Why Credit Unions Should Be Terrified!

New Research Results and Why Credit Union PERSONAs should be Terrified!

Last article, we highlighted our new research on the Financial Industry.  In it, we demonstrated how having a great NPS is NOT an indicator for future growth.

We introduced the Customer Intelligence Maturity framework.  We showed how Amazon ranked significantly higher than the highest ranking Financial Institution (USAA) on this scientific, statistically based, rigorous methodology.

What we also learned from that study was this.

Large Credit Unions believe they are doing great!  We asked a number of questions about perception of competitive parity in the industry market place.

Credit Unions rate their competitive actions squarely ABOVE competitors.  To the tune of 5 times higher on the “we are doing great, thank you very much” scale than that reported from real industry leaders like USAA.

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By comparison, USAA and the other leaders who scored significantly higher than Credit Unions on things that matter to consumers.  In other words, they have REASON to believe they are doing great!  Yet, they were downright scared they were NOT keeping up with marketplace demands!

Scott Lippert, vice president and bank senior strategy officer at USAA, expresses how USAA views the world and who they see as the leader.

“We see our members’ expectations increasingly being set by companies that are really leading the way outside the banking industry, like Amazon,” he said. “Overall, you see a lot of transactional tasks shifting to other channels (digital) that are more adept at handling them.”

He continues, “our organization has an intense focus on complete member experience.  For example, we initially focus on our members’ financial security — helping them save, making sure they have an emergency fund and helping them start to invest.  This is just one tactic though.  Overall, we have a track and a distinct focus on fixing the root cause and reducing member pain points across the entire life journey and all types of experiences.”

SUMMARY:

USAA knows they are not competing against other financial institutions.  Whereas, credit unions see only how they compare to each other.

I mentioned Credit Unions represent a PERSONA found in every other industry.  These persona organizations are at most risk in the evolving future.

Here is the PERSONA:

1) Externally, seems “successful” but represents small industry niches

All credit unions represent only 8% of financial assets in the United States.  In 2017, the credit union “industry” grew as a segment in ALL key metrics (assets, auto loans, etc).

Yet, as referenced in our last article, 2017’s GROWTH of the largest banking competitor in real assets was equivalent to the ENTIRE size of largest Credit Union.

So, what is really going on is as my early mentor used to say, “a rising tide is raising all ships.”  Growth in this industry segment is mostly an artifact.

2) The biggest organizations in the segment are the ones getting bigger

Again, the overall 80/20 rule applies to this industry segment.  The largest Credit Unions experienced the vast majority of the growth in 2017.  In fact, the majority of organizations in this industry segment were stagnant or decreased in 2017.

3) Internal metrics like NPS seem to show everyone is doing a great job

We addressed this in the last article.  This industry segment does have the highest Net Promoter Scores (NPS) of the entire TRADITIONAL financial industry.

And it easily seen that Credit Union leaders correlate their confidence and comfort to that single metric.  This, despite the fact that the industry as a whole is outrunning their specific segment . . . dramatically in most cases.

Here is where we get into our consumer research results that should TERRIFY this type of industry persona.  It should be noted; this persona exists in every industry (so watch out healthcare).

1) Amazon IS your competitor, setting the expectations of ALL your customers.  Oh, and by-the-way, their NPS is between 88 and 94.

2) Credit Unions average age of customer is 49.  By far the oldest of all financial industry segments.  Community banks are closest with an average age of 47.  The top 20 large institutions average age is 43.

By contrast, Amazon’s average age mirrors that of the general population, 39.  And, niche fintech or digital only industry segment players (ie. SOFI) report average ages between 28 and 32.

3) Across all TRADITIONAL banking categories (those with branches, including credit unions), nearly 40% of customers do NOT visit the branch.  They rely completely on digital experience from websites to mobile apps.

This segment of TRADITIONAL bank customers: skew younger (37 on average), skew more educated (67% college educated) and are more affluent or mass affluent (65%).

4) Among 18 to 25-year olds currently in college, report they are PRIMED (pun completely intended) for someone like Amazon entering this space.  95% state they are very likely to sign up for a checking account with Amazon VERSUS a traditional large/community bank or credit union.

5) 76% of this 18 to 25 cohort are COMPLETELY unaware of any differentiating feature or benefit of Credit Unions.

*NOTE: contact me if you want more detail on our consumer studies.

Full disclosure, we work in the Credit Union industry segment as well as other similar PERSONAs across other industries.

We love credit unions!  We think they serve a necessary function and have great people missions.  We have worked with Credit Unions for over 25 years now and have many success stories where we helped credit unions create success by adopting to the new world environment.

But, we have also been around long enough to see the damage done to these PERSONAs in other industries (i.e. retail and consumer products).  Where, if your organization was not a leader, you struggled with the harsh new realities and disappeared over time.

The current consumer findings and external events in play lead us to a prognostication.  Something we do not typically do but in this case feel it is warranted and well justified by the research.

If your organization is a Credit Union, or fits this PERSONA in another industry, you have limited time to put plans in place to save yourself.  Now, when I say “save yourself” I refer to becoming a viable, growing organization across all demographic age segments.

Why?

Because if you are unable to capture a sufficient segment of 35-year old and younger – you are attempting to swim up a waterfall that will eventually drown you.  As another mentor taught me early in my statistical career, “demographics ALWAYS win!”

That is not to say you cannot ride into the sunset, profitable to your dying day, with current 45-year olds and older.  In fact, several consumer product companies and business lines are choosing exactly that path.

But, that is not NOT a sustainable strategy.  It is simply planned and orchestrated obsolescence.

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Guest Article by John Burshek, CEO, Burshek Research & Consulting