Can digital transformation be the saviour of credit unions and building societies?

Can digital transformation be the saviour of credit unions and building societies?

By Jerry Young (pictured), CEO of ieDigital and Connect, portfolio companies of Parabellum Investments which is led by Founder and CEO, Rami Cassis.


The chances are that if you use a credit union, you might not understand what a building society does. Likewise, if you know what a building society is, the functions of a credit union might come shrouded in a degree of mystery.

Why is this? The main reason is one of geography – credit unions and building societies are, overall, separated by the Atlantic Ocean. Credit unions are, almost exclusively, found in the United States, although they are becoming more established in the UK, with seven being represented by the UK’s Building Societies Association (BSA).

In the same way that credit unions are mostly only found in the USA, building societies are pretty much only found in the UK.

Despite this physical separation, credit unions and building societies have much in common. Both are rooted firmly in the communities they serve, and both pride themselves on offering the people within these communities a highly personal service, often based around face-to-face interactions. Such an approach is far removed from the modus operandi of the multitude of digital-only banks that have become common in today’s financial services sector.

However, both credit unions and building societies have been looking to the future and investing heavily in their online offerings over recent years. As they are both so similar, what can they learn from each other when it comes to their digital strategies?

Credit unions and building societies – the common denominators.

There are more than 5,000 credit unions operating in the US.

As well as offering long-term financial products such as savings accounts, loans, and mortgages, many also offer current accounts and credit cards, more in line with banks. They help people buy homes, launch businesses, and prepare for their futures.

The UK’s Building Societies Association reports that there are 42 building societies in the UK, serving almost 26 million customers with assets of over £507 billion. Together with their subsidiaries, they have helped over 3.5 million families and individuals to buy a home with mortgages totalling over £375 billion, representing 23% of total mortgage balances outstanding in the UK.

Building societies and credit unions share a community focus, as entirely member-owned institutions, and they operate in similar ways—which means there are plenty of similar processes too. Both institutions have historically focused on serving local communities or, in the case of some credit unions, were formed to serve the employees of specific companies. For example, the Knoxville TVA Employees Credit Union was created in the 30s to serve people who worked for the Tennessee Valley Authority and provide a safe place to save and borrow in the aftermath of the stock market crash.

With such well-matched approaches to the world of finance, there are shared lessons and strategies that building societies and credit unions can benefit from, to help them thrive in the changing economy.

Here are three challenges that both building societies and credit unions face – and how technology can help overcome them.

  1. Competing against other providers

Consumers are more willing than ever to switch providers for better deals, easier experiences, and extra perks. With their member populations aging, that’s good news for building societies and credit unions.

Younger generations are more likely to be tempted by alternative providers than their predecessors, which can make it easier to recruit them as members – if the proposition appeals to them. But just 4% of Gen Z and 5% of Millennials are currently credit union members; many prefer digital-first challenger banks or even financial products provided by their favorite brands rather than traditional financial institutions.

Appealing to new members requires two things: more awareness, and compelling services.

Going up against the scale of traditional banks and the agility of fintechs can prove tricky for both building societies and credit unions, as it’s often hard to compete on products, rates, and offers. In this environment, the best way for smaller providers to stand out is to stay focused on what’s made their models so effective for hundreds of years: serving niche communities and their needs.

For example, many young people are working hard to save for house deposits and looking for favorable mortgage rates. With decades of experience in helping members do just that, building societies and credit unions can create unique offerings aimed at these first-time buyers.

A provider could create a purpose-built savings account for deposits, which offers additional support with budgeting, better rates for no withdrawals, and feeds directly into its mortgage application process. Members get a seamless, convenient journey from saving their first pound or dollar to purchasing their home, without needing to go elsewhere for advice or other services.

Alternatively, providers could zero in even further, creating a business loan specifically for sole proprietors working in the construction industry, which also connects them to a complementary insurance product. A tailored approach like this shows that the financial institution truly understands its members and their needs; becoming the go-to partner for a niche service can be far more valuable than offering a broader portfolio of general products.

  1. Appealing to new members—and potential hires

Experience is one of the key differentiators consumers pay attention to when they’re selecting the right provider for their needs today. Even offering good interest rates or other incentives can easily be overshadowed by a clunky user interface.

For most people, the days of visiting a bank branch to fill out paperwork by hand are long gone. They’re looking for intuitive digital processes, easy access to information, and useful tools to help them understand things like mortgage affordability, interest rate comparisons, and the differences between account types.

But for banks, building societies, and credit unions alike, it’s been hard to avoid replicating the complexity of traditional financial processes when delivering products and services in their new digital forms. This difficulty migrating into the digital age is what has made challenger banks and even big tech-led finance initiatives so appealing to consumers.

Potential members are looking for convenience—almost above all else. They should, for example, be able to open an account in minutes, easily switch between a mobile app and a web portal during a single task, and upload documents for instant digital verification.

Experience matters on both sides of the relationship, too; potential hires don’t want to work for an institution offering outdated processes and products any more than members want to sign up to use one.

Building societies and credit unions need to enhance their customer-facing services and support to help them evolve in this highly competitive landscape. To appeal to younger demographics, the front-end systems need to be intuitive, easy to manage, and provide space for true innovation.

  1. Reckoning with legacy architecture

Digital transformation—especially for providers with long-established legacy infrastructure in place—can be a time-consuming and expensive endeavour. And it can be difficult to step away from embedded providers that only deliver the traditional core banking services in favor of a more flexible, digital approach to serving members.

But this process is vital for providing the experiences members and employees need and making space for new technologies such as AI and machine learning. Fortunately, there are ways for building societies and credit unions to update their approach without needing to rip and replace.

Specialist solutions exist which can integrate with all different types of financial services infrastructure, allowing providers to build fresh digital-first experiences on top of their existing systems.

This approach means building societies and credit unions can quickly expand their offering, spinning up new services to deliver new functionalities for members. With pre-built, configurable components designed to slot together seamlessly, teams can create new journeys in a matter of days. For example, introducing a self-service tool that allows members to compare and switch between different mortgage products in just a few clicks can improve retention and cut the risk of members heading off to a comparison site to discover a competitor.

Watch this space!

Despite credit unions and building societies being separated by the Atlantic Ocean, both are strikingly similar, especially when it comes to their digital strategies.

Members are at the heart of everything, and that should be reflected in how building societies and credit unions evolve their offerings, processes, and infrastructure. The challenges and needs of these institutions are well-aligned, which means sharing experience and progress will be hugely beneficial for all.