Not too long ago, there was a lot of skepticism associated with digital banking. Many assumed it was not secure, and even more people would not have considered a digital-only model for their credit union. Today the financial landscape is changing, and rather than being skeptical of digital, people are becoming impatient with traditional banking institutions… particularly Millennials. Younger generations are demonstrating their lack of trust in the traditional banking system at an unprecedented rate. Here are trends financial institutions can expect in 2019.
Deposits are Down
A major change some FIs are seeing is a waning deposit rate. According to a study by BAI, 17% of Millennials were considered to be in financial trouble in 2017, compared to 30% in 2018. Furthermore, older members are depositing less as they channel their excess funds into investments outside of their primary financial institution. Members are also expecting more from their credit union, especially in terms of rates. They are looking for the best rates and lowest fees, and if they can’t get that from their current FI, they are willing to switch to another financial institution. 28% of Millennials said they would prefer to soley bank online in order to receive the lowest rates, compared to 21% of Generation X and just 11% of Baby Boomers. As a result of these trends, the priorities of banks and credit unions are changing: 48% listed deposit growth as their top priority, 42% claimed loan growth, and 37% for new member acquisition.
Branches Get Less Foot Traffic
What was once a must-have offering is now optional. Regional branches are becoming less important to members with each generation. The BAI study also indicates 69% of Baby Boomers prefer access to a regional branch, whereas 58% of Gen Xers and 49% of Millennials prefer the option. Not only do younger generations prefer digital over in-branch banking, but they also trust their main primary financial institution (PFI) less. 57% of Millenials claim they trust their PFI, yet Gen X and Baby Boomers expressed higher levels of trust at 70% and 86% respectively. While credit unions thrive on in-branch interactions and quality member service, incorporating more digital and mobile options will be key in order to attract and retain younger members.
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FinTech on the Rise
Digital first FIs are leading the charge for both deposits, and other services like P2P payments. Last year digital-minded FIs beat out traditional institutions in the volume of online account openings. 67% of deposit and loan accounts opened online were through a digital-friendly or direct FI in 2018. Fintech companies are also leading the charge with P2P payments. As of 2018 PayPal was the clear front runner with 63% of the market, in second is Venmo with 11%, followed by Zelle at 9%, and Square Cash at 7%. Obviously, these footholds in the P2P market share are constantly shifting, especially since Zelle has made such a big splash over the last year.
There is a major opportunity for banks and credit unions when it comes to fintech integrations. While 64% of FIs feel competitive pressure from fintechs, integrating such solutions is also one of the best ways for credit unions to gain a competitive advantage. To date, 64% of traditional banks have reported collaboration with fintech companies, 28% have acquired one, and 8% are working to build fintech solutions internally.
Credit unions have seen some major shifts in consumer trends in the past few years and there is plenty of opportunity to capitalize on member's changing needs. Employing a digital-first strategy and a robust member services platform will engage members of all ages, and allow credit unions to provide a mix of digital, mobile, and in-branch solutions.
Additionally, knowing the latest opinions on traditional banks, credit unions have the opportunity to take those notions and use them to transform their processes to better meet the needs and expectations of potential members. Finally, technology is essential to be competitive with both digital banks and traditional banks. Collaboration with quality technology partners can fuel growth and open doors that will allow credit unions to continue providing the member experience so many have grown to expect.
