Time to check your leaky faucets!

In early 2022, my wife and I noticed a slight drip in the kitchen sink that progressively worsened. We quickly discovered that if we adjusted the lever just right, the drip would subside for a while. Right before the holidays, we had an issue with our water heater that wasn’t so livable, so we called an expert. After the plumber finished up with our hot water tank, we asked him to check our sink. In 5 minutes, he fixed the problem that had inconvenienced us for months! We had become so used to our workaround that we didn’t even realize how much time we spent in frustration trying to get the faucet handle just right (let alone double checking it all hours of the day and night) when we could have resolved the issue in just a few minutes of effort from an expert! 

Sometimes, our workarounds are only efficient in our minds. They may save us time or a few dollars upfront, but do they save us anything in the long run? In my case, the answer was a resounding ‘no’. 

In our professional lives, we’re trained to seek out our solutions for the ‘leaky faucets’ and typically only bring in an expert when we encounter a major problem that we can’t live with. For credit unions, the ‘water heater’ problems are typically the front office, as they live and die by the member experience. Having the right technology and interface (along with a myriad of other things) tends to be the core focus when it comes to investing in process and technology improvements.  

Where are the ‘leaky faucets’ usually located? The back office. Temporary workarounds are created and then become standard practice; these workarounds are largely unknown to the broader organization, time-consuming, and surprisingly easy to correct. They add up and lead to frustrations and inefficiencies, just like my family experienced with our sink. I recently sat down with Mike Lawson of CU Broadcast and John Wyatt, CIO of Apple Federal Credit Union, to discuss the value of a back-office assessment. 

You can check out a clip of that conversation here:

To see the entire segment, click here (just scroll down to the bottom of the page). I enjoyed speaking with Mike and John and encourage everyone in the credit union arena to subscribe to CU Broadcast if you haven’t already – it’s a great show, and one I’ve enjoyed for years. 

So, when is the last time you checked your faucets? We’d love to hear from you – reach out to me if you have questions or want to learn more about maximizing your back-office efficiency.  

A recent Credit Union Times article noted that while credit unions continue to perform strongly with long-time customers (those over 65 years of age), the industry is struggling to retain and add younger customers.  The same article notes that the average age of a credit union customer is 47 years old and that only 10% of people aged 20 – 34 currently utilize credit unions for their financial services needs.

So, why are younger depositors leaving credit unions for other institutions and services?  A CU Insight article suggests that a combination of cash incentives, reward programs, and gamified customer experiences are driving younger customers to these providers in large numbers.

This implies a trend that will have devastating impacts to the industry if not addressed.

For the last several years, the industry has managed the problem of growth through mergers and acquisitions (similar to the activity seen in the banking industry in the late ’90s and early 2000s).  Asset consolidation has led to a few very large credit unions holding a majority of the industries assets, and according to the American Banker, a group representing 12% of credit unions now hold 81% of all managed assets.

While this has solved the problem of scale for some credit unions, it does not help smaller independent credit unions, nor does it provide a path to long-term, organic growth for larger ones.

So, what’s the solution?

Should credit unions pursue similar strategies to traditional banks to attract customers?  This can be tricky, as many credit union customers were attracted because they wanted a very different experience from traditional banking; also, offering considerable up-front financial incentives to attract new customers can be problematic, as the incentives have traditionally been focused on lower overall costs and higher returns on deposits.

How about pursuing more unorthodox methods a la companies like SoFi that provide softer incentives through gamifying customer experience?  This might be a reasonable approach to attract very young customers who respond better to these types of incentives.  This, combined with robust social media strategies can begin to claw back a portion of the Gen Z and Millennial populations that have begun to abandon their parents’ choice of the financial institution; this might shore up customer numbers, but will not likely have a major impact on assets held.

To be successful in the long term, credit unions must continue to focus on differentiation with traditional banking.  Superior customer service has been a cornerstone to the value proposition of credit unions, and the industry must continue to look for ways to promote this fact – along with the generally higher return on deposit and investment products.  This can be a challenge given smaller advertising and marketing budgets, but as noted above, properly leveraging lower-cost channels provided by social media can provide significant brand lift with a reasonable investment.

In addition, many credit unions have been expanding their reach into the small business segment within their markets, offering loans, payments processing, and other related services and this class of service could be a significant source of long-term growth if the industry can overcome significant headwinds from both traditional banks and FinTechs (see this article from American Banker).  Once again, credit unions bring a unique value proposition compared to these other providers, but it is critical that those advantages are made crystal clear through effective marketing, advertising, and social media campaigns.

In short, credit unions offer some incredibly compelling advantages over traditional banking, as well as stability and reliability compared to FinTechs moving into the consumer and small business banking arena.  Recent trends in loss of customers is concerning, but with continued focus on maintaining best-in-class customer service and continuing to offer products aligned with the needs of local markets, along with aggressive attention to marketing and branding through more modern channels will both help stave the loss of customers from newer, younger bankers and demonstrate a focus on continued uncompromising service to its members.