11 | Security, both physical and digital.
2023 was the year generative AI broke through, and with it has come many opportunities for digital transformation. Yet AI also represents a great opportunity for fraud, leading many credit unions to consider the state of their cybersecurity. Physical security is becoming an issue as well. Sara Rochelle, Director of Communications & Member Engagement at the Credit Union Association of New Mexico, says that in her state, credit unions have seen a growing number of incidents of “ATM tampering.” “I’m not quite sure what you call it when a 4x4 wraps a chain around your ATM and drives away with it,” says Rochelle. “Physical security is imperative for protecting members’ assets,” Rochelle emphasizes, and “credit unions have been strengthening communication among themselves, banks, and law enforcement to share information on a timely and more regular basis in the hopes of reducing crime in and around financial institutions.”
Creating Cyber Resilience in Credit Unions
Reimagining the ATM: From Cash-out to Curbside Banking
10 | Asset Quality
Even though the rate environment has plateaued, interest payments remain higher for many credit union borrowers than they may have anticipated. At the same time, inflation has fallen, but the price bubble of 2022 has remained. As a result, asset quality may become a larger issue. Mike Higgins, Managing Partner at Mike Higgins & Associates and long-time Filene research partner, writes that “credit card usage and home equity loans/lines, which are often a substitute for credit card debt, are on the rise and that signals to me consumers are being strained. Fortunately, residential real estate loans [today] have stronger underwriting compared to the great financial crisis, but I’m concerned about unsecured and vehicle loans.”
9 | Loan Growth
While deposit management is on more credit unions’ minds, lending still fuels many conversations. Dohnia Dorman, Chief Experience Officer of the African-American Credit Union Coalition (AACUC) and CEO of Omnia Exec LLC, mentioned AACUC’s focus on mortgage lending to African-American and Latino households, groups that own homes at 61% and 66% the rate of white Americans respectively, per the U.S Census. Credit unions that have long focused on building strong and lasting member relationships through real estate lending are now looking at ways to leverage their experience to drive positive change in the communities they serve. In 2024, we expect credit unions to continue to find creative ways to link their business with their community engagement and social mission—and housing offers a powerful, organic opportunity for alignment.
Five Lessons for Creating a Housing Impact Fund
America's Housing Journey
8 | Small Business Relationships.
Small businesses have long been a sought-after market for loans, but increasingly credit unions have opportunities to capture valuable deposit and payments business while securing long-term relationships with small business owners and entrepreneurs. Doug Leighton, Founding Partner of Tahoma Advisors, suggests that “small businesses will increasingly look to non-traditional players to meet financial technology and capital needs. Embedded finance solutions provided by fintech companies are looking to meet these needs. Credit unions will need to adapt and partner to maintain their incumbency and bring in new business members. Fortunately, there are a host of willing partners out there!” And because small businesses are so critical to the health of local communities, in serving this market, credit unions here too have the unique opportunity to expand their business while also supporting their community.
The Small Business & Entrepreneur Opportunity for Credit Unions
Here we dive deep into the evolving needs of small business owners and entrepreneurs.
7 | Navigating Political Divisions.
2024 is an election year, and there’s no denying that political divisions muddle the economic and operating environment. For credit unions, this means staying close to their advocacy partners while navigating the potentially tricky contexts closer to home. For example, as diversity, equity, and inclusion efforts have come under attack from certain political forces, for Dorman at the AACUC, 2024 means ensuring that any backlash against DEI in the political arena doesn’t spill over to the credit union movement, where real progress has started to be made. As values-driven but nonpartisan organizations, credit unions can play a special role in helping communities overcome divides.
Who Do Credit Unions Belong To?
Not Credit Union Kind of People: Why the Politically Disengaged Shun Credit Unions and What Credit Unions Can Do About It
Somebody’s going to win. Now what?
6 | Effective Advocacy.
With CUNA and NAFCU’s merger to form America’s Credit Unions, some credit union leaders are wondering how that will affect advocacy work. Tony Hernandez, President and CEO of the Defense Credit Union Council, puts it like this: “While many industry leaders are celebrating the merger and the merits of having one voice, the effects of the merger have not fully played out. And given the diversity of our industry, I am not so sure we have grasped the significance of this new environment in terms of advocacy. Borrowing from Neil Postman’s 1992 book Technopoly, [this change] ‘is neither additive nor subtractive. It is ecological.’” In other words, “one significant change generates total change. […] Whatever this new environment means for small, community-based credit unions vs. larger regional credit unions will be something [we] will be balancing in the years to come.”
5 | Payments.
