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The Complex Landscape Credit Unions Navigate in the USA

November 29, 2023


Full-Spectrum Banking Services from Credit Unions

The number of credit unions in the US is declining. Discover the techniques used by those that thrive to navigate the increasingly complex ecosystem.

The driving force behind credit unions in the 1800s, when they first began, was making financial services accessible to all members via collaborative efforts. The same spirit guides these financial institutions even today. However, the competition has grown manifold over the past two centuries, with burgeoning NBFCs and other financial services providers powered by technological advancements.

Further, tightening oversight across the financial ecosystem increases regulatory and compliance risks. Credit unions are, therefore, facing novel challenges, both those that are unique to them and those that are common for all financial institutions. This could be one of the reasons why despite a significant increase in asset valuation, the number of federally insured credit unions declined to 4,760 in 2022, a considerable drop from the previous year’s 4,942.

Top Challenges Credit Unions Face

Here’s a look at the most commonly faced challenges by credit unions in the US.

Multiplying Number of Online Lenders

The competition in the lending space is intense. With the proliferation of BNPL and other forms of instant, no-interest loans, credit unions need to introduce innovative products to remain relevant and ahead of the curve.

Rising Cost of Compliance

Regulations across the financial space are extensive and constantly changing. From KYC processes to assessing risk and taxation, ensuring compliance adds to the operational costs. This is especially true for smaller credit unions that struggle to maintain and conduct regular audits pertaining to the complex and vast regulatory landscape.

Limited Capital

By design, credit unions get their liquidity from their members. Moreover, since credit unions are non-profit organizations, they cannot list themselves as businesses on stock exchanges under many jurisdictions. This significantly limits their capital flow and, thus, operational capacity. Additionally, credit unions do not offer deposit insurance, making deposits riskier and lowering customer confidence.

Availability of Financial Products to the Customers of Credit Unions
Payment systems access 51%
Correspondent banking access 29%
Access to credit and debit card services 40%
Deposit insurance and microinsurance 49%
Debit cards 48%
Microinsurance product offerings 31%

Geographic Concentration

Since credit unions are much smaller than traditional banks and operate with a small team of members, their customers are clustered around smaller geographic areas. This adds to the risk, since members tend to be each other’s guarantors for loans but belong within a small region. Expansion into wider regions through digital modes can significantly lower such concentration risks. The failure of LOMTO Federal and Melrose Credit Unions is an example of how concentration impacts business. The emergence of Uber significantly affected taxi and ride-sharing businesses, leading to enormous capital strain for credit unions that served the taxicab sector.

Aging Membership

According to the World Council of Credit Unions, the average age of credit union members in North America is between 45 and 64 years. While in Latin America, only 14% belonged to a younger age group. According to the report, “The average age of members of EUCC credit unions is increasing. The challenges of more time do not attract youth to participate in cooperative businesses.” A lack of people creates a leadership crunch due to the inefficacy of succession planning.

Digital Transformation

The modern digital demographic expects services at the tap of a finger, which requires building a tech-first infrastructure. Having a technological edge is therefore a differentiator in the digital age. With the aging membership of credit unions, attracting the younger generation requires keeping pace with technological advancements.


Account opening fraud is one of the most prominent challenges for the lending industry. Fraudsters often open accounts and even apply for loans using fraudulent data that they may have procured through a data breach. This not only affect genuine members’ credit profiles but also tests the credit union’s resilience.

Credit Union fraud rates increased over 70% in 2022.

Steps for Credit Unions to Navigate the Complex and Competitive Landscape

Technology Adoption

In the age of rapid tech evolution and adoption, integrating cutting-edge tools within processes and operations is paramount for navigating the complex FinTech landscape. Applications of AI-powered technology begin at the onboarding stage by automating applicant screening and risk assessment. Enabling digitized identity verification, credit decisioning, and reducing manual reviews significantly reduces error probability. Digitization enables an organization to serve diverse markets, by geography and industry. This helps spread loans and minimize risks.

Elevate Member Experience

Automation standardizes processes, which in turn improves the resilience of the organization against fraud and helps ensure compliance. Automated identity decisions, expedited credit decisioning, and personalization expedite operations. Streamlining the application process, applicant assessment, and receiving member requests elevates the user experience. Automation also frees up members’ time to focus on more value-added activities. Credit unions should now focus on the needs of their members and align their products and services with them. This will go a long way to instill trust and bolster credibility. Leverage analytics to better predict member needs and personalize offerings. Customers today value hassle-free, tailored experiences. This is the key to building strong customer relationships and turning members into loyal advocates of the business.

Community Building

Newer generations are more community-oriented than their predecessors, which necessitates prioritizing the needs of the community and projecting a brand image of an organization that cares about and gives back to the community. This further helps enhance outreach and deepen penetration into the community, critical to the success and growth of a credit union.

Partner With an Experienced Service Provider to Overcome Challenges

Credit unions have an edge over traditional banks in that the profits are reinvested in operations. This helps reduce the cost of loans while boosting deposit interest. Further, the executives at most credit unions have deeper insights into the needs of Americans than those at large corporations, since they have gained experience from the granular level. In the age of rapid growth and technological adoption, challenges are inevitable. The reality is that challenges evolve with the ecosystem, especially for an industry as critical as financial services. This emphasizes the need to stay updated on the latest technology, challenges, and solutions to capitalize on the opportunities the evolving ecosystem presents. But gaining experience and technological expertise can be yet another challenge and add to the expenses for small- and medium-sized credit unions. And not doing so could mean that the risk of failure and insufficient innovation multiplies. This is where Opus Technologies, with over 27+ years of experience in the finance industry, can help. With a team that consists of experts from the payments, lending, compliance, and strategic technology transformation sectors, we help credit unions save costs, enhance member conversions, and mitigate risks. Through cloud-based advanced integrations, integrated with robust security protocols, we ensure that our partners stay ahead of the curve. Contact our experts now to learn more.
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