By W.B. King
According to the World Council of Credit Unions, the average age of credit union members in the United States is 53. A survey from McKinsey and Company said that this metric places credit unions at a “crossroads.” The reason: Younger bankers do not always view credit union offerings as a “good value” as do their older counterparts.
“That means credit unions need to work harder to attract younger members, or risk fading into irrelevance,” the McKinsey’s 2023 Consumer Financial Life Survey noted. The company surveyed 5,800 people.
There is some good news. Since 2018, the report said loans at credit unions have grown 8.8% per year, on average, compared with 8% yearly for banks. Deposits at credit unions have risen 9%, compared with 8.9% for banks.
“Credit unions’ strong performance has been driven in large part by their biggest segment of members, baby boomers, many of whom are retired or preparing to retire,” the report noted.
Fifty-seven percent of those polled said they perceive credit unions as providing “extremely good value,” compared with 46% for customers of the “biggest banks” and 44% for customers of smaller banks.
The survey found that while credit unions’ proportion of U.S. primary banking relationships has remained steady, credit unions are falling behind the biggest banks on account openings.
“In our 2023 survey, about 10% of respondents who said they had recently opened a deposit account did so with credit unions, down from 16% in 2015,” the report said. “The share of account openings lost by credit unions has been gained by the biggest banks, which now represent more than 40% of account openings as they use digital capabilities to reach consumers online, where many are opening accounts.”
Studying Banking Demographics
Currently, baby boomers represent the largest share of credit union members—39% in 2023, up from 28% in 2015. Credit unions face challenges in attracting younger people, with millennials’ share of credit union members falling three percentage points (from 24% in 2015 to 21% in 2023), the survey shared. Gen Z has remained steady at 10%, two points behind banks.
“Gen X’s share of credit unions’ total membership shrank by nine percentage points between 2015 and 2023, while the decline for banks was only two points,” the report noted. “This is a potentially troubling sign for credit unions, with Gen X consumers entering their prime earning years just as baby boomers reach retirement age.”
According to the survey, only 49% of Gen Zers who noted a credit union as their primary financial institution said it offers “extremely good value,” while 60% of those at the biggest banks gave the same assessment. Most of the other generations said they perceive credit unions as a better value than banks.
Six Strategies to Attract Younger Bankers
For credit unions to draw younger members, McKinsey advises to pay attention to the following six strategies:
Point to credit unions’ history of commitment to social impact, a principle that appeals to many Gen Zers and millennials: Gen Z and millennial respondents were 17 and 15 percentage points more likely, respectively, than older generations to say they switched their primary financial institution because it “supports my community.”
Meet younger consumers where they are—namely, digital channels: Sixty-five percent of adult Gen Zers and 57% of millennials rely on these digital channels for such decisions, compared with only 36% of baby boomers.
Invest in digital banking and personalization: An excellent mobile app is the most key factor in choosing a credit card for Gen Z and millennial consumers.
Upgrade technology to enable digital strategies: An important strategy is to team up with fintech partners and use API-first architecture to enable embedded banking or integrating financial products into third-party platforms to allow for services such as buy now, pay later.
Use artificial intelligence (AI) to improve the member experience: Use AI to focus on the four Cs: customer engagement; coding; concision, or synthesizing insights from large amounts of data; and creation, or content generation.
Future-proof the business model through mergers and acquisitions and partnerships: The number of credit unions in the United States has decreased by more than 3% a year since 2018. Joining forces with fintechs—via mergers and acquisitions, joint ventures, or other partnership structures—can be a key driver of inorganic growth.
“Credit unions will need to consider how to make the best use of their resources to compete most effectively with the biggest banks, which are increasingly investing in technology to attract and retain younger consumers,” the report said. “With these six moves, credit union executives may help secure their institutions’ futures in the years to come.”
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