Is your Credit Union Prepared for the Future? Part 1: Looking toward 2030

Your credit union must create an operating model and infrastructure that enables it to respond to continuous changes in the economic and social environment. Credit unions that don’t embrace these changes and transform accordingly risk facing higher costs and profitability challenges, potentially undermining their ability to remain relevant.

Our recent survey of executive leaders from large and mid-sized credit unions across Canada revealed that many recognize this challenge and are embarking on a transformational journey to embrace digitization and respond to changing membership preferences. However, they have questions on what that journey will look like and how best to approach it — as leaders, as credit unions, and as an entire system.

There is no single answer to these questions. Some financial institutions have taken the first steps to embrace change by investing in payments modernization, innovative service delivery models (such as open banking or banking as a service (BaaS)), or a revolutionized service strategy.

Additionally, credit unions are investigating opportunities to merge or consolidate with other credit unions to build the necessary capital and capacity required to transform, regardless of size. We expect significant amalgamations to support the investments required to deliver advanced digital services as the trend toward digitization continues.

Banking service models continue to evolve, offering new member touchpoints and efficiencies. Additionally, fintech and more traditional players are providing new opportunities for member investment, savings, and credit services — some of which we explored in our previous paper The Evolution of Fintech and Incumbent Partnerships.

While there are many paths toward transformation, the journey starts with asking yourself some challenging questions and creating a culture of innovation and empowerment within your credit union. As Kendra Holland, Chief Merger Officer for connectFirst Credit Union, says:

“The biggest foundation for transformation is a strong organizational culture. Start there and really transform the culture to one of curiosity, innovation, thinking differently, experimentation, and being entrepreneurial.”

Leaders need to start imagining the future today to prepare for what may come next. Our advisors at MNP have noticed three distinct trends in the credit union space and are sharing our perspective to help your credit union map out its path toward 2030.

We predict that credit unions in 2030 will be defined by three distinct characteristics:

1. Services and products will continuously evolve, driven by a robust partner ecosystem
2. Credit unions will continue to support members to achieve financial wellness, but with an increased focus on personalization, goals-based management, and lifelong partnerships
3. Credit unions in 2030 will be characterized by an amalgamation of strengths and personal advantages originating from strategic investments in mergers and consolidations

We will take a comprehensive look at each of these trends in the following pages to help you define the potential paths you can take on your journey to capture future opportunities.

Service and product evolution through ecosystem partnerships

The partnerships between financial institutions and technology companies are one of the most exciting trends in the credit union space. We predict credit unions will continue to strengthen existing partnerships and build new ones to enhance membership offerings. These partnerships may take the form of fully integrated solutions with other financial service providers — but could also include organizations outside of the traditional financial services space.

However, be prepared to face potential challenges and risks when considering an ecosystem partnership. Jodi Chambers, Chief Strategy & Innovation Officer for Cornerstone Credit Union, shares her perspective:

“While our best option is partnerships, this comes with the addition of reputational risk. We have limited control over the performance of our partners and for many of our outsourced activities like credit cards, wealth, and digital banking — it is extremely difficult and disruptive to our members and employees if we want to change partners. Not to mention the cost.”

Ecosystem partnerships must be evaluated carefully to mitigate potential risks. However, exploring these partnerships also has the potential to create new opportunities that ensure your credit union thrives in the future.

Fintech partnerships

Traditionally, credit unions have partnered with companies to enhance front-end product and service experiences for their members — such as payment platforms, personal or commercial banking products, money movements, and transfers.

Today, these partnerships also help credit unions build dedicated centres of excellence to disrupt and innovate. In our previous publication, The Evolution of Fintech and Incumbent Partnerships, we highlighted partnerships that have already been successful and explored potential new areas of opportunity.

