Credit Union Ranks Will Shrink in 2024 as M&A Drives Scale and Innovation

A decade ago, there were nearly 7,000 credit unions, and that number’s been consolidated to about 4,700.

Scott Young, managing VP of Emerging Services at PSCU, told PYMNTS that the consolidation has been a response to “a myriad of factors” as pairings and buyouts happen at a pace of several dozen a quarter.

The continued shift to digital and omnichannel conduits through which consumers want to bank have presented challenges to credit unions (CUs), said Young, especially for the smaller players that may not have the resources and technology on hand as might be seen with their larger brethren.

In today’s financial services landscape, he said, scale is a competitive advantage. Mergers can give some tailwind to those efforts to enter new markets and to satisfy the demands of regulatory compliance and cybersecurity. And ticking those boxes means that CUs can turn their attention toward pursuing what might be thought of as the holy grail of banking: innovation.

But innovation needs to be targeted, said Young — the proverbial spray-and-pray approach does not work in a resource-constrained environment.

Looking Toward Social Media

CUs, no matter their size, or whether fashioned together via deal-making, need not go it alone as they tackle new products and services, said Young, as credit union service organizations (CUSOs) such as PSCU can help leverage data — the key ingredient — to help underpin that innovative drive. The pandemic spurred the embrace of digital channels, and now CUs have to retool their efforts to cater to the younger, digitally-native generations, said Young.

“A lot of the younger generation,” said Young, “get their financial information from social media,” and that channel is a greenfield opportunity for CUs to pursue and engage with younger consumers, and become “trusted advisors” across TikTok and other avenues of engagement to cement the thing that CUs do best — foster strong member relationships.

“You’ve got to be where those members are,” said Young. The metaverse, though not as buzzy as it might have been, represents another opportunity. Artificial intelligence (AI) suddenly has grown and evolved by leaps and bounds, and now is being used in all facets of the banking industry.

Innovation and AI, Young said can be used not just to make predictive decisions about what loans and transactions a member might need next. Those advanced technologies can also harness data to improve authentication tools so that members can interact with financial institutions and call centers without juggling passwords or knowledge-based questions. The ways in which generative AI can be used to enhance innovations, digital interactions and even in-person banking relationships are just in the early stages, he said — likening ChatGPT and other new developments to kindling that gets a fire roaring.

“Data can be used to build loyalty,” said Young, adding that “members will be less likely to look elsewhere for financial services if the transactions and the experience are personalized.”

Looking ahead into 2024, he said, FedNow is already helping transform payments (though fraud defenses must be fine-tuned and enhanced given the irrevocable nature of the payments), earned wage access is a key selling point for gig economy workers and B2B transactions are facing their own digital shift as accounts payables and receivables modernize. Machine learning, he said, can be employed as a means to build out non-traditional lending models.

No matter the innovations yet to come, Young said, CUs must map out their journeys, examining where there’s friction and what pain points can be solved through data, innovations and an emphasis on the personal relationship itself.

As Young told PYMNTS, “If a credit union can innovate and grow organic product penetration while having those digital tools ready to attract net new members — that’s a recipe for sustainability. Now is not the time to slow down or stop the pursuit of innovation.”

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