In an era when digital experiences are closely tied to customer loyalty and financial success, credit unions stand at a crossroads. In a 2024 article, we spotlighted the growing chasm between credit unions and their competitors, a gulf that’s particularly noticeable among younger generations. Despite credit unions’ inherent advantages over banks, such as stronger member relationships and community ties, they are losing ground in the digital space.
Furthermore, changing demographics spell trouble for credit unions, which have historically had the upper hand with older generations. Baby boomers are disproportionately represented among credit union members, accounting for more than 50 percent of credit union revenues, compared with 40 percent of revenues for the US financial-services sector as a whole. However, as demographics evolve and baby boomers’ share of financial-services revenues declines to about 20 percent over the next decade, credit unions will need to become more digitally savvy to attract younger generations, who expect seamless, digital-first experiences.
We estimate that winning over younger, digitally savvy customers could represent a $5 billion to $10 billion revenue opportunity for credit unions—if the industry can reach the same digital sales level as regional banks, with everything else held constant.
In this article, we first explore the challenges credit unions face. Then, we outline starting points for how they can turn things around.
Credit unions’ challenges
Credit unions seeking to gain ground with younger consumers face the following challenges.
Weaker digital sales
Digital sales in the US financial-services sector have experienced substantial growth over the past decade, accelerated by the COVID-19 pandemic. Between 2015 and 2024, the share of sales made digitally at US financial institutions rose about 30 percentage points across all products to 36 percent. For instance, 28 percent of mortgages are now sold digitally. But credit unions have largely missed out on this boom: According to Finalta by McKinsey, regional banks make more than 30 percent of their sales digitally, while credit unions, which have similar profiles to regional banks, are stuck well below the 10 percent level.
Legacy systems and long, painful customer journeys
Many credit unions rely on outdated digital platforms, hampering their ability to offer a seamless, modern experience. We estimate that up to 75 percent of credit unions operate on so-called legacy loan origination systems that don’t offer true automation. Credit unions often face hurdles (such as the complicating factor of third-party vendors and long lead times to implement changes) when configuring underwriting rules in these outdated systems to match their desired risk appetite. The result is that when the systems are asked to automate credit decisions, many qualified applicants end up being rejected. Credit unions then have to manually review the rejected loan applications, making the lending process cumbersome and inefficient. Similarly, opening an account at a credit union can be a frustrating experience, sometimes requiring members to click through twice as many web pages and endure much longer cycle times to complete the process compared with best-in-class banks. The problem posed by outdated legacy systems is exacerbated by credit unions’ specialized status within financial services, which involves unique requirements, for example, field of membership rules that necessitate bespoke tech solutions. Talent gaps also contribute to the slow pace of change. More than 75 percent of the credit unions we’ve spoken with view the digital journey as a challenge, citing factors such as applications that are abandoned because users lose patience.
Lower engagement on websites
Credit unions’ websites show lower user engagement compared with those of both regional banks and digital-only banks, which operate without any physical branches (Exhibit 1). Visitors to credit union websites spend less time per visit and view fewer pages, and these weaker digital interactions are reflected in credit unions’ lower digital sales. Moreover, credit unions’ website bounce rate, or the share of visitors who leave the site without taking any action, is 41 percent, more than double the bounce rate of regional banks and nine percentage points higher than that of digital-only banks. (Visitors who sign in to do online banking or otherwise engage with the site by clicking don’t count toward the bounce rate.)
Weaker mobile experience
Credit union apps downloaded from Apple’s App Store receive lower—and fewer—ratings than bank apps do (Exhibit 2). On average, credit unions get a rating of 4.4 out of 5, with mega banks at 4.9 and regional banks at 4.8. Credit union members are also less likely to leave an app review in the first place, hinting at potentially lower engagement. These gaps can contribute to member dissatisfaction and, ultimately, higher attrition rates. Customers who are dissatisfied with their primary financial institution’s digital channel are twice as likely to switch to a competitor as customers who are satisfied, according to McKinsey Panorama data.
Digital gap with younger generations
Credit union members generally show a lower preference for using digital channels for sales than bank customers do. Interestingly, this dictum holds true even for Gen Zers, who might be expected to be so tech savvy that they embrace any digital channel, even at credit unions. For example, among Gen Z bank customers, 39 percent prefer to use digital channels to take out a personal loan, which is 20 percentage points higher than credit union members from the same generation (Exhibit 3). For simple sales such as opening checking or savings accounts, Gen Z bank customers are 17 and 15 percentage points, respectively, ahead of their credit union counterparts in terms of preferring to use digital channels for these tasks.
Three ways for credit unions to enhance their digital maturity
To stay relevant, credit unions will need to modernize by harnessing the power of AI, data analytics, and other technologies. Among strategies to pursue, three stand out: serving the needs of a unique, targeted segment; focusing marketing on lifetime value (LTV); and ensuring a seamless digital experience. Additionally, it’s important to also put in place enablers to ensure success, including a robust operating model and governance framework, comprehensive metrics to track progress, a road map for digital priorities, and alignment among top executives.