Partnerships with big tech firms

Big tech firms (among others) are becoming increasingly interested in the financial services industry, introducing a new wave of opportunities and challenges for credit unions. Apple is offering loans through Apple Financial Services, has launched its own credit card, and is working on payment processing and credit risk evaluations. Amazon also provides financial products through AWS financial services, including Amazon Cash, Amazon Pay, loans to small and medium-sized businesses, and credit cards — and will soon launch chequing accounts. Additionally, Google offers a Google Pay debit card that skips the need to transfer cash to a bank account.

Some of these big tech firms are already partnering with credit unions to offer exciting new opportunities to increase innovation, expand reach, and advance personalization.

Service model partnerships

Further partnership opportunities may be available outside the financial services industry through the banking as a service (BaaS) model. Product and service partnerships are not a new concept between traditional financial services firms and non-financial services firms. However, further integration with retail, healthcare, and other sectors under the same or adjacent ecosystems have the potential to deliver significant value and benefits to the clients or members of both organizations.

If you are interested in pursuing these types of partnerships, be sure to consider whether the values and goals of the potential partner align with your own to determine if the partnership is the right fit for your needs.

Open banking

The Federal Government will soon release an update on the Canadian open banking framework, which will set the stage for future partnerships. Open banking will enable credit unions to offer streamlined financial services to keep up with the largest players in the industry, provided fundamental digital capabilities are in place.

While members prioritize data safety, studies show people are open to sharing financial information if they believe it is secure and will create value for them. Becoming a primary partner with the member is key. As Christine Tucker, CFO of Synergy Credit Union, reflects: “As open banking comes, how do we move beyond an intermediary? How can we add value?”

This is a fundamental question that needs to be asked and answered to drive success. If credit unions cannot add value for members through their data, there is a real risk that relationships will shift to competitors offering a more attractive value proposition.

Credit union incubators and venture capital funds

Some credit unions have been successful in supporting start-up ecosystems or incubating companies, with an emphasis on local business development — an approach that can also drive membership growth.

One example of a credit union employing this strategy is Desjardins, which helps nurture technology, agriculture, and agri-food start-ups through its various incubators in Quebec. Another example is Conexus, which launched Cultivator, Canada’s first credit union-led tech incubator and founded a venture capital firm to support the Saskatchewan technology start-up ecosystem.

In addition to leveraging these partnerships for outreach, credit unions can also learn how to foster innovation, speed, and agility from start-ups to gain a competitive advantage.

Financial wellness 2.0

Credit unions must be prepared to face shifting expectations around member experience. Your members interact with a multitude of service providers outside of the financial services space every day — and their expectations are shaped by these experiences.

“Serve the members the way they need to be served,” says Celina Philpot, Chief Executive Officer of Conexus Credit Union. “That’s the level of transformation that I’m looking for and it starts with the employee as key to that delivery. It is critical that they’re well served so employees need to pivot and deliver that level of service to the member in front of them.”

Goals-based outlook

Traditional core banking, lending, insurance, and investments support will continue in the future. However, many members now expect their financial service provider to also act as an advisor to help them achieve their goals around key events such as marriage, the purchase of a new home, sending their children to university, or retirement planning. This type of delivery requires hyper-personalization and digitization.

Your credit union will need to expand this goals-based service approach to a broader range of products and services. The advisor will need to take a holistic view of the member that goes beyond their financial needs — transforming how your organization recruits, trains, and empowers employees.

Hyper-personalized services

Financial matters can be an emotional experience and many consumers want to feel known and understood by their service providers, leading to a demand for hyper-personalized interactions such as those they see across other sectors.

Christine Bergeron, Chief Executive Officer from Vancity Credit Union, emphasizes the importance of member digital experience, saying: “That's one of those key areas that is already shifting how we work, how we interact with members, how our members interact with us in tremendous ways.”

She cautioned that digital experience should not replace human connection. “If it's all done in a digital way, do members feel that you care? Can you still create a sense of community? We know that's important to members and Vancity is tackling that challenge.”

Financial institutions are already creating digital profiles of their members to apply AI analysis and engage in a human context.

Alignment with core values

Credit union members today are looking for products and services designed to suit their needs. This is evident in the expectations of younger members who are digitally native and want ‘things that just work,’ and want it right now. These members need a holistic omnichannel experience, frictionless contact, and hyper-personalized care.

