Banks and credit unions used to be distinct: Banks had the wider product range. Credit unions were more community-focused.
But the lines have blurred, weakening credit unions’ edge. Between 2014 and 2021, credit unions’ engagement premium — the advantage from customers’ attachment to their brands — fell by 10%, according to Gallup. And the difference in net promoter scores compared to banks fell by 12%.
It’s not all bad news. The Harris Poll says credit unions still lead on customer service and personalization.
That said, The Harris Poll also found Americans think banks are better at digital. Given the rapid shift towards digitization in the U.S. right now — the Forbes Advisor: 2022 Digital Banking Survey found 78% of Americans prefer banking online — this means credit unions have a lot of catching up to do.
But where should they invest to be more digitally competitive?
To find out, we used our digital banking research platform FinTech Insights to compare U.S. banks’ and credit unions’ digital banking features (we’ve excluded neo-banks and challengers and will be exploring user experience in a future article).
Here are the key takeaways.
Banks Are All-In On Wealth Management
On iOS, banks collectively offer 131 unique functionalities, with the leader — Fidelity — offering 91. On the web, they offer 127. And, here again, Fidelity leads the pack with 93.
In comparison, credit unions collectively offer just 28 functionalities on iOS and 20 on the web.
Over the next 25 years, $68 trillion in wealth will move into the hands of younger, more tech savvy customers, according to KPMG. The wealth management market is also growing, with Statista putting its worth at $83.1 billion by 2027 — a 9.3% increase over 2023.
So, for credit unions, beefing up their digital wealth management capabilities isn’t just a matter of keeping up with banks. With equally matched capabilities and superior personalization, credit unions could take the lead.
Accounts, Money Transfers, Personal Finance Management: A Closer Battle
If, in wealth management, banks are ahead of credit unions, the gap is narrower in the other three key areas of digital investment: accounts, money transfers and personal finance management.
In accounts — features such as viewing balances and downloading statements — credit unions and banks both have 104 functionalities on iOS. On the web, banks have an edge. But it’s slight: 113 functionalities — the leader, Bank of America, offers 55 of them — to credit unions’ 105.
Similarly, banks have 78 and 82 money transfer functionalities on iOS and the web respectively, with Chase leading (53 on iOS and 57 on the web), compared to credit unions’ 74 and 77.
And in personal finance management, banks lead credit unions 65 to 62 on iOS — M&T leads, with 47 functionalities — while credit unions lead banks 62 to 61 on the web, with Thomaston Savings Bank offering 41 functionalities.
Americans are doing most of their banking, including paying bills, online. They’re also more engaged when the firms they bank with support their financial well-being. This means, enhancing their digital capabilities in these areas should be a strategic imperative for credit unions.
Open Banking, Security And Support: Credit Unions’ Edge
While banks are often perceived as better at digital, credit unions are outcompeting them in some areas.
On both iOS and the web, they have more open banking features — 40 and 48 functionalities respectively — compared to banks’ 36 and 34. Mountain America Credit Union has the most functionalities on iOS — 27 — while Arizona Financial Credit Union leads on the web with 35.
Open banking is gaining momentum in the U.S. In 2023, the FDX API, the prevailing North American open banking standard, shared 42 million consumer records. The Consumer Financial Protection Bureau has also proposed a rule that could pave the way for greater adoption. Should it reach the tipping point, credit unions would be ideally placed to catch the wave.
“The Consumer Financial Protection Bureau has also proposed a rule that could pave the way for greater adoption. Should it reach the tipping point, credit unions would be ideally placed to catch the wave.”
On iOS, credit unions also lead banks on security, cards and customer support.
Banks lead almost in all these categories on the web, but by a narrow margin. In security, for instance, banks have 41 functionalities to credit unions’ 40. And, in cards, they have 59 to credit unions’ 57.
Digital Wallets And Junior Accounts: An Untapped Opportunity
Almost none of the credit unions we researched offer junior account functionalities. And none offer any e-wallet functionality.
Banks have no e-wallet functionality and some junior account functionality. But the latter is relatively limited — 23 functionalities on iOS and 8 on the web.
Given Paypal’s dominance — it accounts for 81% of U.S. online payments, according to ECDB — digital wallets might seem like a losing proposition. But they have benefits.
A Staggering Statistic:
The percentage of all U.S. online payments PayPal has a part in:81%
Because they’re usually easier to access and, so, more inclusive than bank accounts, e-wallets can help credit unions reach new markets and serve as a gateway to products such as savings accounts and loans.
Junior accounts can also be gateway products.
While many children’s first interactions with money still involve cash, digital payments are becoming commonplace. There’s an opportunity to build brand loyalty at an early age and with relatively little risk, since these products have parental controls.
What Does The Road To Digital Success Look Like for Credit Unions?
There’s a considerable digital gap between credit unions and banks.
The dearth of wealth management functionality and weaker money transfer, account and personal finance management offerings disadvantage credit unions. Especially when you consider that consumer demand for these features is on the rise.
But credit unions also have strengths they can build on and opportunities they could exploit. Provided they implement them the right way.
Success isn’t just about having the right mix of functionalities. More than that, it’s about delivering in a manner that gives consumers the seamless, highly personalized digital experience they crave.
Alexandros Argyriou is the CEO of FinTech Insights, fintech keynote speaker and influencer. FinTech Insights is the AI-powered competitive analysis platform for Banks and Fintechs. By analyzing the digital banking offerings from banks, credit unions and fintechs, FinTech Insights allows its users to innovate faster, speed up their product releases, and de-risk their product strategy.