Digital Is Becoming More Important in Merger Considerations

Digital has been an absolute game-changer in the financial services market. Credit unions in the aggregate are doing a fine job keeping pace with the competition, offering comprehensive online banking services, responsive mobile apps, and the latest technology such as AI chatbots to enhance online engagement.

However, there’s no question that the price tag for digital is enormous. For small, mid-sized, and even some larger credit unions, the cost of upgrading their digital capabilities will become increasingly unsustainable unless they build scale. How can credit unions build scale most efficiently? The answer for many is by pursuing one or more strategic mergers.

In a survey of credit union executives and board members, we confirmed that the need to build digital capabilities is driving merger considerations. We conducted this survey in conjunction with our 2019 white paper, “When Prospective Partners Come Knocking: Credit Union Board and Management Responsibilities to Consider Merger Proposals,” asking respondents what factors they considered to be “important” or “very important” in assessing merger proposals. The three factors identified most frequently were all technology- or digital-related:

• Digital transformation/having the tools in place to be competitive (identified by 88% of the respondents)
• Online/member experience as a key differentiator (identified by 84%)
• Ability to offer a broader array of products and services (identified by 81%)

The white paper also cited research from Burshek Research & Consulting, which illustrated how increasingly important digital options have become to membership satisfaction over the last two decades. Burshek’s researchers asked members to identify what was the most important factor in their decision to join or stay with a credit union. In 2003, 73% of members answered “the physical convenience of the credit union, defined as branch location and hours of operation.” In 2018, the percentage citing physical convenience had dwindled to 13%. Instead, the most important factor—cited by nearly half (48%) of respondents—was technology, defined as “real-time online or mobile access allowing users to ‘do actions themselves’ with digital tools.”

Members’ digital expectations have soared to even greater heights in the four years since our white paper was published. The pivotal event, of course, was the onset of the COVID-19 pandemic, which accelerated a shift to online and mobile banking that, as CNBC predicted in May 2020, “seems likely to stick.” There’s no doubt now that this prediction was correct.

Another prediction that is sure to come true is that leading financial institutions will continue to invest big in digital innovations in the years ahead. As credit unions strive to keep pace, it makes sense for them to be open-minded about mergers. Through a merger, they’re likely to achieve the scale they need to meet member expectations in this ever-evolving digital world.