By most measures, the credit union difference aligns beautifully with the priorities of younger Americans. This includes a preference to engage with community-oriented businesses and a focus on financial wellness.

Industry metrics paint a more challenging picture, however. The average age of a credit union member is higher than a typical bank customer’s, and a Filene Research Institute study finds that over the past two decades, the median age of a credit union member has risen from 42 to 52.

Whether the issue is rooted in messaging, marketing reach, or service offerings, it’s clear that action is necessary. That’s particularly true as the next generation progresses into its peak earning years and ponders the financing of home purchases and their children’s educations, and many become recipients of the great wealth transfer.

A growing number of credit unions are taking conscious steps to attract and engage a younger member demographic. “Younger” is a subjective term, and research reveals the perils of approaching even a cohort such as Generation Z as a single, monolithic group.

This article focuses on solutions geared toward the under-35 segment. However, any initiatives increasing the inflow of members below today’s median age are likely to bear fruit.

Sparrow

A common theme emerges among fintechs focused on this space. Each of the three startups featured here began by pursuing a direct-to-consumer model.

Each soon pivoted its approach, however, upon learning more about the credit union ecosystem and the clear alignment of mission. All three now partner with credit unions as their primary distribution channel.

Harrison Hochman started Sparrow during the pandemic based on a pair of core principles: earn consumers’ trust rather than purchasing their loyalty, and solidify a relationship during their most impressionable years.

Sparrow’s vehicle for achieving these goals is a credit union-hosted marketplace for student lending.

“Once someone gets to the age where they fall within a typical credit union’s core competency, it’s already too late to try to attract them from other financial institutions,” says Hochman. “If a credit union doesn’t provide constancy of value during those impressionable college years, they’re implicitly opening the door for others.”

Hochman equates the borrower experience on Sparrow as “an Expedia for student loans.” The difference on the lender side is dramatic, however, compared to the travel platform’s disintermediating practice of holding providers at arm’s length.

Sparrow’s heuristics map the prospective borrower to available lenders. If the hosting credit union wishes to fund the loan, a right of first refusal can be programmed in.

Hochman says few of Sparrow’s more than 60 partners actually originate student loans. Of the twenty lenders currently on the platform, 16 are nondepository institutions such as state agencies.

“I imagine that over time our partners will become more comfortable with the asset class, but we don’t require it,” he says.

All In Credit Union in Daleville, Ala., recently deployed Sparrow as a student debt refinancing tool.

“Our board has concerns about the inherent credit risk of adding student loans to our portfolio, but we want to help our members get a better deal,” says Todd Peeples, senior vice president of sales and lending administration at the $3 billion asset credit union. “We like the options Sparrow provides to borrowers, offering various scenarios in term, etc.”

All In is advertising the enhanced refinancing capability in the community in addition to promoting directly to members. The tool is available to nonmembers on the website with no login required.

“Sparrow sends us activity data, which we can use to reach out and convert new members,” says Peeples.

“The value we provide credit unions isn’t necessarily a student loan,” Hochman says.

Sparrow identifies ideal cross-sell prospects, young consumers with no banking loyalty, and those with limited credit or income, he says. “You’re solving for their most important financial problem to date,” not to mention potentially delighting a parent who may or may not be a member.

Although loan payments are made to the lender or servicer, Hochman contends borrowers will return to the credit union for future needs. “Without redoing all the work, they come back to where the data resides.”

The credit union also gains the opportunity to foster the relationship with ongoing communication, whether financial tips or additional offers.

Sparrow, the winner of VentureTech’s 2023 pitch competition, has generated $1 billion of prequalification volume to date; 70% from nonmembers. In addition to credit unions, Sparrow distributes its service through “media companies” like U.S. News’ Top Colleges website.

In terms of measurable near-term return on investment, credit union partners receive 100% of loan origination fees as a pass through. “But that’s the cherry on top,” says Hochman. “We consider that the third priority, after new members and deeper relationships.”

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