In their early days, credit unions were small and affinity-based institutions whose members felt a personal relationship. This was the basis of what eventually became known as relationship-based banking. Fast forward to today, and the connection between the credit union and its members has weakened as CUs have grown larger and are, in many cases, no longer affinity-based. This has caused members to feel less connected to the CU, resulting in less likelihood of expanding products per member (wallet share).
There is a solution that can bring back the intimacy of bygone relationship-based banking via digital channels. Niche marketing with lifestyle content can drive the same closeness via digital means, with the effect being greater opportunities to increase wallet share and loyalty.
As noted in a previous blog post, Rediscovering Roots: The Biggest Opportunity for Credit Unions, credit unions were created based on common bond affiliations such as employer, religion, or labor union, to name a few. As a result, one of their distinctive appeals was a focus on relationships.
As smaller institutions, it was natural for credit union personnel to build one-to-one connections which led to greater understanding of members’ needs and goals in life. This was the origin of what came to be known as “relationship banking,” a member-centric approach where a financial institution builds long-term associations by emphasizing personalized service, understanding individual customer needs, and offering tailored advice. In relationship banking, credit unions take a consultative approach to learning an individual’s unique situation and needs throughout the member lifecycle.
However, during the evolution of today’s credit union, much of this personal touch has been lost as many have expanded their charters to go beyond affiliations to include the public as a whole in the race to grow larger. The previous fierce loyalty felt by members has been slowly dissipating as a result. Even though credit unions are still nonprofits structured to serve their member-owners rather than for-profit shareholders, members have gradually come to see their CU as just another dull commercial connection like the grocery store or Amazon.
So, how can credit unions re-establish their distinctive relationship banking position of deeply understanding member needs and preferences?
There’s no going back to the old model. Physically connecting individually with every member is impossible in today's large credit unions since required staff additions would be cost-prohibitive.
As an alternative, credit unions can connect digitally via niche marketing featuring targeted lifestyle content.
This approach, also known as a niche experiences strategy, starts by grouping members into subsegments (niches) and then providing them with content tailored to their interests and life priorities.
Niches can be developed on dimensions such as:
Niche identification brings an essential focus to the process, but it is only the beginning. Credit unions need to learn as much as they can about the members of each of these subsegments.
A logical starting place is to analyze the member information already in the organization’s possession. For example, if a member only has an auto loan, it suggests they have their primary banking relationship elsewhere and are “cherry-picking” the CU's better loan terms. Also, the other information gathered in the loan process, like credit rating, proof of insurance and income, can provide insights.
However, credit unions need to know more than just financial information to achieve the goal of relationship-based banking. They should know about their interests, hobbies, passions, and other information to truly understand members.
Two methods stand out to accomplish this. The first is to simply ask members. This can be achieved via surveys or by asking them to select from a list of information preferences on a website. If members know that they are more likely to receive engaging information by completing such a task, chances are they will comply.
A second way is to evaluate their actual information consumption behavior. The credit union offers content based on initial information gleaned about a member. Then, based on actual clicks and time spent on content pages, more preferred content is served up.
It's important to note that even though the credit union serves up the content, the subject matter will not be financially focused. In fact, the majority will be “lifestyle” topics like food, travel, health/fitness and fashion/beauty.
This may seem to defy logic since such lifestyle topics are not typically associated with a credit union. However, it is lifestyle content that supercharges this niche experiences strategy. By engaging members across a scope of interests broader than just their financial concerns, members have more reasons to access the credit union’s content. Also, since the content applies to more aspects of their lives, they come to see the credit union as an organization that “gets” them and is not engaging in constant sales pitches. This builds trust and loyalty.
At the same time, the credit union executing this strategy ultimately does want to sell more products and expand wallet share across the member base. A niche experiences strategy achieves this with a “selling without selling” approach. For example, more travel-related content will be provided to people who regularly read posts about travel. Yet, within the targeted lifestyle content are scattered relevant calls to action (CTA), like a travel rewards credit card promotion subtly appearing on the same page.
How does this apply to the concept of “relationship banking?” As defined above, a central tenet of relationship banking is a deep understanding of individual customer needs. By defining relevant niches and providing tailored lifestyle information, members feel the credit union understands them beyond their financial needs. Members perceive that the credit unions understand on both a broader and more profound level. This builds trust, trust leads to loyalty, and loyalty leads to a higher call to action receptivity.
As member-based nonprofits, credit unions naturally tend to be more relationship-oriented than other financial institutions. While they have surrendered some of this advantage in the quest for growth, they can regain this edge by implementing a niche experiences strategy to become relationship banking powerhouses.