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Is there a cost to convenience?

March 26, 2019
A man and a woman holding a phone sitting at a table smiling

By Steve Heusuk, Senior Manager, Competitive & Market Intelligence

The Oxford Dictionary defines convenience as “being able to proceed with something with little effort or difficulty.” The financial sector has been on a mission to redefine the experience they provide, chasing new channels, faster technologies, less friction in the customer journey, and any other innovation to reach the holy grail of convenience.

But are there unintended consequences to this singular focus on convenience? As engagement becomes easier are credit unions and members growing further apart? In other words, has the focus on growing a particular category (membership, credit cards, etc) affecting efforts to strengthen member relationships, leading to a “miles wide inches deep” scenario?

Look at auto lending. Credit unions traditionally won loan decisions based on lower rates and fees. Banks on the other hand, typically won business based on dealer relationships and/or recommendations. The boom in auto lending over the last few years shows these dynamics are changing.

In 2012 indirect loans accounted for 43% of total outstanding credit union auto loans. By 2017 that figure had risen to 58% and is projected to reach 61% by 2021. Clearly, credit unions have made inroads at the dealership — traditionally bankers’ turf.

That would be a nice story — if it ended there. However, a deeper look at the numbers reveals two critical issues for credit unions.

By offering new, more convenient channels to engage consumers during the loan decision, credit unions are winning more business with members who don’t consider the credit union their Primary Financial Institution (PFI). In fact, according to a 2018 survey conducted by Competiscan, from Q4 2015 to Q4 2017, auto loans held by this segment grew 44%. By contrast, auto loans held by members who consider the credit union their PFI grew only 7%.

Unfortunately for credit unions, this slow growth isn’t because their PFI members were taking out fewer loans. These members actually held 14% more auto loans from Q4 2015 to Q4 2017 — they just weren’t all with the credit union.

So where did they go? The numbers paint a compelling picture. The disparity in overall growth between PFI members and credit unions (14% vs 7% as noted above) itself is revealing. But a closer look at the auto loan data shows that credit unions’ share of wallet for PFI members shrank 3 percentage points, while banks grew by a similar amount.

The implication? While credit unions have been making inroads with indirect borrowers who tend to have an “inches deep” relationship, banks have been attracting business from credit union PFI members.

That’s a concern for the future. According to a Raddon report, 88% of credit union PFI members said they intended to give most or all future lending business to their credit union. By contrast, community bank PFI customers came in at 79%, and for major bank PFI customers the figure dropped to 69%. If these loyal members are giving more of their current business to banks, it doesn’t bode well for credit unions’ future prospects.

The question then, is have credit unions become so focused on convenience that it’s become an end unto itself, instead of a means to an end? For example, has the objective become simply making it easy for anyone to quickly go online and check your loan terms or open a savings account and then move on? That’s when you run into the “miles wide inches deep” scenario, in which relationships begin to wane and loyal customers start to wander.

A convenient experience is still critical, but it should be driving a strategy to nurture engagement and develop deeper connections with members. Look at convenience as a means to turn non-PFI members into PFI members, and to strengthen ties with current PFI members.