Membership Growth Slowdown? Here’s How Credit Unions Can Fight Back
0:00 Seventy percent of newly open accounts go inactive in the first ninety days. Anyone go fishing before. If you've got thirty percent of your cast had some sort of a bite, you'd be out there every day. Right. I quit my job just a few full time fishing. They don't care about their rate. They care about driving the vehicle off the lot, and they want to get it home. Credit unions focus on retention over acquisition. Hi, thank you for joining us today. Membership growth is some people think is shrinking across the industry. Some people think is just growing at a slower pace than it had been historically, and we want to talk about what's driving it and what credit unions can do to change that membership growth.
0:45 So I've got Drew and Barry with us today. I guess one like, what's your reaction to that, that idea that membership growth is shrinking and why do you think that credit unions may be losing numbers despite loan growth today? I think membership growth is shrinking for some segment of credit unions. They tend to be smaller anyhow, and in some cases may not be able to have a digital platform that is not just attracting new members to them, but actually keeping members. Perhaps there's elements of banking transactions that their members can no longer do that they are otherwise getting served at perhaps a larger institution. I think the larger institutions are still growing from membership perspective, But of those memberships, you know, I do wonder if those relationships are getting deep into enough that they're going to be meaningful for the credit and going forward. We always used to talk about PFI primary financial institution. Well, I don't think anyone as a primary financial institution anymore.
1:48 Personally. I deal with multiple credit unions and banks for different reasons, and it's just sort of happened to be that way. And I don't feel I have a need or even a desire to have everything in one place. And I know from my credit union experience, and Drew you probably had the same serve experiencing your credit uni that it was all about PFI. We've got Lynn now as a brand new member. How do we get everything from Linn's household financial transit financial products with us? And I just don't know if that's a reasonable objective anymore. And on that too, you think about what banking was I don't know, ten twenty years ago. From a relationship perspective, you know, Barry walk in with your parents and open up a bank account at XYZ Bank or Credit Union when you're sixteen, seventeen, eighteen years old and that's your primary financial institution because mom and dad have banked there for so long. It was more of a relationship style of being able to establish your banking and your future needs.
2:45 Like that's just not a thing anymore. I mean, I know we have in branch experiences and people still go to in branch for specific things, but things are more transactional. It's more at your fingertips. You're able to do things on your phone, your tablet, your computer, so and so for right and people don't desire that type of relationship that banker. One knows mom and dad will get to know me, experience my journey through college and into the workforce and marriage and kids and all that stuff. They just want to click and open it. And then you think about the advancement of search engines. I mean, aside from Google Chat, GPT, you can go in and say I want a bank account that offers this, and you get an output right away. You click some buttons and bam, you have a deposit account. So I think it's just the landscape has change of you know, becoming members or becoming a customer of a bank, Like, there's way more at your fingertips to be able.
3:36 To do that, right except the SEG based credit us right. So, I think the SEG based creditings still have a unique place in our industry, and God bless them that they still have the ability to bring in those brand new employees from whatever company that is that they're affiliated with, and even in the onboarding of those new employees for XYZ the company, now we can actually sign them up as a member of the credit union and then try and deepen that relationship from there. So I think they've still got that value in the marketplace. But there's less and less of those SEG based credit unions as well. If they were too small or can't necessarily grow, they may end up merging with or larger credit unions. And there's not a lot of new SEG based credit unis that are being established in our marketplace, not like there was fifty years ago or eighty years ago.
4:29 As a case, maybe. Great point too, and SEG based strategy is a great strategy, and it worked for credit unions for a very very long time, and still in a sense does. But you think about the seg base, whether it's this electrical union or this other type of utility, utility or something of that nature, that is more of a dying breed right there. Unions have become much less in the US that they were fifty or so years ago. That if that is your sole strategy getting growth from a membership perspective. And then going back to my my prior point, if you're going to go sit at someone's place of employment and offer we have this depository account that yields X y Z or all of these different things that come with your checking account. Am I going to up and leave my primary financial institution because Barry Lynn is sitting at my workplace and here's all these attractive offers. Probably not true.
5:21 And I think it is a lot easier too. I mean, Barry you kind of called it out like you may not want to have all of your kind of share a wallet at one place anymore. It's easy enough now to have multiple apps on your phone. They all instantly log in when you with your face when you look at them. It's not like you really have to manage multiple relationships per se if you don't want to, because you can just open a couple apps. They are all grouped together in a banking folder on your phone, and it's not the friction's not there for the consumer. So and it's now easy. If I have three different depository accounts across three different credit unions, and I want to transfer from Credit Union AD to Credit Union C for whatever's going on in my life, that fast, right.
