The Center for Financial Services Innovation (CFSI) describes itself as “the authority on consumer financial health, leading a network of committed financial services innovators to build better consumer products and practices.” The organization does a lot of research and consulting — and idea generation — in the financial services arena, especially as it applies to the underserved.
CFSI agreed to let me analyze the results of a consumer survey it recently conducted to focus specifically on credit union members, and how the financial health — and more generally, the financial lives — of credit union members differed from other consumers, and what that all meant to credit unions.
After digging into the data, it was clear to me that the real story to tell was about Millennials, not the general population. Cornerstone Advisors (where I work) and CFSI have jointly published a report titled Competing on Financial Health: How Credit Unions Can Win the Gen Y Market.
If your first reaction is either “Ugh, not another study about Millennials,” or “Hey, wait a second, Shevlin… weren’t you the guy who called for a moratorium on Gen Y research?” I feel your pain. Suck it up, and let’s move on.
1) Gen Y credit union adoption lags older generations. Just 27% of the nearly 79.5 million Millennials in the US are credit union members, in contrast to nearly half of adults over the age of 36. When asked why they aren’t members, many Millennials admitted to not knowing much about credit unions. Considering older generations probably didn’t know much about credit unions when they were younger, and adoption rates are higher for those older consumers, you might conclude that low membership rates among Millennials will fix itself over time. You’re probably right. If you (and your credit union) are willing to wait that long for that to happen, no need to read the new report. Your call.
2) Millennials in the market for financial products equally prefer a big bank as they do a community bank or credit union. Please stop listening to the uninformed pundits who say young consumers hate big banks. That’s so 2008. In its latest survey, JD Power found that Millennials’ satisfaction with big banks now exceeds that of regional and mid-sized banks.
3) Gen Y credit union members are bigger users of credit cards than Gen Y non-members. From Cornerstone Advisors’ Credit Union Performance Report, we know that, at the median, credit unions have put their credit cards in the hands of just one in five members. And that’s members overall — the percentage of Millennials may be much lower. This points to the cross-sales opportunity that credit unions have.
4) Gen Y credit union members are financially healthier that Gen Y non-members. CFSI’s prior research categorized consumers by their financial health based on attitudes and behaviors. Are credit unions the cause of superior financial health among their members? Can’t say that. But we believe that consumers who are healthier financially are more engaged in managing their financial lives, and therefore make more informed decisions about who to do business with, and therefore, choose to do business with credit unions. Leveraging this can be a point of differentiation for credit unions.
What Should Credit Unions Do to Win Millennials?
1) Create a new payments experience. With — at best — one in five members holding a credit union-issued credit card, credit unions have a cross-sales opportunity with Gen Y members. Articles from bankrate.com and cardratings.com, however, suggest that credit unions’ card rewards programs under-perform the market. So much for that cross-sell opportunity — unless credit unions create a new payments and card management experience. Gen Y credit union members want a credit card with the features and benefits of a debit card.
2) Provide life stage mobile apps. Why are credit unions running silly TV commercials (during shows *I* watch) with semi-literate Millennials saying they couldn’t get a loan anywhere but XYZ Credit Union?
Fact: Credit union members, on average, have higher household income, more stashed in retirement funds, and an equal amount of liquid funds, as non-members. And that’s true for Gen Y credit union members, as well. More Gen Y credit union members have a mortgage than Gen Y non-members. The key to winning their business isn’t appealing to their desperation to get a loan — it’s providing tools to help them manage the home buying and mortgage selection/application process.
Another fact: One in four Gen Y credit union members got married in the past five years at an average cost exceeding $26,000. What are you doing to help them — and Gen Y non-members who plan to get married — manage their wedding expenses? Geezeo recently released a wedding planning app that can be white-labeled by credit unions. And with a quarter of Gen Y credit union members getting married, it shouldn’t be surprising that nearly a quarter of Gen Y members had a baby in the past five years. Check the Apple iTunes store for baby planning apps.
3) Deploy member referral programs. If you’re looking to grow your Gen Y membership, and you don’t have a member referral program, I think there might be something wrong with you. Check out the section of the report on referral programs to see why this is so important.
4) Compete on financial health. You know the story of David and Goliath, right? How the little guy beat the big guy? The real lesson of that story is that, in order to slay the big guy, the little guy changed the rules of the game. That’s what credit unions (and, for that matter, community banks looking to grow their Gen Y customer base) need to do. Focusing on measuring and competing on financial health is the way for credit unions to change the nature of marketing and competition in banking.