Guest Editorial by Brynn Ammon, President of Credit Union Solutions, Jack Henry
As more fintechs increasingly enter the market, the financial services industry has had to respond in a modern, tech-forward way in order to meet the changing needs of consumers. Recent data reveals a swift move toward digital-only banking solutions, highlighting both the opportunities and obstacles that credit unions must navigate in adapting to this shift.
Opportunities
Improved Member Experiences: Digital-first banking offers a convenient, seamless experience, enabling members to manage their finances anytime, anywhere. It can also help credit unions better reach modern members who are predominantly tech-forward and digital-first.
Cost Savings: Automation and digital processes can significantly reduce operational costs.
Greater Financial Inclusion: Digital services can extend to underserved populations, providing a connection to financial resources for those without traditional credit union access.
Data Insights: Utilizing big data and machine learning can enhance risk scoring and enable personalized services.
Challenges
Cybersecurity Threats: The rise in digital transactions increases the risk of cyber-attacks and fraud.
Regulatory Hurdles: Adapting to evolving regulations in the digital space can potentially be complex and costly.
Building Trust: Establishing and maintaining member trust when it comes to digital platforms is crucial, especially for those more accustomed to traditional banking.
Technological Integration: Integrating new digital solutions with existing legacy systems can be an adventure.
Credit unions seeking to serve modern members effectively must innovate and adapt to remain competitive in this evolving landscape.
Today, a significant number of consumers – 61% – are now inclined to switch to a digital-only provider, reflecting a broader trend towards online and mobile financial solutions. This shift is projected to continue as digital banking users in the U.S. are expected to grow to nearly 217 million by 2025.
This rapid growth underscores the importance for credit unions to adapt and innovate to meet changing consumer preferences.
Effectively Reach Diverse Members
Interestingly, the appeal of digital services extends beyond younger generations. While a fondness for being tech-forward is often associated with millennials and Gen Z, data reveals that 91% of Generation X and 79% of baby boomers also recognize the benefits of digital services. This widespread acceptance suggests that credit unions must design user experiences that cater to a diverse demographic range.
For credit unions pursuing digital transformation, the benefits are tangible. Financial institutions that focus on digital strategies report reductions in operational expenses, improved accountholder retention, and increased productivity in deposit and loan account openings. These enhancements are not just about keeping up with technological trends, but are essential for maintaining competitive advantage in a tightening market.
A primary driver behind digital transformation for 77% of organizations is revenue growth. With extended higher interest rates resulting in tighter net interest margins (NIMs) across the industry, the pressure to find efficiencies and boost revenue is more intense than ever.
This makes addressing the challenges of maintaining legacy systems – which can consume up to 70% of IT budgets across the industry – paramount. To counteract these inefficiencies, credit unions need to explore budget-friendly and time-efficient methods for innovation.
Digital-only financial institutions have captured market share by focusing on superior user experiences and simplicity in their offerings. Credit unions must respond by removing friction from their digital platforms and ensuring that their services are intuitive and user-friendly for all generations of members. This shift involves not just technological upgrades, but a fundamental rethinking of how services are delivered and experienced.
One promising avenue for facilitating this transition is the increased adoption of open APIs. These tools can accelerate the development and deployment of new features, enabling you to innovate more rapidly and achieve meaningful business outcomes.
The Stakes Are High
The transition to digital-first banking presents both challenges and opportunities for even the most tech-savvy credit union.
As member preferences shift and financial pressures mount, credit unions must embrace digital transformation to remain competitive. By focusing on user experience, leveraging new technologies, and finding efficiencies, modern credit unions can navigate this evolving landscape and thrive in the digital age.
With these considerations in mind, Jack Henry™ has created an eBook that covers seven key factors to weigh when rethinking your digital banking solution to ensure it meets your credit union’s needs – both now and in the future.