Credit unions, known for their ethical and community-driven focus, are navigating a changing financial landscape in the post-pandemic era. During a conversation with Robert Kelly, CEO of the Association of British Credit Unions (ABCUL), and Lee Summers, a senior banker specialising in professional firms, key insights emerged on both challenges and opportunities shaping the sector.
A major concern lies in governance. Credit unions face difficulties in recruiting and retaining board members, as volunteer positions are less attractive in a world where work-life balance has become a priority. Beyond attracting passionate individuals, boards now require expertise to navigate the increasingly complex financial services environment. Strong leadership, Robert emphasises, is critical for sustainable growth.
The delicate balance between credit risk and affordability is another pressing issue. Post-pandemic, stricter creditworthiness assessments have led to higher loan decline rates, raising questions about how credit unions can continue offering affordable loans while managing financial risks. Robert views this as an opportunity for innovation, urging credit unions to refine their risk models to maintain accessibility without jeopardising financial stability.
A surprising challenge has been the outflow of member deposits, attributed to rising interest rates. Credit unions, traditionally known for their stable deposits, are now competing against higher-yield savings products offered by mainstream banks. This development underscores the need for credit unions to remain competitive in a returns-driven market.
However, there are growth opportunities, particularly in product diversification. Legislative reforms in 2023 enabled credit unions to expand their services, marking the most significant change since the 1979 Credit Unions Act. With the ability to offer new products such as general insurance and car finance, credit unions can appeal to a broader demographic and better compete with traditional banks.
Collaboration also presents a promising path forward. By pooling resources, credit unions can reduce costs and offer more extensive services. This model has gained traction in the U.S. and is starting to be embraced in the UK. At the same time, leveraging data analytics offers a way to unlock growth. Credit unions hold rich data on their members and are beginning to use these insights to identify underserved markets, enhance services, and make smarter decisions.
Technology is another area where innovation is essential. Younger members expect seamless digital experiences, and credit unions must invest in fintech solutions to enhance member engagement and onboarding. A focus on technology will be vital for attracting new members and meeting their expectations.
Despite challenges in governance, lending, and deposit retention, the future holds opportunities for credit unions to innovate and thrive. Through collaboration, diversification, and leveraging technology, the sector can continue to provide ethical and affordable financial services to the communities it serves. The resilience of credit unions, coupled with their adaptability, positions them as an enduring and vital part of the financial ecosystem.
Credit unions are poised to overcome the hurdles they face by embracing innovation and collaboration. With a strong commitment to serving their communities, they remain essential in delivering ethical financial solutions in an evolving world.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
