By Ray Birch
MADISON, Wis.—There are three issues every credit union will need to keep in mind as a rethinking of the entire credit union business model must take place while never wavering from the traditional CU roots of looking out for members’ best interests, according to one person with Filene.
“If credit unions want to continue to grow and remain sustainable into the future, I think they need to pay attention to what's happening,” said Filene Research Director Paul Dionne, emphasizing there are three major issues cooperatives must “take into account” as their planning processes move forward.
Issue Number One
The first is to truly recognize ecosystem disruption is happening within financial services.
“Credit unions are not only competing with the bank down the street, they're not only competing with fintech providers like Chime, they're also competing with entirely different players. And by that I mean Walmart, Google, Apple Pay and so on,” explained Dionne. “They're competing with platforms. They're competing with retailers. This is ecosystem disruption.”
Dione emphasized this is not just traditional disruption in financial services from fintechs.
“It's like whole new players in the field that are breaking up what's possible, and what's offered,” he said.
Issue Number Two
The second issue to recognize is financial fragmentation, Dionne said.
“This results from that disruption, not from the perspective of the credit union, but from the perspective of the members,” he explained. “So, members and consumers, generally, are facing incredible fragmentation in their financial lives.”
Dionne said the best example of that fragmentation is the boom in buy now, pay later (BNPL) offerings.
“I can order something online or at the point of sale, and instead of putting it on my credit card or PayPal I can pay with buy now, pay later. After a while, if I've made a few of those purchases I can lose track of where all my money is owed, and that is just where things are going today,” said Dionne. “That is creating a growing need for consumers to better understand their financial lives. That's an emerging need that we we're finding that comes hand in hand with the fragmentation.”
Issue Number Three
The third, and perhaps largest issue, is within the next year or two credit unions will need to rethink their existing business model, Dionne suggested.
“With the ecosystem disruption, the financial fragmentation, this all calls for new approaches,” he said. “Credit unions historically have been really good at cooperating and working together and building partnerships. And in a sense that could be seen as a superpower that credit unions can use going forward. So, how are credit unions going to be successful in this playing field?”
A Historical Change
Dionne pointed out that historically credit unions have been “geographically constrained organizations.”
“They might need to start thinking a little bit more broadly if they're going to be effective in these new ecosystems,” he said. “They’re going to have to think about partnerships differently.”
Dionne noted that credit unions have partnered to create back-office efficiencies and make extra money from CUSOs, but he believes that is just one version of partnerships that are needed today.
Paul Dionne
“Credit union partnerships have often addressed efficiencies,” Dionne said. “Today, there is the need for partnerships to drive innovation, not just business. It’s using these partnerships to access talent. So, if you want a data scientist to help you build up your analytics capabilities and better understand your members to better serve them, data scientists don't come cheap. And a lot of credit unions can't afford one. How do you partner with external providers to solve this issue? As you're build these new business models, you're going to have to build new types of partnerships.”
Calling the Concierge
Dione said the new business model cannot stray from credit unions’ roots of being a trusted financial partner, looking out for members’ best interests.
“In the new model credit unions are also going to better help you make the right decisions and aggregate your financial life,” he said. “We're going to help understand where your money is going, where it's coming from. Maybe it's a type of engagement we can call ‘concierge banking.’ Where, for example, when I go out and I'm about to make a purchase I get an electronic nudge from my credit union that says, ‘Hey, your balance is running low. You might want to hold off on this purchase.’ So, having greater insights into members’ financial lives and helping them by providing more insights and recommendations. That could be one version of a new credit union business model.”
Not About ‘Killer App’
Dionne emphasized that this new assistance does not come from one source.
“It doesn't mean that you're going to have a killer app that's going to aggregate all of those financial apps members have under one umbrella,” he said. “It's more about the credit union being a trusted provider. I'm going to tell the credit union that I'm going to open my books to you. I'm going to let you see what's going on in my Starbucks app. I'm going to let you see what's going on in my investments app, and then allow the credit union to aggregate the data for me. And all that flows into sound advice.”