Workforce and Economy Impacting ‘CU of the 21st Century’ Projections

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Financial institutions will need to increasingly offer more wealth management, personal financial management, and investment and insurance services in the future if they want to evolve with a changing workforce, labor market, and economy.

That was the “socioeconomic” takeaway included by Filene Research Institute in its recent Credit Union of the 21st Century webinar as the industry enters strategic planning season for 2020.

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“As the nature of work changes and we see more sole-proprietors, solo entrepreneurs and micro-businesses, credit unions face increasing opportunities to offer them more lending, business, and other services,” said Taylor Nelms, senior director of research.

Filene noted some high-level financial and demographic facts. Even in a growing economy, consumers’ ability to save money for the future has declined over several decades. Approximately 60 percent of households experience at least one financial shock per year.

In focus was small-dollar loan strategies, consumer reliance on alternative financial services, less access to budgeting tools and advice, and the impact that “the future of work” is having on the financial lives of workers. About 20 percent of all workers today are contractors, and 50 percent of them have no traditional corporate “benefits.” Unemployment and debt burdens hit Millennials the hardest.

By 2035, Americans aged 65-plus will outnumber those under 18. Fewer working-age individuals means less forecasted demand for “core financial services” within the current credit union model.

Chief Research and Development Officer George Hofheimer said some credit unions serve extremely affluent markets and are “indirectly” impacted by the socioeconomic trends mentioned.

“What type of credit union will you be in the future?,” he asked. “What will your credit union be forced to come to terms with?”

Credit unions are “kind of banking on the notion” that they are just one of many banking partners for consumers; that they can differentiate themselves using geography, employer connections, or behavioral aspects that differentiate them from larger players, Hofheimer said.

“The investment and delivery channels are the main challenges to credit unions right now,” he said. “It’s wrestling with how to meet the demands of the member of the future.”

Both speakers said that as credit unions take stock of their human capital, branch infrastructure, self-service technology, remote delivery and other member touchpoints, they need to develop strategies that match consumer needs and use technological advancements. They will have to decide between four banking models: concierge, relationship banking, ambient, and automated — as well as how strong they want to be in high-touch interaction versus low-level interaction, and being a “personal” financial partner versus arms-distance service provider.

It was noted that credit union membership has grown to almost one-third of the total U.S. population over several decades. Economies-of-scale and regulatory burden have been the prime motivators for industry consolidation over many of those years, and these mergers have impacted smaller credit unions the hardest.

“Credit unions have a unique model and opportunity as depositories and credit intermediaries to utilize these concepts in a very different way than other creditors out there,” Hofheimer said. “There’s a great deal of uncertainty about the future and a lot of strategic choices you have to make. Pick a strategy and be confident about your strategy. Once you come up with a framework, the world will change incrementally. You don’t want to avoid the realities of what’s going on in the world, but you can maintain your strategy around your consumers — your members.”

You can access the archived/recorded webinar here. The slide presentation is available here, and the report that Filene based its presentation on is accessible here.

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