6:02 Sure, great point. You don't have to drive to three different branches. Right, yeah, exactly, or wait on mailing a check in the most case. So that's actually a good kind of gets into the next thing I want to talk about is just the value then those fintech partnerships. So a lot of that that you know, credit Union to credit Union or bank to bank transfers facilitated through various kind of open banking tools that have developed over the years. How can fintech partnerships help drive that member retention and drive that attraction and awareness of credit unions? Well, I think the number one is that at the front end most credit unions they don't have the tech stack or the resource to support these digital experiences. That everyone wants today, right, they have it, but it's a clunky type of experience. So I think having fintech partnerships offer the digital experience, offer the journey, whatever you want to call it. They're going to have to partner with FinTechs to deliver that. Now. On the back end, I think FinTechs can also help with creating more core members or deepen those member relationships because they came through their channel with this you know, for lack of a better term, sexy experience that the borrow or borrow or the member kind of remembers that right, and then they're going to stick with them and potentially be a PFI type of member.
7:19 Yeah, that first experience is so important, I think. And if you're partnering with the fintech that has a really rich and easy to handle a first impression on a digital platform, what a great introduction to the crediting that is now that members expectations now are high that you're going to have the same sort of a rich digital proposition that your fintech partner has, So you know, if anything, it sort of makes everyone have to step up their game a little bit in terms of that user experience, the clunkiness of moving from sort of once to another if it's on isso for example, I'm going back to my old crediting days where we want to own that whole experience for that member digitally, but it was so hard to do it if you didn't have the ability to do Sso between different systems.
8:16 And so on all of our listeners, I'm sure in both of you there's this idea and true in a lot of ways. I think founded by a lot of reality that indirect lending does not lead to long term numbers, and that that's a kind of a transaction, and then it's hard, if not impossible, to build that. And according to a Pinwheel study earlier this year, seventy percent of newly open accounts go inactive in the first ninety days, so seventy percent. So you're spending the time and money and you know KYC to open up that account and then it goes inactive without kind of an anchor option. And I think part of that is the difficulty of doing things like switching direct deposits, switching bill pay and that just inertia that people have a lot to do, and that's kind of the last thing on their list.
9:03 So how do you think about that, How do you think about this kind of indirect lending. Get this new consumer, get this new member, and drive it to become even if not maybe like the full wallet share like part of that and getting a meaningful part that makes that a more economically attractive new member. I've heard that very I'm sure you've heard that same concept of getting an indirect member to become a core member or a primary financial institution is something that just can't happen. And I'm going to disagree with that, and reason because is you have multiple credit unions that play in the indirect space. They're very good at driving automobile loans to their balance sheet right, and they're getting a member.
9:44 But the consumer at the time of being at a dealership cares about one thing, and it's driving the vehicle off the lot that day, and at most times probably not favorable conditions as it relates to APR for probably the payments a little bit out of their general sense of what they wanted to do there. But what happens on the back end, I think is what separates this actually coming to fruition. Without naming names, we have a lending partner that we partner with here at Upstart, that is seeing about a ten to fifteen percent conversion rate on their indirect side because of the amount of touches they're doing after the auto loan comes on to their balance sheet. And I don't know if that's a secret sauce of on the day, three day, seven day fifteen.
10:26 And then another thing that is attractive is you have to incent them just because the institution provides an apy of X or you're able to use your debit card at wherever you want for free. If you have some form of an incentive, then bringing in those members to become core members and not having them close their account out within ninety ninety days that you alluded to, you're going to see higher conversion rates. Yeah. I think incentive incentives are really important, and I like, if you would look at my personal wallet, I have more probably a higher number of credit cards that you would think I would because I love incentives. I've got an Amazon Prime one, I use my American Express for travel. I have very fit for purpose cards that I use for very specific things. Or maybe I get a six month no interest on this and then I'll pay it off before that time. So like those things are for people who want to use those rewards, those can be super beatingful.
11:18 Sorry you mentioned about onboarding. So multiple touch points through probably multiple different methods, right, Some might be an email, some might be a text, some might be you know, an actual letter that shows up in someone's mail. It mighte be a phone call depending on all the above. And then to take it even a step further is just because Linn walks into a dealership and buys a specific type of vehicle and Barry walks into a different dealership, there's different personas everyone's at a different stage in their life. You have to take it a deep step further and have different campaigns, different touch points, different touch points, But what is your incentive offering to the person at that point in time in their life. And there's so much data that's your fingertips that you're able to create the messaging around that point in their life, whether it's through looking through their credit reporting agency, you're able to see the income kind of based on everything that's come through from underwriting perspective to tailor your messaging to become or to get people to become more core members.
