In a Digital World, Credit Unions Find Their Footing

The PaymentsJournal Podcast

With the growing demand for immediacy and a seamless experience in personal finance, credit unions must keep up to remain competitive. While many of these institutions have remained competitive with lower rates, they often lag behind banks and other lenders in the digital lending space in convenience. In an era of instant credit, speeding up the loan origination process is essential for maintaining and expanding credit unions’ market share.

In a recent PaymentsJournal podcast, Scott P. Young, Senior Vice President, Emerging Services at Velera (formerly PSCU/Co-op Solutions), spoke with Brian Riley, Co-Head of Payments at Javelin Strategy & Research, about how credit unions can move confidently into a digital future.

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In a Digital World, Credit Unions Find Their Footing

PaymentsJournal In a Digital World, Credit Unions Find Their Footing

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Three Roadblocks to the Digital World

According to Young, credit unions face three major challenges in the realm of digital account opening and credit card origination. The first is a lack of automation, combined with a lack of digitizing and communication. Many credit unions don’t fully grasp the operational efficiencies that can be gained and the human error that can be lessened through automation. And they don’t appreciate that even regulatory disclosures or adverse action notifications can be digitized and automated as well.

The second is fraud. Digital lending can be perceived as high-risk for a credit union, but there are tools that can make lenders comfortable even when they’re not able to see a member in person. With a layered approach to authentication and know-your-customer rules that employ machine learning, employees can be confident that they’re dealing with the right person.

“We like to say fraudsters don’t like to take selfies,” Young said. “Technology now allows us to match a selfie with the face on a driver’s license. In one instance, we actually went to the DMV and validated that a license was fake, and we were able to stop that fraud.”

Finally, there’s the ability to build real-time integration, so transactions can be processed in real time, including ones made through an app. That level of service drives member engagement, although the technology at many credit unions can struggle to keep up with the demand.

Taking Advantage of Time

Getting a card activated rapidly is one of the biggest challenges financial institutions face. They need to make sure it doesn’t sit dormant in someone’s wallet. Once usage begins, consumers quickly develop a muscle memory and often keep using it. That’s one of the reasons that quick activation and the whole digital play are essential.

“One of the biggest challenges credit unions have today is the age of its membership, and it plays right to the sweet spot,” Riley said. “These are all things that are native to Gen Z and the younger age cohorts.”
It’s a challenging time for credit unions wanting to hold true to their ethos. They must drive more instant approvals to get engagement, especially with younger members. Credit unions are about people helping people, so if there is a chance to approve an application, it’s important to at least keep it pending rather than simply respond with a hard decline.

“That is one of the advantages of a smaller lending institution,” Riley said. “You get to move outside the automated lending model into judgmental lending, looking at things that go beyond your basic FICO score. It’s knowing more about your member.”

Gaining Share of Mind

Gen Z and (very soon) Gen Alpha are the smallest cohorts of credit union members. The challenge for credit unions is to capture their share of mind. The differences in the generations can be a means for approaching this problem.

“One of our credit unions shared recently that there was a gentleman in his 70s,
clearly not tech-savvy at all,” Young said. “His granddaughter was opening an account with a credit union and said how easy it was. So he did the same and was surprised at how seamless the process was. He didn’t really know what a digital wallet was at that time, but he soon found out. He is using his digital wallet everywhere to shop now.”

Don’t Be the Soda Machine

To deliver the immediacy and seamless experience members expect in the application and approval process, credit unions must first evaluate their current technology. Some credit unions “set and forget,” without going back to review and assess if they need to modernize. Young’s recommendation: Reinvent the member experience with a digital-first mentality. Map out your member experience journey, then challenge yourself and your teams to digitize steps in the experience wherever possible.

As Young pointed out, looking at your own day-to-day life can help you understand where improvement is needed. “I want to share a day in the life of Scott on a business trip,” he said. “As I’m driving to the airport, I pay for my tolls digitally. At the airport, the parking garage tells me how many spots are available on each floor digitally. I do say hello to the TSA agent, so I’ve talked to somebody that day.
“I’ve already checked in for my flight, received my boarding pass, and selected my seat. As we’re landing, I check in with my car rental company, choose my car, and go straight to a car with the keys already in it. I use a QR code to exit the garage and drive to the hotel. Do I go to the counter? No, because I’ve already used my app to check into my hotel room and request a digital key. I can go right to my hotel room, use my phone, and open the door.”
“I’ve lived my entire day digitally. Then I got thirsty and thought I really could use a soda.
So I went to the soda machine at the end of the hall and guess what? It only took coins.”

“When you’re faced with digital experiences and digital convenience all day long and you come to a legacy process, that really stands out. Don’t be the soda machine in a day full of digital experiences.”

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