IT'S A MATCH: Credit Unions are Made for Millennials
The Canadian credit union story is one characterized by disrupting the status quo of an archaic and entrenched industry and fighting for the interests of lower-income Canadians. Since their inception, credit unions have been values-based organizations that avoid the aggressive sales and profit culture of the traditional banks. The principles behind the emergence of credit unions and how they have operated for over a century aligns closely with the values held by younger consumers who demand authenticity and shared value creation from the brands with which they choose to interact. These attributes set credit unions up for success with younger generations, however while credit unions refer to these attributes as their foundational co-operative values, younger generations have minimal recognition of what it means to be a co-operative, so finding language and messaging that resonates with them to tell your story is important.
Combining Digital with Branch Experiences
The larger banks have responded to millennial preferences by creating or acquiring low-fee digital banking institutions, such as Scotiabank’s acquisition of ING Bank Canada, rebranded Tangerine Bank, or CIBC’s Simplii Financial, the rebrand of the former PC Financial client base and platform. Recently, MNP has seen credit unions respond to market changes with their own digital solutions such as Meridian’s end-to-end digital mortgage product and launch of their banking subsidiary motusbank in 2019. Where credit unions can differentiate is by offering new or branded digital offerings in concert with the convenience of branch interactions. While Tangerine and Simplii offer strong user experiences and mobile applications, they lack the branded branch footprint and personal touch that many young people desire when making big financial decisions such as car loans or their first mortgages.
Credit Unions as Advisory Hubs: Financial Education / Branch Experience
Centering branch and digital experiences around financial planning and education are additional areas where credit unions can excel. A significant source of anxiety for young Canadians is founded on a fundamental lack of education in personal financial management. Millennials are among the lowest-educated generation, with only about 24 percent possessing a basic understanding of financial products such as mortgages and investments(i). MNP found that, while most youth want to understand finance and be educated on financial products, they do not trust their banks to have their best interests at heart, perpetuating the cycle of low levels of financial literacy.
The importance of financial advisory and education was a key theme at the 2019 Large Credit Union Coalition (LCUC) Hackathon held in MNP’s Toronto office — an event that harnessed the power of collective knowledge of Canada’s credit union innovation leaders. Participants identified financial advice and financial literacy as key opportunities for credit unions, and the winning team impressed the judges with its ideation and solution targeting this opportunity.
MNP’s Annette Bester, Partner and National Credit Union Leader, engaged with participants at the event and noted that “The LCUC Hackathon had a threefold purpose — to build, learn and connect — bringing together a confluence of talent focused on innovation for the credit union system.”
Credit Unions as An Advisory Hub: Small and Mid-Sized Businesses
Businesses are the backbone of the Canadian economy and providing advice to business raises their acumen and contributes to their success and growth. Becoming a business advisory hub builds stronger members and increases their demand for services, all while strengthening relationships.
The COVID-19 pandemic has created a significant source of anxiety for Canadian business owners because they are unable to use historical performance to manage their business going forward. This environment also creates additional risk for credit unions as managing loan loss provisions becomes increasingly challenging as cash flow becomes a concern in many industries.
Like millennials, many small and mid-sized business owners are looking for advice and tools that they can use to better manage their business and navigate this new environment. While many small and mid-sized businesses are not currently owned by millennials, succession is coming to the forefront and the pandemic may accelerate change. Business transition will place many of these businesses in the hands of millennials.
The largest banks are offering additional advisory services to business that make it difficult for credit unions to compete. Combining traditional financing services with business advisory offerings such as cloud accounting, data analytics, and bookkeeping services provide a one-stop shop for core finance and business needs. Having enhanced services that businesses require will be an important retention and differentiation strategy for financial institutions.
Credit unions have a finite amount of time to capitalize on the next generation of young entrepreneurs, positioning themselves as the clear choice. How do you fast track to capitalize on the current environment? One way is to form strategic partnerships that do more than just react. This involves capturing and analyzing key business drivers and trends to proactively identify opportunities or challenges for the members’ business. Its time to proactively execute on a strategy to become the pre-eminent choice as a trusted advisor for small and mid-sized businesses.
An example of such a partnership is the Conexus Business Accelerator Program, which provides business advice for members facilitated by subject matter experts from MNP. Through this program, businesses can learn how to plan for business succession, better manage cash flow, and strengthen their business in this time of disruption.
