While some credit unions suffered through a difficult year, others met or exceeded earnings and growth goals in 2020. Those bottom-line results had less to do with the pandemic and more to do with the technologies, strategies and priorities in place before the year began.
That's because COVID-19 has been less of a disruptor than an accelerant for long-held trends and capabilities. As the pandemic began, credit unions with a running start were those already focused on innovative digital strategies, real-time capabilities and nimble responses to changes in the market – trends that now have everyone's full attention.
No matter their results, every organization was challenged in 2020 by significant margin compression and an extended low interest-rate environment. As those pressures continue to adversely influence earnings, expect the ways credit unions measure effectiveness to evolve. Beyond cutting expenses, high-performing organizations improve operational efficiency by increasing revenue. For credit unions, that means driving stronger member relationships to, in turn, drive higher balances.
In my experience, the more proactive organizations were in reaching out to members to offer help and expertise during the pandemic, the more success they had throughout the year. Members tell their financial institutions what they need with their words, their financial habits and by taking their business elsewhere. Paying attention to those cues should be among credit unions' highest priorities as they help people and businesses emerge from the tumult of 2020 and prepare for what's next.
In 2021, several trends show a path forward.
2020 accelerated many credit unions' digital strategies, but it goes beyond prioritizing technology. It's about focusing on technology in a way that makes members' lives simpler.
1. Branches' Evolving Role
Since 2008, there's been a systematic, steady decline in the number of branches in the U.S. Although the pandemic temporarily shuttered branch lobbies and moved many transactions online, it didn't accelerate that decline. But as digital banking increases during COVID-19, what happens at the branch is morphing at a faster clip.
No longer transactional hubs, branches are more often where members go for advice, sales and services. Think of branches as storefronts where members can talk about their finances and get the help they need. Credit unions are updating branches' look, feel and function to reflect those changes. Branch cultures are also shifting as front-line employees move to more advisory roles.
Organizations will continue to look for ways to streamline operations and reduce expenses, but wholesale branch closures would be counterproductive. Instead, many credit unions are investing in brick and mortar, using branches to establish a presence in new markets with good growth opportunities. Rolling out a new, more innovative branch model one storefront at a time helps organizations stagger the costs and learn lessons as they go.
2. Increased Reliance on Digital Banking
The pandemic led credit unions and their members to lean into digital banking capabilities. Now that those options are more about necessity than convenience, people of all ages are more willing to use digital alternatives for managing accounts, making payments, transferring money and other activities. For example, a May 2020 consumer survey from Fiserv found that 27 percent of those who use mobile check deposit had increased use since the pandemic began, and 66 percent expected that increase to be permanent.
2020 accelerated many credit unions' digital strategies, but it goes beyond prioritizing technology. It's about focusing on technology in a way that makes members' lives simpler. Is using mobile banking easy and intuitive for new users? Can a borrower start an application online and finish it in the branch? How simple is it to pay who you owe? An integrated approach simplifies financial processes and streamlines members' experiences.
3. Big Banks' Growing Share
According to an November 2020 report from Raddon, a Fiserv company, 45 percent of U.S. consumer households named one of the nation's three largest banks as their primary financial institution – a percentage that has been slowly increasing since 2018. That trend won't likely reverse unless and until community banks and credit unions change their perception.
Unfairly or not, many consumers don't believe credit unions have the same technology solutions as the largest institutions, which prioritize promotion of digital capabilities and mobile banking. Marketing credit unions' advantages, including the latest technology, will help change that perception, especially with younger consumers.
4. Helping Small Businesses Recover
Small businesses are essential to our communities, yet many are struggling. From January to December 2020, the number of open small businesses decreased by 39.7 percent – a staggering, depression-like outcome for Main Street. Service-sector businesses, including restaurants and retail, were hardest hit by the pandemic, according to a report by Yelp.
Developing commercial expertise and diversifying offerings will position credit unions as allies for hard-hit small-business owners. Credit unions can play an important role in helping Main Street rebuild and recover in 2021.
Environments typified by significant change are notoriously difficult to forecast. But we can expect the accelerated trends for branch transformation, digital banking adoption, changing markets and small-business recovery to take further hold in 2021. After a challenging, uncertain year, we are all eager to see what's next.
For additional insights, visit the Raddon Report.