Woman walks toward the digital screens of bank
@1laura/Twenty20

Smaller financial institutions sometimes get a bad rap when it comes to digital banking. They don’t have the budgets of big banks, and it often shows in features and quality.

Some credit unions, however, are masters at digital. They’re using their nimbleness to breed innovation.

In many cases, consumers no longer have to choose between good customer service and advanced digital capabilities. Depending on the credit union you select, it’s possible to have both.

Perks of being small

Credit unions are using their size to provide services that the largest banks are still struggling to figure out.

Megabanks, for example, are working hard to deliver an “omnichannel” experience. That’s a buzzword for making the different channels of a business work together. Ordering something online and picking it up in a store is an example of an omnichannel experience.

In banking, an omnichannel experience is the solution to the problem created by multiple systems that don’t really talk to each other. It’s a major challenge for much of the financial services industry, but one credit union seems to have figured it out.

First Technology Federal Credit Union in Mountain View, California, launched an omnichannel experience in early May. It connects all products and interactions on a common platform. The result is a more seamless application process that lets you sign up for a new savings account in a branch and finish it online, or vice versa.

“It really does bring the 360-degree view of the member, no matter how they choose to engage, so that we can focus all of our attention on serving member needs as opposed to managing technologies or managing the data in the background,” says Mike Upton, chief technology and digital officer at First Tech.

Digital divide

Providing a unique digital experience is a challenge for many credit unions. They can partner with external digital solutions providers, but the ability to add customized products and services to a credit union’s core banking system is often limited.

“The closed nature of most online and mobile banking solutions has caused the explosion of fintech,” says Kris Kovacs, founder and CEO of Constellation Digital Partners. “It created the opportunity for them to say, wait a minute, you aren’t going to do these really cool user experiences for members. So we’ll do that.”

Constellation offers an open-source, cloud-based platform for online and mobile banking. Credit unions can use it to develop new solutions for their members. In other words, it’s easier to customize.

Alliant Credit Union in Chicago has decided to take on a hybrid model for its systems. It works with vendors when it makes sense, but it has formed a mobile development team to create features that help Alliant stand out. For instance, it has created a feature that allows members to track usage of refunds for out-of-network ATM fees (it rebates up to $20 per month).

“We only take things in house that we think are going to impact our members and that they use frequently and that we know that we can perfect,” says Michelle Spellerberg, Alliant’s vice president of marketing and digital strategy.

Spellerberg says custom features have helped the credit union drive digital usage. She says that 86 percent of its members use digital banking, which is rather high. Alliant also gained industry-wide recognition for its mobile banking solution. Last year, it was one of the Credit Union National Association’s (CUNA) Technology Excellence Award winners.

Barriers to digital success

Keeping up with the major players in the digital space isn’t easy. Like others in the industry, some credit unions lack the funding and technical expertise needed to compete with big banks like Bank of America and Wells Fargo.

Credit unions are structured as not-for-profit organizations. In theory, that should give them an advantage over banks because they don’t have to be laser focused on the bottom line to appease investors. While they’re better positioned to invest in pet projects, credit unions still have to be selective about the digital initiatives they pursue.

“There are still many competing priorities for funding,” says Randy Stolp, second vice chair of the CUNA Technology Council member resource committee and chief information officer at My Community Credit Union in Midland, Texas. “However, the benefit of our model is that we make each and every decision with our members’ best interests in mind. So from that standpoint, it is sometimes easier to make our case for digital products when we can show the added value for our members.”

Much of the digital disruption we see across various industries stems from companies figuring out what consumers want and innovating around that. Banks have historically built products around their needs and are now learning to be customer-centric. Since credit unions are designed to serve the needs of their customers, they have a distinct leg up.

Compared with banks, credit unions are also more open to collaborating. For example, they might form a credit union service organization, like Constellation, that’s designed to create credit union-specific tools and services.

“The fact that credit unions work together and collaborate as much as we do is part of how we bring innovations to the marketplace,” says Kovacs, the Constellation CEO.

Banks are getting better about working together. Person-to-person payment platform Zelle is a good example of their growing willingness to collaborate.

Savvier than you think

Credit unions across the country are proving that they offer more than good service and great rates on loans, CDs and savings accounts. Many institutions also offer the latest digital product offerings.

Credit unions — regardless of size — generally fall into two buckets, says David Eads, CEO of Gro Solutions, a company that helps financial institutions open new accounts digitally. There are innovative credit unions who have hired programmers and implemented new tools. Others haven’t made investing in technology a top priority.

But new digital solutions tend to trickle down and eventually infiltrate the rest of the market.

“If you are in need of having the latest and greatest capabilities via a digital channel, you’re going to find those first and fastest at the largest entities in your marketplace,” says Ryon Packer, senior vice president of credit union solutions at Fiserv. “But over time, all things will become available to all financial institutions.”

If you’re looking for an easy way to compare digital experiences at different credit unions, try opening an account online.

“If account opening is a clunky process, you can bet that the online banking and mobile banking experience is likely to be clunky as well,” Eads says.