However, younger members also want to work with organizations that align with their core values and beliefs. MNP spent time investigating this focus on values when we authored our e-book Credit Unions and Millennials, and we identified several opportunities, one of which is an increased focus on translating historical co-operative principles into current communications.

Younger members are highly collaborative and care deeply about others, have a pragmatic attitude about how to address important issues, value collaborative decision-making, and prize in-person interactions — and we know that they are concerned about their finances to a greater extent than previous generations.

Co-operatives such as credit unions have always embraced notions of self-help, self-responsibility, democracy, equality, equity, and solidarity. Additionally, values such as ethics, honesty, openness, social responsibility, and caring for others come to mind when we think of co-operatives.

The need to shift the ways in which you connect with your members is reflected by Jay-Ann Gilfoy, Chief Executive Officer of Meridian Credit Union:

“We must be thoughtful in how we get our story out. I feel like there's still opportunity, we're not attracting the new member at younger ages. There's something we're missing, even though they really agree with our principles and values, something's not working in terms of how we're reaching out to them.”

Strategic mergers and consolidations

Another important trend emerging in the credit union space is the rise in strategic mergers and consolidations. Rapid consolidation of credit unions is expected to occur over the next 10 years as it may be difficult for smaller institutions to produce the necessary investments for digital transformation on their own — and technological sophistication will become increasingly central to corporate strategies and operational processes.

Mergers are not new to the credit union space — they have played a prominent role over the last 50 years and accelerated rapidly within the last decade. In some cases, larger credit unions seek out smaller merger partners to gain access to a new market or member demographic, such as Synergy Credit Union’s merger with New Community Credit Union in Saskatchewan.

An increasing number of larger credit unions will also explore merging with one another. For example, Servus Credit Union and connectFirst Credit Union recently announced their intention to merge — which will make them one of the leading credit unions in Canada and elevate the financial services they provide in Alberta.

Michelle Belland, Chief Transformation Officer from Servus Credit Union, says collaboration is one of the superpowers of the credit union system, stressing:

“We trust one another, which is not something many competitors in a normal sector would have. However, one challenge is this formidable competitive environment, so that really puts a lot of pressure on us to have brands that cut through, products that are differentiated, and offers that are compelling. Therefore, we’re looking to build scale. I'm afraid that if we don't figure it out sooner than later, the accelerating pace of change could have a devastating impact on the cooperative business model. This model is so virtuous in the context of consumerism today. It would just be so unfortunate if it didn't thrive well into the future.”

“We want this merger to be transformational,” says Kendra Holland, Chief Merger Officer for connectFirst Credit Union. “It's going to take everybody stepping out of their comfort zone, stepping out of their preconceived ways of how we should or have done things in the past to look at the art of the possible.”

While provincial credit union mergers are the current trend, we predict federal mergers will be something to watch for in the future due to the rising number of federal credit unions.

Time is essential if your credit union wants to seize the opportunities we have outlined above. If there’s one thing Launi Skinner, CEO of First West Credit Union, would transform in the organization, it’s the speed of digitization. “It takes time to transform and undo or evolve 50 years of legacy systems and legacy work. That's one of the reasons why we've become an Agile organization. It's about working differently in your organization.”

Following are five critical areas that your credit union should focus on as you design your future:

1. Predictive Analytics

Predictive analytics will play an important role in the future of your credit union. These predictive capabilities have the potential to predict a member’s next purchase before they know it themselves.

For example, predictive analytics will enable credit unions to work from a single source of truth and personalize services based upon the attributes of each specific member, leading to cross-selling activities that will truly meet their unique interests or needs.

Additionally, predictive analytics can be used to protect against fraudulent activity or purchases through its ability to predict member behaviour.