Customized Products
Another crucial step for credit unions to attract younger members is to develop products specifically designed for them. Customized products should be aligned with what young people value the most, such as travel, status, and wellness. While travel may be put on hold during the COVID-19 pandemic, there is an opportunity to plan for its resurgence amongst the millennial generation. Most importantly, new products should be thoughtfully designed to meet them at crucial touchpoints in their customer journey. According to Rob Carrick, one of the biggest advantages a credit union has is that they are much more nimble than the banks and have the ability to design bespoke products for certain segments without as much decision-making paralysis.
Young adults go through major financial transitions between the ages of 18 and 35. It is a time when many are making some of the most important financial decisions of their lives, and with vastly different goals compared to their parents. As noted previously, young people value experiences more than they value assets and they set goals for the experiences they crave.
One way credit unions can customize products and services to attract younger segments is to play on their desire for world travel.
Have Credit Union, Will Travel
With the rise of social media, travel has become the new social currency for young people. According to Forbes, travel is more important to millennials than escaping their student loans, buying big ticket items and even improving relationships with their family and friends.(ii)
Pre-pandemic, the trend is especially true in Canada, with a recent Ratehub.ca survey revealing that Canadian millennials primary savings goal was for world travel(iii). Young Canadians travel more than any other cohort, and 65 percent of their trips are international.(iv) With an average spend of approximately $1,300 per trip,(v) millennials represent a significant opportunity for travel financing, insurance, and advisory services.
COVID-19 has brought world travel to a standstill for now, but the opportunity remains for credit unions. While profitability and risk on travel products should be considered, credit unions should recognize this is a potential entry point with younger segments. These types of travel products can be developed quickly, as they are a natural extension to existing loan and deposit products and can be easily marketed to target consumers.
As an example, credit unions could create short-term, high interest savings accounts specifically earmarked for travel. These types of products could help prevent members from utilizing predatory pay-day loans or other high-cost alternatives by providing specialized low interest loans to aspiring world travellers and advisory services on insurance and money management overseas.
Supporting globally-minded consumers can also help credit unions lift the perception they have Canada-only capabilities — a view shared by 70% of the millennials we surveyed.
Become Fluent in Online Communication Channels
It is one thing to entice a millennial about a certain product or service, but another thing entirely to capture their interest when making contact through digital channels. Generations that grew up with the internet have fickle attention spans, and if your website or mobile application does not offer an amazing user experience or quick answer to their specific questions, they will quickly lose interest. This is where artificial intelligence, and more specifically, chatbots can be of tremendous value to credit unions.
Chatbots are used for a variety of different functions but can be especially useful in guiding website / mobile traffic to relevant products and services and answering simple inquiries. Young people are much more likely to engage a chatbot than email or pick up the phone to figure something out(vi), and according to Forbes, 70 percent of millennials have reported positive experiences with chatbots.(vi) Some observers predict that, for routine queries, online chatbots will replace personnel at branches and call centres within a decade.
Chatbots can help younger consumers understand credit union offerings quickly and on their own terms. Chatbot technology delivers instant gratification, digital engagement and convenience to young customers; all ways for credit unions to catch younger generations’ attention at critical points in the customer journey.
Best of all, intelligent chatbots can be implemented quickly and inexpensively using out-of-the-box solutions from the Microsoft Power Platform.
Tapping into Competitors Experiences
Credit unions can learn from other financial institutions in how they have attracted young people to their products and services. The following table highlights several financial institutions that have had success attracting younger clients by catering to their preferences and goals while capitalizing on frustrations with legacy financial services providers.
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i https://www.pwc.com/us/en/about-us/corporate-responsibility/assets/pwc-millennials-and-financial-literacy.pdf ii https://www.forbes.com/sites/jefffromm/2017/11/08/why-millennials-are-the-most-important-consumer-generation-for-the-travel-industry/#11b3362be1f1 iii https://www.ratehub.ca/docs/mortgage-reports/digital-money-trends-2017.pdf iv https://www.hoteliermagazine.com/the-millennial-effect-why-hotels-need-to-focus-marketing-efforts-on-this-growing-demographic/ v https://www.forbes.com/sites/jefffromm/2017/11/08/why-millennials-are-the-most-important-consumer-generation-for-the-travel-industry/#11b3362be1f1 vi https://www.forbes.com/sites/andrewarnold/2018/01/27/how-chatbots-feed-into-millennials-need-for-instant-gratification/#2c35c7ad3675