By Jerry Young, CEO, ieDigital and Connect.
There are many similarities between building societies – mostly found in the UK – and credit unions – mostly found in the US. They share a community focus, as entirely member-owned institutions, and they operate in similar ways, which means there are plenty of similar processes too.
Both institutions have historically focused on serving local communities or, in the case of some credit unions, even formed to serve the employees of specific companies. For example, the Knoxville TVA Employees Credit Union was created in the 30s to serve people who worked for the Tennessee Valley Authority and provide a safe place to save and borrow in the aftermath of the stock market crash.
There are more than 5,000 credit unions operating in the US – incorporating many services which are familiar to UK building society customers. As well as offering long-term financial products such as savings accounts, loans, and mortgages, like building societies, many also offer current accounts and credit cards, more in line with banks. They help people buy homes, launch businesses, and prepare for their futures.
With such well-matched approaches to the world of finance, we believe there are shared lessons and strategies that building societies and credit unions can benefit from, to help them thrive in the changing economy. Here are three challenges that both building societies and credit unions face—and how technology can help overcome them.
Competing against other providers
Consumers are more willing than ever to switch providers for better deals, easier experiences, and extra perks. With their member populations aging, that’s good news for building societies and credit unions.
Younger generations are more likely to be tempted by alternative providers than their predecessors, which can make it easier to recruit them as members—if the proposition appeals to them. But just four per cent of Gen Z and five per cent of Millennials are currently credit union members; many prefer digital-first challenger banks or even financial products provided by their favourite brands rather than traditional financial institutions.
Appealing to new members requires two things: more awareness, and compelling services.
Going up against the scale of traditional banks and the agility of financial technology providers can prove tricky for both building societies and credit unions, as it’s often hard to compete on products, rates, and offers. In this environment, the best way for smaller providers to stand out is to stay focused on what’s made their models so effective for hundreds of years: serving niche communities and their needs.
For example, many young people are working hard to save for house deposits and looking for favourable mortgage rates. With decades upon decades of experience in helping members do just that, building societies and credit unions can create unique offerings aimed at these first-time buyers.
A provider could create a purpose-built savings account for deposits, which offers additional support with budgeting, better rates for no withdrawals, and feeds directly into its mortgage application process. Members get a seamless, convenient journey from saving their first pound or dollar to purchasing their home, without needing to go elsewhere for advice or other services.
Alternatively, providers could zero in even further, creating a business loan specifically for sole traders working in the construction industry, which also connects them to a complementary insurance product. A tailored approach like this shows that the provider truly understands its members and their needs; becoming the go-to provider for a niche service can be far more valuable than offering a broader portfolio of general products.
Appealing to new members—and potential hires
Experience is one of the key differentiators consumers pay attention to when they’re selecting the right provider for their needs today. Even offering good interest rates or other incentives can easily be overshadowed by a particularly clunky user interface.
For most people, the days of visiting a bank branch to fill out paperwork by hand are long gone. They’re looking for intuitive digital processes, easy-access information, and useful tools to help them understand things like mortgage affordability, interest rate comparisons, and the differences between account types.
But for banks, building societies, and credit unions alike, it’s been hard to avoid replicating the complexity of traditional financial processes in their new digital forms. This difficulty migrating into the digital age is what’s made challenger banks and even big tech-led finance initiatives so appealing to consumers.
Potential members are looking for convenience—almost above all else. They should, for example, be able to open an account in minutes, easily switch between a mobile app and a web portal during a single task, and upload documents for instant digital verification.
Experience matters on both sides of the relationship, too; potential hires don’t want to join an institution offering outdated processes and products any more than members want to sign up to one.
Building societies and credit unions need to enhance their customer-facing services and support to help them evolve in this highly competitive landscape. To appeal to younger demographics, the front-end systems need to be intuitive, easy to manage, and provide space for true innovation.
Reckoning with legacy architecture
Digital transformation—especially for providers with long-established legacy infrastructure in place—can be a time-consuming and expensive endeavour. And it can be difficult to step away from embedded providers that only deliver the traditional core banking services in favour of a more flexible, digital approach to serving members.
But this progress is vital for providing the experiences members and employees need and making space for new technologies such as AI and machine learning. Fortunately, there are ways for building societies and credit unions to update their approach without needing to rip and replace.
New, cutting-edge technologies can integrate with all different types of financial services infrastructure, allowing providers to build fresh digital-first experiences on top of their existing systems.
This approach means building societies and credit unions can quickly expand their offering, spinning up new services to deliver new functionalities for members. With pre-built, configurable components designed to slot together seamlessly, teams can create new journeys in a matter of days. For example, introducing a self-service tool that allows members to compare and switch between different mortgage products in just a few clicks can improve retention and cut the risk of members heading off to a comparison site to discover a competitor.
In Conclusion
Members are at the heart of everything, and that should be reflected in how building societies and credit unions evolve their offerings, processes, and infrastructure. The challenges and needs of these institutions are well-aligned, which means sharing experience and progress will be hugely beneficial for leaders.
When it comes to building societies and credit unions, there are many lessons that can be shared for the good of both – and for the overall good of their customers.
ENDS
ieDigital and Connect are portfolio companies of Parabellum Investments, the family office of CEO and Founder, Rami Cassis.
