Credit unions should embrace financial wellness platforms that automate debt management and payments.
Financial wellness tools, member engagement and deposit growth strategies in a microeconomic environment are dominating discussions for financial institutions, especially credit unions.
Loan demand is slowing as interest rates rise. Delinquency rates are also ticking upwards amid inflation, according to the National Credit Union Administration. Many consumers are wiping out their savings to pay for bills. For those that lack or have exhausted their savings, credit card debt has seen the sharpest rise in decades. Consequently, consumer debt has now surpassed $17 trillion, up nearly $3 trillion from 2019.
Adding to this tsunami, 43 million Americans have had to start repaying their student loans again, and many of them say they can’t afford it. In fact, 40% of those who had payments due in October missed their first payment, according to the Department of Education. This isn’t just a problem for recent graduates who may have the option to live with family to cut down on expenses like housing. Nearly 70% of all student loan debt is held by Gen X (age 41-56) and millennials (age 25-49).
Meanwhile, credit unions are facing greater competition, including national banks, fintechs and online brands who make it easy to switch providers for deposit accounts and loans. They’re also facing a potential liquidity crisis in 2024, attributed to weak deposit growth.
But what if credit unions could help address all these challenges—minimize delinquencies that affect loan portfolios, retain deposits to support growth and better engage members. The short answer is: They can, but it requires a different approach.
Self-Service Tools Limit Engagement
From budgeting apps, loan repayment programs, rewards-based savings and educational resources, practically every financial institution is racing to offer the latest cutting-edge financial wellness tools to help increase engagement and grow deposits.
While these tools are all certainly valuable, they are primarily self-service and fail to meet members’ immediate needs—paying their debt obligations. Members are looking to their financial institution for guidance on how to better manage their finances, yet most tools are touted for giving members greater control. In other words, if they need help, let them come look for it on their own.
However, a self-service tool doesn’t help someone manage loan payments and bills, especially someone who is on the brink of a financial disaster. Consider that stressed and anxious people are also often indecisive and overwhelmed, which impacts their ability to make critical decisions. Now, consider that 73% of Americans rank their finances as the No. 1 stress in life. With nearly one-third of Americans with less than $100 in their savings account, and millions of Americans just one paycheck away from a financial disaster, this makes sense.
With myriad complex financial choices to make, many consumers are also intimated and overwhelmed and therefore seek reliable guidance from their financial institution. They want something more than a transaction-based relationship and expect expert advice that aligns with their individual goals. This means “do-it-yourself” tools are no longer viable. Members are looking for real support to better manage their finances.
Combining Guidance With Actionable Steps
Along with being self-service oriented, most financial tools today offer little actionable guidance. Financial literacy tools and educating members about what does and does not impact credit scores are both valuable, but an individual who is struggling to make their rent payment probably doesn’t care right now. They’re worried about being evicted.
Credit unions must offer tools that help members navigate what is right in front of them. Not only does this support members in the moment, but it also helps improve their financial wellness in the long term.
To truly help members, credit unions must tap into automation. With automation and innovative financial technology, credit unions can offer convenient and user-friendly platforms that empower members to manage payments effectively without having to overthink it.
By syncing payments with their payday, members can not only seamlessly automate payments (think “set it and forget it”), but it also helps to accelerate payments to the principal, eliminates monthly payment shock, and helps borrowers meet the obligations of their loans with less of a struggle.
Borrowers also reduce the likelihood of defaulting on a loan or paying late fees, and can potentially pay off debt years faster, helping to reduce their stress levels and generate wealth.
Effectively, credit unions benefit from higher member engagement by positioning themselves as the go-to for financial management, which ultimately leads to deposit growth and retention. Automated payments timed with paydays can also minimize potential issues and mitigate member delinquencies that impact the credit union’s loan portfolio and overall stability. This can be incredibly impactful as economic uncertainty persists. Overall, it’s a winning strategy for everyone.
Nadim Homsany is co-founder/CEO of EarnUp, a fintech company based in San Francisco.
