RFi Group Insight - Canada: Strong Foundation, Uncertain Future - Credit Unions in Canada

Credit Unions (CUs) are an undeniably important part of the Canadian financial landscape. According to the Canadian Credit Union Association, the industry trade body that represents the sector, more than 5 million Canadians currently bank with a CU, and according to RFi Group’s H2 2017 Priority and Retail Banking Council study, 16% of Canadians consider a CU to be their main financial institution (MFI). These customers that consider a CU to be their MFI are considerably more engaged with their main bank than the market as a whole; they are more satisfied, more likely to recommend, and less likely to switch.

When we look at what drives main bank status, CU MFI customers, vs other financial institutions MFI customers, are significantly more likely to define their main bank relationship because it is the institution with which they have the longest relationship (51% vs. 42%), or because it is the bank their family has traditionally used (29% vs. 19%). This emphasis on existing relationships is the crux of the problem facing the sector; although their customers are extremely satisfied and attrition is low, CUs struggle to attract new-to-bank customers. CUs also tend to be highly regional, and thus find it much harder to engage with customers outside their limited geographic footprint.

However, new technology may provide CUs with an opportunity to overcome their perceived shortcomings by reaching and engaging with customers outside their traditional demographics and regional customer profile – particularly for the many Credit Unions which serves customers in remote locations. By leveraging live chat, video conferencing, and other technologies that allow CUs to translate their strong culture of customer service into the digital space, the barriers to customers engaging with CUs could disappear.

"While CUs excel across many aspects of customer engagement, they are generally seen as less innovative than other Canadian financial institutions – investment in new technology may help dispel this perception."

Not only will implementing new technologies allow CUs to expand their reach to new customer segments, but it may allow them to deepen engagement with existing customers. While CUs excel across many aspects of customer engagement, they are generally seen as less innovative than other Canadian financial institutions – investment in new technology may help dispel this perception and help CUs attract younger, more tech-savvy customers, as well as galvanizing existing customers into embracing new technology.

Furthermore, the potential upside for CUs extends beyond customer engagement and could impact cross-sell. Data from RFi Group’s H2 2017 Canada Digital Banking Council shows that CU MFI customers are just as likely as customers of other FIs to consider applying for future products via digital channels, and are slightly more likely to switch to another FI that offers superior digital banking capabilities. While smaller CUs may view the upfront investment required to build and maintain a compelling digital platform as an insurmountable hurdle, Centrals can provide the collective scale necessary to remain on the cutting edge of digital innovation.

For Canadian CUs looking for inspiration and motivation to invest in technology, they need look no further than Australia, a market where CUs and the wider mutual sector have been described as the ‘fifth pillar’ of the banking system in addition to the Big 4 banks.

Credit Union Australia (CUA), Australia’s largest Credit Union, has seen significant net member growth in FY17, adding 13,409 members. This growth has been attributed to investment in digital opportunities and innovation, as well as increasing brand exposure. According to CUA CEO Robert Goudswaard, “Enhancing our digital channels and innovating are essential to attracting new members and evolving our service to respond to changing member preferences. But more than that, our digital journey is about building deeper, more personalised relationships with our CUA members by bringing a human, interactive approach to digital banking”.

Canadian CUs will need to continue innovating and adapting to evolving customer demands. While their current customer base is highly satisfied and unlikely to switch, the sector will need to work on leveraging its strong foundations and attracting new customers, or else risk fading into obscurity.

For more information on this study, please contact Nish Gnana on ngnana@rfigroup.com 

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