The payments arena remains the place where new technology players and merchants are most engaged in capturing market share. Leighton warns us, “potential increased regulation and the further deployment of real-time payments and open banking technologies will create downward profit pressure. The time is now to build ‘active preference’ for your payment products so that when a tech company or a merchant asks for an alternative form of payment, your members will say ‘No, I am happy with my credit union's card!’”
Credit Union of the Future
Center of Excellence
4 | Liquidity / Deposit Management.
After being flush with deposits during the pandemic, credit unions have been facing a “war” for member savings. Even though rates have stabilized, that pressure to maintain deposits and interest expense remains strong. As Higgins puts it, “Deposits (liquidity) will continue to be a challenge. The era of low rates is over and competition for deposits will continue to be intense. Consumers and businesses alike are now paying attention to what they can earn, and technology makes the movement of funds easier than ever. The Federal Reserve has been operating under a policy of quantitative tightening, which is reducing the supply of funds. Bottom line: Demand for funds up, supply of funds down.
Webinar: The War for Deposits
Thinking Forward — How Changes in Consumer Savings Are Intensifying the War for Deposits
3 | Operational Efficiency.
Operational efficiency is going to be the new “currency” for credit unions going forward. While the U.S. economy avoided recession in 2023, we face a fascinating dichotomy between strong macroeconomic performance and negative “vibes” in consumer confidence. With the potential for loan growth and tight margins, many credit unions are focused on improving productivity—and that’s not just about reducing expenses. Higgins describes it like this:
“Warren Buffett is quoted as saying, ‘When the tide goes out, we’ll find out who has been swimming naked.’ The new era of ‘rates normal for longer’ is the metaphorical tide that just went out. We are going to find out who is fit and strong, and who is unfit and weak. The latter group will find themselves in a vicious cycle: unable to generate enough rate of return to keep pace with the investment necessary for market relevance. The former group will be in a virtuous cycle, poised to capture market share from the weak. Being good at what you do is going to take precedence over vanity and the alphabet soup of trendy acronyms.”
Webinar: Efficiency of Operations: The *New Currency*
2 | Succession Planning and Attracting Top Talent.
The “war on talent” shows no signs of letting up. Filene research has found that as of last year, 29% of credit unions had a different CEO than they had in 2019. That changeover has produced ripples throughout the system, as credit unions look to fill senior and mid-career roles in particular. Rochelle in New Mexico has a solution: “Shared management situations have helped avoid an otherwise imminent merger, while existing staff are developed or talent is obtained. Larger credit unions also report struggling with a talent shortage and will likely enhance talent development within the credit union. They will also begin to combat the talent shortage by searching for ways to enhance operational efficiencies, such as implementing AI and serving members with a more digital approach.” Dorman mentions this focus from AACUC as well: “being intentional with inclusive talent acquisition practices for key leadership positions as more and more credit unions focus on succession planning and mergers.”
Leadership, Strategy & Governance
Center of Excellence
1 | Effective use of data.
Ultimately, most of the aforementioned ten issues can be solved through the effective use of data. Credit unions have vast stores of member data, including account and transaction data—information that we as an industry have been trying to unlock for decades. 2024 will put a magnifying glass to data usage: We know what to do. How do we do that to gain operational efficiency and grow? Amy Fuller, SVP of Strategic Development at the Cornerstone Credit Union League, describes the data challenge—and a potential solution—like this:
"In its 2023 Pain Points survey, Cornerstone League’s member credit unions indicated that leveraging data to present relevant offers to account-holders in an automated fashion’ is a top pain point, across every asset group. Most of the top 10 pain points are also tied to the effective use of data intelligence.
So why haven’t we made more progress? The reasons are well documented: insufficiency of trained, experienced staff, incompatible culture, poor quality data, expense … the list goes on. At the same time, large banks are investing heavily to make strides in extracting value from the enormous quantities of data at their disposal—giving them the upper hand in providing consumers with personalized experiences.
The good news is that credit unions have a superpower: collaboration. That’s why I am personally very excited about the new Credit Union Data Exchange, a joint initiative from Filene Research Institute and Trellance. Through a cooperative governance structure driven by participating credit unions, with access to substantially larger data sets, CUDX has the potential to help credit unions rise above the challenges that have vexed most: making sophisticated analytics and insights more accessible and accurate. As an optimist, I believe 2024 could be the year we turn the corner, together.”
I admire that sense of optimism! At Filene, we are taking the learnings from our Center of Data Analytics and the Future of Financial Services—especially about the levers credit unions can pull to realize value from their investments in technology and data—to develop innovative solutions, from CUDX to Member Voice, our behavioral segmentation method build specifically for credit unions.
2024 is a year where credit union leaders may feel like they’re trying to do everything, everywhere, all at once. By focusing on unlocking the value in their core business, we believe credit unions can meet these challenges and make this year great.