Agentic AI systems—which are expected to eventually be capable of planning actions, using tools to complete those actions, collaborating with other agents and people, and improving their performance as they learn by doing—can help credit unions modernize and scale their digital footprints.
To start on the journey to improve their digital maturity, credit unions can take the following steps.
Tailor their approach to effectively serve the needs of a targeted segment
To stand out in a crowded field and win over younger consumers, credit unions should stop trying to be all things to all people; instead, they should go deep on delivering a distinctive proposition anchored in tailored products, services, and experiences designed to fit the needs of a specific segment. The best-performing credit unions have figured this out, as they craft brands, value propositions, and go-to-market models that are tailored to a targeted segment—whether it’s tech-savvy Gen Zers, teachers, military families, or small business owners—while maintaining a standard of excellent customer experience. Tailoring products and services represents a sizable opportunity for credit unions, as they typically have well-defined focus segments but often lag behind in the customization and differentiation of their propositions for those segments.
In an example of a successful tailored proposition, a credit union catering to Latino small-business owners streamlined its business loan journey, offering bilingual support and prequalification tools, steps that made the credit union a go-to financial partner for that community. This kind of clear, distinctive hook—one that builds emotional connection and sets the institution apart—is what defines high-performing credit unions. They don’t just digitize; they offer a bespoke member experience in a way that’s authentic and built to evolve.
Segment-focused strategies like these can help credit unions escape the trap of getting “stuck in the middle,” caught between large banks with deep pockets and smaller, nimbler nonbank providers with minimal overhead. When thoughtfully executed, segment-based value propositions can be further amplified with robust content strategies, for example, boosting SEO performance and diversifying the social media mix to better connect with members. Of course, segment strategies aren’t without trade-offs: They can carry concentration risk and may limit scalability if the chosen segment is too narrow or slow growing. The key is balancing focus with flexibility, effectively serving a core segment while maintaining the flexibility to pursue adjacent opportunities as they arise.
Focus marketing on lifetime value
To drive growth and build long-term loyalty, credit unions should move beyond ad hoc marketing campaigns and adopt a continuous, “always on” digital marketing strategy that emphasizes the LTV of their members. This approach requires continuous refinement and agility, using data-driven insights to stay relevant and meeting members at every stage in their journey. Leading institutions have embraced agile research methods to streamline creative testing. By using an automated market research platform, a bank was able to reduce testing times from four weeks to just 48 hours, allowing it to quickly assess and adjust marketing materials to ensure they resonate with the target audience.
For credit unions, adopting a similar approach would mean being able to deliver personalized campaigns that speak to members’ specific needs and interests, ensuring the message is always timely and impactful. By using LTV-based analytics, credit unions can segment their audience, identifying high-potential customers and tailoring offers to their unique financial goals. For instance, credit unions could offer dynamic yields that change with customer behavior or account balances, allowing them to capture members’ attention and build loyalty.
Credit unions can also use personalized communication strategies to build deeper connections with members. One credit union, for example, was able to double the number of credit card accounts opened by its members by sending personalized, prequalified offers to members who had previously ignored generic campaigns.
Furthermore, credit unions can use gen AI to enhance their digital-marketing efforts and accelerate the content creation process, ensuring sales and marketing content is consistent, relevant, and tailored to the needs and interests of the target audience.
Ensure a seamless, user-friendly digital experience
Credit unions should prioritize providing excellent service by creating seamless, intuitive, and speedy digital experiences with clear, quantitative measurement of performance indicators (such as time to open an account digitally, conversion rates across the funnel, and engagement rates with digital campaigns). Still, even the fastest path can hit friction, so leading institutions, for example, use AI to spot when members are about to leave and gen AI (such as via A/B testing of personalized nudges tailored to a client’s profile and history) to quickly reengage them. Credit unions could use AI to automate the preapproval process by quickly assessing a client’s financial data and creditworthiness. This would reduce the time and effort required for manual reviews, potentially increase preapproval rates, and make members feel like they’re being put first. In another example, a credit union could use gen AI to send personalized nudges to a client who has been saving for a down payment on a house and use data to suggest a savings plan and provide links to preapproved mortgage options.
Results are already in: One credit union more than tripled digital adoption among historically offline members through multichannel nudges targeting and reengaging members who didn’t complete onboarding. Meanwhile, another institution revamped its sales process for certificates of deposit, using digital-first engagement to make onboarding smoother and simpler and turning potential drop-off points into moments of conversion and trust by using tools such as personalized reminders and real-time assistance.
As credit unions contend with an aging membership, they should reassess their appeal to younger consumers. Although their mission-oriented nature may appeal to younger generations, credit unions will need to do more to earn these consumers’ attention. To help build a foundation for sustainable growth, credit unions should embrace innovative digital strategies, enhance user experiences, and foster deeper connections.
