Why Credit Unions Are Primed to Revolutionize Financial Services in the U.S.

The competitive advantages that credit unions have long enjoyed – such as personalization and accessibility – are exactly what a younger generation of banking consumers are looking for. Forward-thinking credit unions will enhance those capabilities with the smart use of digital technology.

When the economic analysts of the future look back on 2024, it could easily be seen as the year that credit unions transformed the United States’ financial services sector.

Certainly, the timing is ripe for credit unions to grab the multiple, technology-driven opportunities happening right now across the U.S. By doing so, they have a very real chance to shake up the financial services sector for the better, and make an indelible mark on its future, for both current and future generations.

Let’s examine the major financial services evolutions that are taking place right now, notably artificial intelligence, hyper-personalization and instant payments – and how credit unions can maximize these to their full advantage.

The Need to Set Themselves Up for Future Success

One of the issues that credit unions are increasingly needing to address is how to reach out to the younger generation – their future customers.

Granted, their interest is currently limited. Figures vary wildly across different surveys, but range from just 4% of Gen Z and 5% of millennials to 26% of Generation Z and 14% of millennials regularly using credit unions for their financial needs. Many prefer digital-first challenger banks or even financial products provided by consumer brands.

However, a combination of instant payments, mobile app functionality and interactive online tools could well appeal. This is why the most forward-looking credit unions are already actively planning and investing in the tools that will position them strongly for the future by resonating with the younger generation.

Where the Preferences Lie:

Gen Z is more likely to lean on a credit union for banking services (from 4 to 26%), compared to millennials (5 to 14%).

Whether it’s offering a savings account that’s closely aligned with a customer’s financial goals or giving specialized advice based on their investment portfolio, these personalized recommendations are what credit unions can use to help instill customer trust and loyalty.

However, are personalized recommendations on their own merits enough to allow them to shine? In today’s challenging economic and business environment, arguably not.

Customers receive personalized experiences in every other part of their consumer lives and are increasingly holding their financial services providers to the same standard. And with most services and transactions now online, maintaining that personalized touch can be challenging.

That’s where AI can help. There is a huge raft of big data available to financial services companies today. However, as AI is a very generic title, let’s drill down a little closer into the specific tools that credit unions should think about using.

Dig deeper:

A Data-Rich Sector with Major Personalization Potential

With so many digital transactions and a sea of user-generated information, financial services is one of the most data-rich sectors today. It means financial institutions have hundreds of opportunities to gain insights from market and customer data to guide their strategies.

These insights all help companies build detailed profiles of their customers — including their needs, interests and priorities — which can guide highly personalized engagements. In some cases, this could be as simple as highlighting potential cross-sell and upsell opportunities based on the customer’s purchase history and online activity. In more complex instances, it could involve tracking customers’ important life events such as if they’ve recently bought a house and providing suggestions for services that might match their current or future needs.

Delivering these insights at scale can be difficult if a credit union is serving thousands of customers across dozens of demographics, all with unique needs. But with the right strategy and AI tools, it is possible.

If a credit union wants every customer to feel unique, they should find a way to automate the delivery of customer insights throughout their organization.

One effective approach can be to combine behavioral segmentation with machine learning — categorizing customers into separate persona profiles and using their data to create personalized journeys within a brand. At a basic level, these personas can be created using basic information about customers, such as their age, gender, location and profession. More advanced personas can also consider granular data from customers’ online interactions, such as the frequency of their clicks or number of page visits.

Paired with the right AI tools, these behavior segments can be extremely valuable when targeting customers. Some machine learning models can combine the personas in these segments with customers’ unique data to make predictions about their behavior, preferences and interactions — and deliver these insights to where they are needed most.

The clearer the picture of its customers, the more the opportunities grow for credit unions. And crucially, managing this segmentation and insight delivery doesn’t need to be difficult.

Automate the Delivery of Hyper-Personalized Experiences

It is now possible to not simply automate the insight generation involved in behavioral segmentation, but to also automate the management of the segments themselves.

When new customers come in, a sophisticated machine learning model will automatically categorize them into the right behavioral segment and will continually evolve those segments as it learns about customers and the market.

“The clearer the picture of its customers, the more the opportunities grow for credit unions. And crucially, managing this segmentation and insight delivery doesn’t need to be difficult.”

As more financial services companies embrace tools like this, we’ll start seeing hyper-personalized experiences that reflect those commonly delivered in other sectors. And ultimately, these experiences will give credit unions the chance to inspire greater loyalty in customers and higher lifetime value.

A major development taking place right now across the U.S. is the instant payments revolution. The U.S. real-time payments market is expected to register a CAGR of 10.12% from 2022 to 2027, fuelled largely by the digitization and rapid adoption of real-time payment platforms in almost every industry such as retail, e-commerce, healthcare and education.

We have also witnessed a rapidly increasing move to cashless and contactless payments and the spreading of awareness about alternative payment methods which were already becoming common before the advent of the global Covid pandemic, an event which accelerated it even further.

From their sheer reach to the vast number of customers they serve, credit unions are in a perfect position to set the golden standard when it comes to combining instant payments technology with groundbreaking customer service functionality. They are increasingly investing in the ability to compress all different payment mechanisms, including A2A, P2P and bill pay into a single member experience that is clean, crisp, visually appealing and easy to use. By selecting the appropriate systems, their members can carry out tasks including scheduling recurring P2P payments with the same screens, the same experience as a recurring bill payment or a recurring transfer.

This is the Moment to Act!

There is so much innovation taking place across the U.S. right now that 2024 could easily be the year that credit unions seize the moment to re-write the future of financial services.

By grabbing the AI, personalization and instant payments revolutions, credit unions have a golden opportunity to re-write the customer service manual and appeal to a vast cross section of consumers, across the current and future generations.

So, will 2024 be the year of the credit unions? Only time will tell.

Jerry Young is the CEO of ieDigital and Connect, portfolio companies of Parabellum Investments led by founder and CEO, Rami Cassis. Jerry has more than 25 years’ experience in financial services and software. During his time as CEO, ieDigital has been recognised as one of the world’s ‘Most Significant Providers’ in the Forrester Wave for Digital Banking Engagement Platforms. Prior to joining ieDigital, Jerry worked for Fiserv leading their EMEA banking operations, Oracle Corporation responsible for Banking and Insurance and he was Managing Director of FICO (Adeptra).

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