3 Ways Credit Unions Can Upgrade Their Member Acquisition Strategy

generate banking leads

by Marty Aquino

 

Not all banks and credit unions grew equally in 2020. According to the National Credit Union Association’s 2020 Annual Report, the credit-union industry saw significant growth, reaching nearly $2 trillion in assets and over 120 million end users. However, those impressive numbers hide the actual distribution of the growth. 

The annual report goes on to say, “Small credit unions face challenges to their long-term viability for a variety of reasons, including lower return on assets, declining memberships, high loan delinquencies and elevated non-interest expenses. If current consolidation trends persist, there will be fewer credit unions in operation and those that remain will be considerably larger and more complex.”

While overall membership and assets were growing significantly in 2020, only about half of the credit unions had fewer users year-over-year. Smaller credit unions with less than $50 million in assets have been declining in asset size. In contrast, larger credit unions, fintechs, neobanks and megabanks have been increasing their market share and assets. Higher-quality credit-union and banking leads are more important than ever.

The NCUA also points out that many credit-union users have several financial-institution alternatives and tend to move their money quickly and easily among them. In fact, of those end users who consider a credit union to be their primary institution, a little over half (56%) also use a bank for some type of financial service.

According to Jim Perry, senior strategist for Market Insights, “Thousands of credit unions face the prospect of shrinking market share and declining ROA if they cannot achieve the scale necessary to evolve. There will be less exceptions, but competition is more intense, the consumer is less loyal and the pressure to consolidate is growing. Credit unions must face the reality that size and strength matter.”

The Cost of New Member Acquisition

You may be surprised to know that less than a third of your account holders are profitable, on average, according to Raddon Performance Analytics. Their report measured member data at more than 300 credit unions. On average, only 29.8% of credit union users are profitable, down from 33.9% in 2018.

The report cites increased operating expenses, decreased NSF/courtesy-pay income, increased deposits and decreased loan volumes as contributing factors. According to the Raddon report, the cost of acquiring a single new user for a bank or credit union could be anywhere from $200 to over $1,200.

Percentage of households at various levels of annualized profit:

  • 11.8% at $500 or greater
  • 10.7% at $100 to $499
  • 7.3% at $1 to $99
  • 24% at $1 to $99
  • 46.3% at $100 or less

Now more than ever, your credit union should consider focusing on upgrading your user acquisition strategies. Read on and explore three different ways to improve your current strategy and increase your overall banking leads.

Lean into Loans

In times of financial uncertainty, many Americans seek out loans. According to CNBC, between year end 2019 and September 2020, credit-union memberships increased by 3.37 million, or 2.8%, to 125.11 million. Loan portfolios at credit unions rose by 6.6% in the 12 months ending September 2020, slightly above the previous year’s rate of 6.5%. By comparison, banks saw 4.9% growth in loans.

“During periods of risk and uncertainty, banks tend to pull back a lot more on lending and just get a lot more conservative. But credit unions as part of their mission is just to continue to serve the members,” says Jordan van Rijn, senior economist for the Credit Union National Association (CUNA).

In the same article, Jacquelyn Kearns, chief brand officer at Affinity—a New Jersey-based credit union with 20 branches—says, “We saw growth on the lending side and on the deposits side, which is counterintuitive amid the crisis and hardship.” Affinity saw strong growth in the mortgage business, she notes, with record-high originations in the previous year. Despite the pandemic and recession, credit-union asset quality improved during the year. According to CUNA, the credit-union delinquency rate fell to 0.54% in September, while net charge-offs dropped to just 0.47%, down from 0.70% and 0.56%, respectively, in 2019. CUNA attributes the results to stimulus payments, loan growth and credit unions working with members to modify and defer loans, which avoids delinquencies and charge-offs.

Newer fintechs will pose a competitive challenge to banks and credit unions, with new products that seek to replace traditional deposit and loan accounts such as mobile payment systems, peer-to-peer lending and digital currencies. As these products gain popularity, your bank or credit union will likely need to take a more active role in establishing a direct relationship with strategic partners, rather than relying on channels like auto dealers to initiate indirect lending. Additionally, the cost of borrowing is typically very high for users because of the dealer spread fees.

Upgrade Your Users’ Online Experience

Relationships determine user household profitability, and user engagement is your way to deepen and strengthen those relationships. Many credit unions struggle to interact with their user base outside the branch. Implementing a robust user experience and infrastructure to provide additional user data signals which end users are ready for additional products. This higher, personalized engagement will lead to better and more successful financial outcomes for your users and your organization.

Further, when you want to launch additional products and you don’t have the budget or the expertise to deploy in-house solutions, you could partner with suitable strategic partners. According to Andreesen Horowitz, a leading venture-capital firm, at the most basic level you want products that put you on par with other banks, and further, you want to compete with fintech companies, just as Zelle helped offer peer-to-peer payments: “There are a number of other ‘features as a service’ possible — it’s not hard to imagine a software provider building ‘Chime as a service’ or ‘Affirm as a service’ to help Credit Unions connect their balance sheet with consumer demand.” Personalized banking isn’t optional for banks and credit unions who want to survive in this digital age.

Teach Financial Literacy and Digital Financial Solutions

According to CUInsight, 64% of millennials say their generation is not good at managing money, 73% say their generation overspends on unnecessary indulgences and 75% say their generation overspends in comparison with other generations. The same survey also shows that 47% of millennials have $15,000 or more in savings, and 67% of millennials who have a savings goal stick to it every month, yet 35% of millennials are worried that they are not saving enough. Show the largest consumer base that you can help them plan for the future and stick to a budget, and they will reward you with their loyalty.

By giving users access to financial education and tools deployed digitally as a part of your customized banking platform, you build trust and lower user acquisition costs, potentially reaching your entire user base and additional target demographics thanks to the power of digital scaling.

Banks and credit unions that offer special programs to help users improve their financial wellness may experience a positive stacking effect. For example, CommunityWide Federal Credit Union in Indiana offers a partnership for its users to get free financial counseling on debt management, student loans and other personal finance issues. These value-adds fortify existing relationships and potentially have a multiplier effect with current and past program students.

There’s no single right way to deploy effective acquisition and marketing strategies; there are many viable paths. However, it does stand to reason that partnering with experienced and trusted third-party digital banking innovators can save you time, add massive value to your organization and user base and more effectively drive down your user acquisition costs — all while increasing your overall user base. Wins all around. 

Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people.

 

Sources

National Credit Union Administration – 2020 Annual Report

Raddon Report – Understanding the Profitability of Accountholders

CNBC – Why millions of Americans are now tapping credit unions for loans

Andreessen Horowitz – The Case for Credit Unions

CUInsight – 4 ways to grow your credit union’s membership base

EverFI – 7 Credit Union Marketing Trends

EverFI – 3 Powerful Credit Union Marketing Ideas

Forbes – CommunityWide Federal Credit Union Review