Making The Most Of Member Experience

Uncertainty is hovering over the U.S. economy as inflation remains elevated and recession fears persist.

Consumers are feeling the effects of higher prices, with the savings rate falling to a near-record low, consumer debt rising, and delinquencies ticking up on credit cards, auto loans, and mortgages.

Although this data raises concerns, GDP posted 2.9% growth in the fourth quarter of 2022 — slightly higher than expectations — and consumer spending increased the most in nearly two years in January. The labor market remains strong, with the unemployment rate holding near 50-year lows despite significant layoffs at Big Tech firms such as Amazon, Meta, and Alphabet. The conflicting data points have some economists questioning the likelihood of a recession or predicting a mild one at worst.

The uncertainty that closed out 2022 has been compounded by the failures of Silicon Valley Bank and Signature Bank as well as broader concerns about the stability of the banking sector. The Federal Reserve quickly established a Bank Term Funding Program in the wake of the two bank failures to assuage concerns about deposit availability, particularly at small and mid-sized banks. Although the two bank failures were seemingly tied to unique circumstances, questions about liquidity in the banking system continue and requests to expand deposit insurance coverage beyond the current $250,000 limit are circulating in Washington. Even with the banking turmoil, the Federal Reserve continues to make clear its top priority is bringing down inflation, raising interest rates for the ninth consecutive time during its meeting in March.

For credit unions, the bank concerns could present an opportunity. Although the reasons for concern are different today, there are parallels to the post-Great Recession environment when credit union membership growth accelerated as consumers looked for options. Many credit unions put out messages following the bank failures to assure members of the financial soundness of the cooperative. Credit unions in areas where the two banks had a presence are fielding questions from members, but there are no indications deposits are at risk. Some credit unions are seeing deposit inflows as a result of the bank failures, and media coverage in some markets has highlighted how the credit union model is different.

The environment presents an opportunity to elevate the cooperative, member-focused model that distinguishes credit unions from the competition.

How Will Member Behaviors Change?

Keeping an eye on member behavior will be a focus for many credit unions as bank concerns stay in the news, but credit unions have already been adapting to significant shifts in member saving, borrowing, and spending patterns in recent years. In 2020 and 2021, a surge of deposits came onto balance sheets as government stimulus programs combined with slower consumer spending tied to pandemic-related closures. Credit unions originated record amounts of loans to members in both years but growth in loans outstanding was slow, falling to 4.9% in 2020, due to rapid paydowns by members who were flush with cash.

As pandemic-related programs ended, consumer spending re-emerged, inflation rose, and share growth fell from 12.7% in 2021 to 3.3% in 2022. The loan portfolio grew an incredible 19.9% in 2022 — even as mortgage lending cooled — as borrowing for consumer loans picked up and loan paydowns slowed. As a result, the excess cash that presented a liquidity challenge at the beginning of 2022 shifted quickly to a different liquidity challenge — the need to attract funds, whether from members or outside sources.

Certificates became the primary source of new funds for credit unions in the second half of 2022, with balances rising $57 billion in just six months. That increase accounted for 95% of total share growth in a year in which share balances rose $60 billion. Many credit union teams are relearning how to sell deposits, particularly core checking and savings accounts that often tie to deeper relationships.

Will the economic and banking environment lead to another shift in member behavior? It is too early to know, but there might be more opportunities for growth in 2023 than many expected coming into the year.

Engaging Members Across Service Channels

Deeper member relationships are a key component of most credit unions’ growth plans. The ability to grow from within is not only more efficient, since attracting new members typically comes at a relatively high cost, but also indicates the credit union is delivering real value to its membership. Although credit unions use a range of options to expand their reach — such as field of membership changes, new branch locations, or mergers — the ability to expand existing member relationships is a strong foundation for any growth strategy.

The challenge today is meeting, if not anticipating, member expectations about service experience. The 2022 American Customer Satisfaction Index showed credit unions are lagging bank satisfaction scores for the fourth consecutive year, a worrisome trend given credit unions’ historical advantage in providing service to members. The market continues to evolve, and consumers’ expectations are influenced by almost every interaction they have when making purchase decisions, whether via digital or in-person channels. It is not enough for credit unions to match the experience that banks or even fintechs are delivering. Consumers are comparing credit unions to their experience at an Apple store or their latest Amazon purchase.

Although many credit union strategic plans look to deliver growth, service is likely to be the key to achieving growth momentum.”

On the digital front, credit unions are continuously evaluating new platforms and providers and investing to enhance the member experience. Fintech partnerships are playing a role in plans as credit unions look to not only tap into leading-edge capabilities but also gain insights into the entrepreneurial, fast-paced decision-making that helps these firms stay ahead of the competition. The importance of these insights cannot be overstated because it is not just member-facing applications credit unions need to address to fully realize a digital transformation. Organizations also must change how they operate and develop processes that respond more quickly to changing member needs and expectations.

To elevate the in-person experience, credit unions are reviewing branch strategies. Credit unions continue to invest in their branch networks, either through new or updated locations. Brick-and-mortar sites remain important for visibility within the community and as a source of new members. A personal touch at the right time also remains important, and the branch is where credit unions can both resolve more complex member issues and teach members how to use self-service technologies, such as mobile deposit. Making the branch experience more efficient by offering online appointment scheduling is another way credit unions are linking the digital and in-person experience.

Many credit unions are investing in a variety of branch models, from full-service to smaller footprint models designed to serve members with fewer staff and more technology options, such as interactive teller machines. Others are placing ITMs in new markets to test and gain traction in these areas. Some are employing a hub-and-spoke strategy, anchoring markets with a full-service branch while operating smaller satellite branches with fewer but more seasoned staff who can respond to a broad range of member inquiries. Although branch traffic for many credit unions has trended down since the pandemic, transaction volumes remain high for most.

Service As A Growth Strategy

A CEO recently told Callahan & Associates, “We don’t have a member growth strategy, we have a member-service strategy.” This is recognition that a clear service strategy encompassing all member touchpoints is fundamental to engaging members and developing deeper relationships. Although many credit union strategic plans look to deliver growth, service is likely to be the key to achieving growth momentum.

Consumer behaviors will continue to shift and service expectations will continue to rise. Credit unions have proven they can adapt to shifting behaviors. Will they make the necessary investments in 2023 and beyond to ensure they also can meet member service expectations?

Tough Times? We’ve Been Here Before.

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