There’s no question that the operating environment for credit unions has transformed significantly in recent decades. The impact of the pandemic required a rapid shift to what was already growing pressure for digital access. New competitors continue emerge and offer products that may well draw business from their members.
But credit unions have a compelling proposition when it comes to the “common bond” that requires all members to have something in common with each other. This communal power and not-for-profit status present a completely different alternative from the broader financial sector when many traditional high street banks are closing their physical stores. There is a real opportunity for credit unions to capture the growing demand for ethical financial products and services.
Credit unions also need to ensure they are keeping up with larger societies and institutions in the mutual sector. Not for profit credit union, London Mutual, has been one of the players leading the drive for new and innovative products. After asking its customers what they wanted from a payment card and credit product, the Commodo card was launched.
Offering customers a debit card with a revolving loan facility, where a portion of their salary is paid into each month, direct debits or manual bank transfers are a thing of the past. The Family Saver Loan is another product from London Mutual that provides members with a loan of up to £1,200, if child benefit payments are sent to the credit union account.
Recent data from the Bank of England finds that the number of UK adults who are a member of a credit union has increased to reach more than 1.9 million last year. Thanks to £3.8 million in funding from the UK government, a number of credit unions are piloting a no-interest loan scheme to people who can’t afford to pay high levels of interest.
Another innovation in the credit union ecosystem came in 2019 when a savings account called PrizeSaver was introduced where account holders would gain one entry for every £1 in the account, up to a maximum of £200, for monthly prize draws.
Yet, attracting younger members remains a priority for credit unions, as this group has been difficult to reach. This challenge is compounded by the fact that only a limited number of people who have links to the union can join. In an increasingly digital financial ecosystem, products that lack either an online or digital element are unlikely to appeal to younger consumers.
A few online platforms have launched in recent years that support credit unions in their goal to reach digital-native clients. One of the platforms, CULoans.co.uk, uses price comparison website, Moneysupermarket, to process loan applications and takes over 50,000 loan applications every year. More than three-quarters of the UK is covered by this service and any credit union can join.
With spiralling inflation and increasing bills, credit unions have a unique role to play in supporting consumers. While most banks simply won’t offer small loans of a few hundred or thousand pounds, credit unions can fill this gap and help ensure that members don’t fall into a costly credit trap.
Join us for FTT Building Societies on the 14 & 15 November. Co-located with the Fintech Talents Festival this year, means new opportunities for credit unions to explore how fintechs and new technologies are creating exciting pathways for innovative change. From learning about broader changes in the sector to meeting potential partners, connection to our community of innovators provides lots of opportunities.
If you are working at a Credit Union (or other financial services providers), don’t forget to apply for a complimentary pass to the event.
By Finbarr Toesland, Editorial Contributor, VC Innovations