12:18 I'm going to take your seventy percent stat and I'll turn it around, say, how about thirty percent actually don't close your account or aren't inactive in the first ninety days anyone go fishing before. I mean, if you've got thirty percent of your cast had some sort of a bite, you'd be out there every day. Right, I quit my job and just be a full time fishing So you know, there's an opportunity there that I think is somewhat lost. We tend to focus. On the negatives of it, of all ninety percent or never going to be Well, what about that ten or twenty or thirty you know, ten to fifteen percent? It is a lot, It really is and can be meaningful. So part of that is the cost of doing business. You know you're going to cast out and you're not going to get any bites at all, Okay, but you will get at least in this case, ten to fifteen percent.
13:01 One of my credit unis that I led We actually had about a thirty percent take up rate on the second or third product or service on an indirect auto relationship. Now that was with This was ten fifteen years ago when people still answered their phones, So you know, we could we would be calls right and we would make outbound calls. And it was local because there were local auto dealers kind of up and down close to you know, within like a three or five mile radius of where branches were, and they're like, oh, yeah, we know your credit union. We see your signs all over town all the time, and oh okay, oh you've got this offer. So it had to have an incentive behind it. It wasn't just yeah, I'm going to open a checking account just because you're down the street. It was all open a check account because I'm going to get that two hundred dollars bonus, or I'm going to get you know, maybe a discount on my on my auto loan for auto pay things like that. So there was a compelling reason to do it. But I think we need to focus I think creditings you need to focus on sort of the positive aspects of this and be a little more optimistic. Now I'm always a gold last half full guy, but you know, I think maybe our marketing teams it can be it can feel like it's it's it's a really hard uphill climb, especially if you're just not gain a whole lot of take up, then maybe try something different you know, try a different incentive, try a different method to try and get that second or third product.
14:19 And understand of that thirty percent, why did they stay with you? Are they transactional? Are they exploring other product offerings that you are sending them, or just organically coming to your site and researching refinance of a mortgage or a credit card, like you have your fingertips at being able to access all of that data. Yeah, I think we're going to get bury some upstart branded trut waiters to for your next I'm all. Fortunate for you. Are you a ten percent or less or ten percent or higher fisherman? No comment? Now, I think I think the personalization pieces is really interesting to think about and and you know, getting very specific on what those offers are, but also brand awareness and that AI tools of course can drive that hyper personalization.
15:09 So you know what, do you think some other uh maybe ideas are around how both credit unions can can use that personalization to target members and really build that member loyalty, like really drive that from being a transactional one product to having a more kind of multi product, longer term relationship with a new member. Yeah, I'll go back to the SEG comment before and lean into that. And you know, if you're if you're primarily a SEG based credit union, you've got some community aspect to your membership, your field of membership. That's okay, but lean into that heritage of that company you have. And if you're just purely more of a community based UH or organizational institution, then you're going to have to find something that's going to be meaningful and compelling for those new members. So how did how these members come to us? Was it through some sort of a digital channel purely? Well, then there's a connotation there that I'm probably they're probably going to want to transact with you digitally, and so sending a letter to their home may not necessarily work because they're all digital, right, and in a text that that member is probably going to be more amenable to. That's sort of an approach than another one.
16:20 What do you think, duth I'm going to. Go a different direction here and be of course biased it's being an upstart hosted podcast, but you think about what I was talking about a little bit ago, is the person is coming to a dealership to get a vehicle. That's all they care about. If you don't have anything overlaid in that experience that gives them the incentive to become a more core member to your credit union, then they're going to probably drop off and be a part of that thirty percent that you're talking about. So if you're able to I don't know how you solve this in the dealership, but have your incentive offering in front of the member while they're in the in the dealership, the conversion ratio is probably going to go up. Right, incentive is rate sort of win exactly.
17:05 But at the end of the day, they don't care about their rate, right, they care about driving the vehicle off the lot and they want to get it home and then they'll they'll figure out they'll figure out all of the rest later. But if there was some type of incentive in the dealership of I mean, we've all sat there. You qualify for membership with X y Z credit Union, they approve you. If you were able to show some type of an incentive in that exact same experience, that might trigger them to think, you know what, I might want to check this out. And if the offering is rich enough, then it makes even more sense. So why I say all of this is we've seen. We actually offer something at upstart called member cross sell. Both of you of course know about member cross sell. Is we have a similar flow, not for indirect channels, but our an applicant comes to upstart dot com, goes through their personal loan, auto refinance and or helock experience, and we partner these individuals with our lending part partners. We have now been able to overlay this cross sell perspective called member cross seal with our credit union partners, creating the messaging, creating the incentive based on personas and things of that nature, that while they're captured in the experience right now, they are able to see an offering that could help increase conversions. So again going back to they came into the upstar platform caring about a personal auto or helock loan, but also at the back end, you're now being presented a specific type of offering and it's right there when they need money the most.
