The market share of credit unions (CUs) in the finance sector is only a fraction of their bank counterparts. However, they play a valuable part in building a healthy banking sector. They also tend to offer more inclusive banking than some commercial banks. According to a recent survey, more than 60% of the members would not leave their CUs for different financial institutions offering the same services.

With banks and Fintechs collaborating to provide compelling experiences to users, credit unions can strengthen their market position by leveraging the potential benefits of open banking.

Open banking for credit unions

Open banking stands to improve the customer experience as well as bring innovation, generate new revenue streams in the finance sector. It allows banks, CUs, and Fintech firms to share financial data held by banks for better customer evaluation and enhanced services. Consequently, opening doors to innovation and helping them to provide an overall better experience to retain and attract customers.

Let us get in-depth and understand how open banking poses both opportunities and threats for credit unions.

Customer-oriented credit facilities

Credit unions can gain deeper insights into the need and requirements of their consumers by analyzing the vast financial data. It will allow them to accurately measure customer needs and offer services they are likely to use. It will not only help them to cater their customers in a better way but will also enable them to build services for a wider range of audience.

Improved security practices

As per multiple surveys and studies, data security and fraud protection are two main areas where customers want their banks and financial institutions to focus. Many third-party applications used by CUs lack proper security measures, therefore, are prone to frauds and cyber heists. Open banking enables third-party developers to build solutions that are secure and bug-free. Credit unions can collaborate with Fintech firms to offer such solutions and other innovative services while raising security standards with the help of latest technologies.

Delivering quality services

Open banking provides credit unions with an opportunity to serve as a trusted partner to its consumers while offering services that are user-friendly, secure, and bug-free. Another obvious benefit of open banking is the speed of payments and fund transfers. It will allow third-party developers to build tools that integrate all of their payments onto a single interface reducing the overall time and complexities. Faster and simplified fund transfers will consequently lead to overall service improvements for credit unions.

Enhanced lending experience

Credit unions have significantly expanded into the realm of financial services by offering low-interest loans and higher interest on the savings account. Open banking will enable them to solidify their position as worthy alternatives when it comes to availing credit facilities. With the right technology partners and comprehensive insights into user data, credit unions can build solutions that can help remove friction in the operations as well as provide a tailored experience to users.

The challenge they might face

Credit unions face tough competition from banks and large financial institutions. The advent of open banking could make it more challenging for them to sustain as the market will be filled with newer players offering similar kind of services, probably with more effectiveness and efficiencies. Moreover, these newer players will use the vast financial data made available by banks for better customer analysis and building services for a wider range of users – leading to even lower market share for traditional financial institutions.

To conclude, open banking initiative has become more widespread amongst different financial institutions. Survival is a big question for those players who are unwilling to change. Further innovation and rapid developments will help credit unions to sustain and continue pushing back against their rivals.

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