customer experience.
- Future-proofing the business model through M&A and partnerships.
“Credit unions in the United States are at a crossroads. Their membership ranks are aging, and young people don’t always see credit unions’ offerings as a good value,” McKinsey stated. “That means credit unions need to work harder to attract younger members, or risk fading into irrelevance.”
McKinsey said the six strategies outlined above can drive future growth.
Meanwhile, the company said there are five trends credit unions need to be monitoring based on that same consumer survey. Those trends, some of which the company said are positives and others that are not, include:
Credit Unions Have Kept a Stable Market Share Overall, But Their Share of New Account Openings is Falling
“About 15% of respondents to our 2023 survey said a credit union is their primary financial institution, a share that has stayed relatively stable since 2015, even as the four biggest US banks by revenue have increased their market share. However, credit unions are falling behind in new account openings. In our 2023 survey, about 10% of respondents who said they had recently opened a deposit account did so with credit unions.
Credit Unions are Losing Ground With Younger Generations
:Baby Boomers represent the biggest share of credit union members: this generation accounted for 39%, while credit unions face challenges in attracting younger people, with Millennials’ share of credit union members falling three percentage points, although Gen Z’s share has remained steady at 10%,” McKinsey said. “Interestingly, the share of Gen X customers has declined for both credit unions and banks, though banks are faring better with this generation.”
Members of Credit Unions See a Lot of Value in Them
“Among survey respondents whose primary financial institution is a credit union, 57% said they perceive credit unions to provide extremely good value, compared with 46% for customers of the biggest banks and 44% for customers of smaller banks,” McKinsey reported. “What’s more, while all three types of consumers said they see their primary financial institution as providing more value than the broader financial-services sector, credit union members perceived the biggest advantage.”
Reasons Cited
McKinsey added that respondents who said they switched to a credit union from another financial institution cited the following as the top factors for why they perceived value from the new relationship: they liked the fact that their credit union charges lower fees or no fees, that it doesn’t hit them with fees at every opportunity, and that it has better customer service. Meanwhile, customers who had switched to a big bank cited the same factors as the ninth-, 16th-, and fifth-most-important, respectively.
Gen Z Consumers Are Not Big Fans of Credit Unions, Preferring Big Banks Instead. Among Gen Z consumers, only 49% of those who have a credit union as their primary financial institution said it offers extremely good value, while 60% of those at the biggest banks gave the same assessment, McKinsey reported, adding most of the other generations said they perceive credit unions as a better value than banks.
“Meanwhile, millennials’ perception of credit unions has gotten a bit worse. The proportion of millennials who said that credit unions offer extremely good value shrank to 48% from 51% over the past 10 years, but the share of this generation saying that banks offer extremely good value has increased 15 percentage points for the biggest banks and seven points for smaller banks,” McKinsey said. “This is a sign that millennials find less value in credit unions as they get older and acquire more assets, which may require more complex financial services, and as their expectations concerning digital capabilities shift.”
Credit Unions Have a Significant Opportunity to Attract Younger Members, Including Gen Z Consumers
According to the McKinsey survey, Gen Zers who have switched financial institutions cited better customer service, better interest rates, and support for their community as some of their top reasons for doing so.
“This presents a major opportunity for credit unions to connect with Gen Z by demonstrating their commitment to service, favorable rates, and a sense of community,” McKinsey said. “Conversely, the top reasons millennials gave for switching financial institutions were a superior mobile banking app and a superior online banking website. These are areas where the biggest banks excel and credit unions could improve. The survey data bears that out: a great website and app were the first and sixth reasons, respectively, why consumers overall switched to the biggest banks.
“For respondents who switched to credit unions, these factors didn’t make the top ten list of reasons,” the McKinsey analysis continued. “This is a warning sign that credit unions might lose ground with Gen Z as these consumers age and seek a more sophisticated digital experience to meet their increasingly complex banking needs.”
What Surveys Reveal
McKinsey said insights from its surveys suggest that credit unions’ recent run of strong growth may have been driven in part by the financial success of their biggest cohort, baby boomers, amassing peak assets and liquidity during their prime earning years.
“As more Baby Boomers retire and begin spending their savings and reducing their borrowing needs, credit unions’ performance may be at risk over the next decade if they are unable to increase their relevance to millennials and Gen Zers,” McKinsey said.
6 Moves to Attract Millennial and Gen Z Consumers
To build a new cohort of lifelong members, McKinsey said credit unions will need to pursue strategies that appeal to younger generations.
“In our view, credit union CEOs should focus on the following six strategies to win with younger consumers and secure their continued growth and relevance in the years ahead,” McKinsey said.
Those six strategies include:
- Point to credit unions’ history of commitment to social impact, a principle that appeals to many Gen Zers and Millennials
- Meet younger consumers where they are—namely, digital channels
- Invest in personalization and digital banking
- Upgrade core technology to enable digital strategies
- Use AI to improve the member experience
- Future-proof the business model through M&A and partnerships
For additional details, especially around the strategies identified immediately above, go here.
How to Sign Up For the Best Daily News Email in Credit Unions? (It’s Free!)
Every workday CUToday.info delivers the most comprehensive, freshest daily newsletter with the day’s news headlines, including links to the related articles. The Fresh Today newsletter is the most timely, relevant and widely-read source of news and information in the CU community. And it’s free!
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties,
And did we mention it’s free?