18:32 And I think about over you know, the course of kind of my adult lifetime, like in banking for for decades, I think the only time that that's ever that sort of offers been presented to me very infrequently, So I think you just don't see it a lot. I think years ago, or you know, mortgages get sold all the time, and our mortgage got sold to a new bank, and then immediately I received a credit card offer and I took it because I said, okay, you know, I'll do the credit card. I'll open it and keep it there. And I'm not even sure. I think I maybe used it a little bit, but I can think about that. And that was probably fifteen years ago. So it's like, how often do those things are people even trying? And I think buried to your point, if you don't need to get seventy percent of them, can you get a meaningful ten to fifteen percent? Can you make the economics work of what you're offering versus the conversion? So I think you know, as you then, you know, how do we think about credit unions being able to measure success beyond the loan origination? Like how would you advise them to think about like what makes member cross sell effective?
19:33 What makes it like economically viable and important for spending time and resources on things like that. Yeah, some credit unions have great profitability metrics internally and can sort of make that connection between that new auto loan the next most probable product is this or deeping. This relationship is predicated on gain. Maybe the digital platform gained them. Register for that. And then part of it is how do you make it easy for them? So I can send you a letter and say, you know, click a part of me. You use the QR code to get to a rich solution as opposed to you here, sign this and mail it back just in my self address stamp envelope. I mean, it's very nineteen ninety eight to do it that way, and that just doesn't work anymore. So if you've got those profitability metrics, then I think that that would help you sort of figure out again use efficient analogy. Am I going to cast over here? Am I going to cast over here? Where do I think there may be a bare chance of actually catching?
20:35 I think each institution is going to have different measurement of success. It could be one additional product. But of that one additional product, which one makes that person more ingrained in transacting with your credit union? It could be mortgaged. It's probably pretty hard to get a mortgage refinance current state, the current state, but if you're able to get something that is part of their livelihood, that is going to keep them with you. That's probably going to be the largest measurement of success. And I do think. I mean, we talked about mobile wallet and kind of share share or mobile apps and share wallet, Like a lot of the technology is getting very similar, so like they're maybe not very differentiated between functionality, Like you kind of expect certain things to always happen digitally now and when you encounter like the paper scenario, which you do still encounter sometimes it is a negative experience.
21:26 So you know, how how has that like just kind of changing expectations force credit unions to be able to compete and to change their strategies there. Credit unions, no matter if they're large and or smaller in nature from an asset size, they're not ever going to be able to compete with Chase Bank or Wells Fargo or Bank of America and all these large institutions or even the smaller credit unions you're talking about billion dollar asset size competing with the four and five billion dollar asset size. You're going to have to partner in some aspect to be able to do. That right and make sure it works. Like how often do you get frustrated by a bad log in or password or a password or a forced password reset or two factor authentication that doesn't necessarily work all the time. Things like this are things are going to dissuade a new member, a brand new member, who's who's looking at you for perhaps that next product. If there's some aspect of that relationship with pard of me, some aspect of that experience, it's not really going to work for them.
22:30 You're never going to get them. No, Yeah, So like just reducing friction as much as possible, make it easy, make it a nice experience, delight delight them, don't make them annoyed going through. Well, if this episode helped you rethink membership strategy, subscribe to the show on YouTube and you can watch full video versions and bonus clips you won't hear anywhere else. All Right, it is time for fact and fiction. So we're breaking down real opinions on the industry, deciding if we are on board or not. So, first one, we talked a lot about this about the customer experience factor. Fiction. Onboarding is the single most important member touch point. Fact, fact, wholeheartedly fact. This is your first impression, for a first impression, So and maybe it's not first impression.
23:17 Drew talked before about an indirector auto relationship, So really that first impression was with the finance manager, not necessarily with the credit union, the financial institution. So this is my first, my first foray into providing you what we are all about and how we are going to help you and support you in your financial journey, whatever that may be. So this is very very important, not just the message that I give, but the method in which I deliver it. And am I putting am I putting expectations out there that I can actually follow up on that I can actually meet. So set that high expectation, but also be sure that you can meet that. And it's not your first one. It has to stay ongoing, right, probably going to drop off from an interest perspective within the first thirty to forty five days if you're not messaging to them on an ongoing cadence and you think about the first real look into your your organization is probably going to be pretty standard across the board for all new members. But then how do you tailor that messaging to be more in benefit or more diverse compared to what they would get from others to get them to be attractive.