2. Mission or purpose refreshment

You may want to realign your mission or purpose to reflect shifts in the values, beliefs, and needs of your current and prospective members. We believe that it is essential to stay grounded in co-operative principles that will continue to resonate, such as community enrichment and the financial wellness of your membership. As Christine Tucker, CFO of Synergy Credit Union, shares:

“I believe credit unions have that core within them. If people got behind the movement and back to the roots of what the credit union system started, everybody would be a credit union member.”

Today, most users of financial services assume that technology is in place to address the full range of their needs. So, the purpose statement for your credit union might succinctly explain why the unique combination of community presence, tailored and personalized services, and a culture of caring for its members in combination with secure and leading-edge technology is the best way to help individuals, businesses, and communities in the moments that matter most.

A compelling purpose statement can’t be delegated to the marketing department, a PR agency, or internal staff members. The statement of business purpose must be consistent with the mandate of the leadership and board.

3. Service delivery model of the future

Your credit union must examine its service delivery model to ensure it is member-centric and remains relevant and viable in the future. Credit unions are well-positioned to make agile updates to service delivery due to less complex physical and digital infrastructures than peers in the banking industry.

For example, Innovation Credit Union (ICU) re-designed its service delivery model to prioritize a member-first experience through its partnership with VeriPark, powered by Microsoft. This partnership will enable ICU to provide all banking services in a fully integrated, cloud-based digital ecosystem to make sales, provide services, and solve problems from one location.

Successful credit unions will develop personalized service delivery models spanning the entire membership experience, with coordinated touchpoints to facilitate clean transitions from service to service in the future.

4. Connecting the front and back office

Many of the efforts related to operational integration to date have focused on delivering seamless front-end experiences to members — either through omnichannel delivery or intuitive platforms that tie multiple service lines, accounts, and product types in a single view.

Financial institutions of the future will need to continuously optimize processes and leverage next-generation technology platforms and partnerships to achieve full integration. This requires holistic and simultaneous evaluation of front and back office operations, identifying key points that matter the most.

Focus areas for investments vary across financial institutions. However, reducing redundancies and improving process responsiveness, as well as building advanced data analytics capabilities to inform decision-making will all be important.

Many institutions are dedicating resources to purposefully reduce technical debt, and to decommission legacy platforms to improve hygiene and prepare for transformation-related initiatives. The balance between ‘innovation’ versus ‘keeping the lights on’ will continue to be carefully considered in the coming years, especially with larger and more traditional financial institutions.

5. Branding and culture

As digital transformation increases, future branding will need to project a modernized, digitally sophisticated image balanced by the critical link to co-operative principles and values.

A recent Forbes article pointed out that more than a third of Gen-Z individuals learn their personal financial strategies from social platforms like TikTok and YouTube. But younger members are also highly aware of the risks of data theft and are focused on privacy.

Your partnerships and technology investments must meet critical thresholds of agility and sophistication — as will your ability to be accessible and available as valued advisors.

An emphasis on environmental, social, and governance (ESG) priorities will also be important in brand communications. Members may be attracted by your credit union’s investments in local businesses that are environmentally responsible or by financing member investments in green technology. But they will also be looking for your internal policies on equity, diversity, and inclusion (EDI), and accessibility: how you treat your own staff and your members.

Your credit union’s communications must provide meaningful and concrete examples of the ways in which your investments in technology partnerships and operating models will address member and community needs. Providing the top ten reasons to join your credit union is one way to differentiate your credit union from a traditional bank.

Your brand must reflect your credit union’s culture — how you deliver your services, how people feel about working in your credit union, and how you engage with the many communities you serve. As a credit union leader, you will need to invest as much in your people as you do in technology.

The credit union landscape will continue to evolve and change to meet the demands of membership in the future — and we have barely scratched the surface of what’s ahead. While many credit unions may face obstacles on the path towards digital transformation, digitization will allow for exciting new opportunities to meet the needs of the members you serve.

Our advisors at MNP have planned a series of publications to provide useful insights from our experiences to prepare you for your journey towards the future. If you need help future-proofing your credit union, contact a member of our Credit Unions team today and stay tuned for our next publication about the future of the credit union industry.