While credit unions contemplate how to appeal to new audiences, their digital competitors have left them stranded in the market. Instead, they need to adapt or die: deliver better financial wellbeing outcomes for their members or risk losing them.

In the past, the presence of a viral-initiated economic slowdown would have been an ideal time for credit unions to show worth to their members. Historically, credit unions and mutual societies acted as a pooled system of welfare, using the deposits of members in prosperous sectors to support those in sectors affected by an economic downturn. However, in today’s market, credit unions appear less relevant than ever.

A quick look shows why this has occurred. Save for an old-timey vibe and fewer digital options, credit unions these days are virtually identical to conventional banks. They offer no real advantages that customers can’t get from other players and in many cases operate as if they were 20 years out of date.

The fall from grace for most credit unions is a long time coming. In 1984, credit unions and community banks with less than $1bn in assets controlled 30% of all US industry assets. Today, that figure is down to less than 10%, with much of their market share taken increasingly by big banks on one side and challenger upstarts removing their competitive advantage on the other.

In that time, the level of job security for many American workers has shifted from standard 9-5 full-time jobs to an increasing amount of hourly, part-time, and freelance employment. Combined with the indirect effects of the 2010 Durbin Amendment, which has made account fees and charges the norm, and this has put millions in situations without access to credit, checking services, or the ability to easily transfer money.

The end result for credit unions has not been pretty. While many have dithered over whether to re-impose fees or complex waiver rules, challengers like Chime have gone straight for their kind of member: Chime recorded eight million customers in 2020, up from around one million just over two years ago.

Digital competitors 

Other digital competitors, such as Varo Money, Simple, and most recently Current, have also performed well as of late, each with customer numbers over the one million mark. And unlike their stale competitors, US challengers have offered the genuinely underbanked a better service virtually free of charge.

Very often, challenger banks offer customers a fee-free account with an on-demand overdraft alternative, a sustainable way to build their credit score, and a wealth of digital tools to help them budget, save, and manage their increasingly complex finances. Knowing instantly, for example, if you can afford to meet friends this month, pay your various digital subscriptions, and still be on track for your short- and long-term savings goals gives overworked, time-poor consumers that peace of mind that credit unions simply don’t offer.

Increasingly, challengers in the US and abroad are also using big data to help customers find the best deals on everything from utilities and phone tariffs to spotting when they’re being overcharged on consumer credit.

Today’s credit unions need to understand why the type of customers they were set up to serve no longer consider them relevant. To regain that relevance, credit unions need to offer customers a way towards a better life.

And while this doesn’t mean that credit unions need to adopt every single piece of new technology on the market, they should learn how their competitors have done this and bring to the table their own way to help their members achieve financial stability and peace of mind.