24:25 To stick with you. Yeah, and I think that that welcome and that like the early days, building that relationship building that even brand awareness. So does brand trust matter more than rate competitiveness? I wish this was fact, but I do think it's fiction. And the reason for that is, if I want to find the best CD rate in my market, it's very easy for me to find that with the simple Google search of bankrate dot com or some of the others that are out there. Now. Where the brand trust can come in is if the brand has some if the Credit Union has some sort of a relationship management where I've got other products and I want a CD and you're going to give me twenty five basis points more than the prevailing rate on whatever this term of CD is. Now, there's there's value in me staying with that brand. So I think the more that Credit Unis can lean into the relationship management aspects of it, that's one way to sort of building building those those memory relationships.
25:21 You know, we talked a lot about that, you know, welcoming the new member, like delighting them, that kind of onboarding experience. But how much does brand trust matter? Does that brand trust and recognition, does that matter more? Than rate competitiveness. I mean, I wish that the brand trust meant more than rate competitiveness. But the reality is, with a simple Google search, I can, for example, find the best CD rate in my marketplace, and it may not necessarily be with my institution, my primary or my credit union. All Right, so we talked a lot about, you know, this idea of delightful member experience, making onboarding feel good. But how much does brand and trust matter and does it matter more than rate competitiveness.
26:04 I mean, I wish brand trust was the fact, but in reality, rate competitiveness is more of the fact. Nowadays, it's so easy to find, say, the best CD rate in your marketplace with a simple Google search. Now where this becomes meaningful from a brand trust perspective is if your credit union has some sort of a relationship management program where okay, here's our stock CD rate for this certain term, but because you're already a member, or because you've got a certain relationship with us with so many prouty services, we'll give you twenty five basis points more. Now that becomes meaningful for me, and now actually keeps that money with the credit union as supposed to going somewhere else. I think that's where credit unions can win by lean into that relationship management perspective.
26:47 And they have to. I mean, you think about brand awareness as it relates to credit unions. The knowing of the brand of the multitude of credit unions across the US is not something they're ever really going to know. You see Chase Bank that we've talked about it already there they're blasted all over every single building, every single commercial Credit unions aren't able to put the cost perspective out there to build the brand awareness. So you're going to have to, of course lead with the relationship. Right And I'll turn this around a little bit because personally, I was looking for the best CD rate in my marketplace. I'm in southern California. Well guess what it turned out to be with a credit union that I was not a member of. Now I'm a member of, and now I'm getting their marketing messages. They're sending me offers for heelock and so on and things that I'm now considering them.
27:32 I haven't taken that second proctice service yet, but there's nothing in that relationship so far that has told me I'm never dealing with these guys anymore. I mean, so it was a really good introduction for a brand new member who now has the potential to become a more valuable member. For that got you thinking, absolutely true, And. I think that that actually kind of leads perfectly into the last factor fiction. I wanted to raise credit unions focus on retention over at acquisition. Yes, I wouldn't even deem this as fact and or fiction. I'll just kind of give a scenario. You want to, of course, keep your existing member base. The credit union member base has been well if mid fifties, low fifties, it's kind of a dying breed as it relates to more members coming in, so you want to be able to retain them. But then from the acquisition perspective, the cost to acquire these individuals is very, very high. And if you're paying I don't know what the dollar amount is to acquire a new member through an indirect channel, and if they don't become a sticky member, if you're putting all of your resource towards retaining, it's probably better for the overall the income statement.
28:43 Yeah, and you're right, that cost is very depending on the channel which you're acquiring those new members. From you better make sure those members are coming in though, yeah, once are actually desirable for you. And what I mean by that is if it's just purely transactional and you know you've just got this one product for a certain period of time, you better make sure that your expense base on that is low enough that you're going to realize some sort of a profit off of that. Back in the day five six, seven years ago, two ninety nine auto loans for a brand new member coming in, we weren't making a whole lot off of that. I know that, you know, FED funds rates were low and margins were low and so, but that was a pretty skinny margin that even one little loss on that loan on an auto loan was really sort of turing that program economics subside down.
29:28 You're probably paying more than you were earning an interesting come. I mean in some cases sure, yeah, so you're kind of offering that as like a loss leader to bring them in. And if then you don't get the conversion you want or you have higher losses, that's going to wipe the way. So on sale to sell potato chips, but maybe we weren't selling potato chips because we didn't have the flavor they liked, We didn't have the brand they liked. We didn't have You know, there was some reason that those that second or third product service wasn't really compelling enough for them. Thank you for watching, leaders lending, We'll see you next time. People to us people
