Banking institutions were some of the first to offer online services to consumers. However, the brick-and-mortar financial industry, credit unions especially, now lags in tech integration and implementation. The digital marketplace is constantly expanding in new and innovative ways—especially online banks and lenders, sometimes referred to as “shadow banks”. As a result, people have come to expect the ability to manage every aspect of their daily lives online and with mobile—banking being one of the top three according to a study by Citigroup. However, there is something these online lenders can’t offer: personal relationships.
Lending today is more competitive than ever. Non-bank and alternative lenders, shadow banks, have a huge impact on the market through the use of technology, often elbowing out credit unions. With a glut of online lending exchanges available, traditional financial institutions are finding it hard to compete, especially when it comes to technology. On these exchanges, a customer can research and apply for a loan within minutes and all from the convenience of their mobile device. Non-bank lenders capitalize on consumer dependence on mobile devices and instant gratification.
Additionally, alternative lenders aren’t afraid to innovate and expand into new areas to better compete with traditional financial institutions. According to a 2017 study by Ernst & Young, non-bank lenders in the US and Europe are aggressively pursuing the mid-market. The number of alternative lenders who are willing and able to take on big-ticket items, such as car or home loans, doubled in 2016. To better compete with alternative lenders, credit unions must innovate and collaborate in an area where alternatives are strong: technology.
Without a doubt, technology is a key consideration when consumers search for loans. This is especially prevalent for millennials, who desire constant connectivity and ease of use. However, other generations have also shown an affinity for a digital marketplace as opposed to the traditional brick-and-mortar store. Led by millennials, consumers now prefer to shop directly on their mobile devices.
According to a 2016 study by Facebook, 60 percent of shoppers say they plan to make more purchases from their smartphones in the future, and 54 percent are more likely to shop with a retailer that is accessible across several devices and platforms. Consumers prefer to research and start loans on mobile devices, and financial institutions need to keep pace with this desire.
Credit unions have an edge—relationships that build loyalty. Alternative lenders offer little or no incentive for return borrowers and rarely offer other services. People want sound advice regarding financial decisions. Whether that information is collected online or in person should be up to the customer. The resources to close the technology gap are out there. The foundation of strong relationships are firmly in the hands of credit unions.