Youth will be served

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.”

NEXT: Debbie

Debbie

After starting Sparrow as a solution for friends while in his junior year at Stanford, Hochman quickly shifted to a credit union distribution model once he looked to scale.

By comparison, the founders of Debbie progressed somewhat further with their direct-to-consumer model before pivoting.

Debbie was a year-old startup when it won Best of Show accolades at the 2022 Finovate conference. As part of their on-stage demo, co-founder Frida Liebowitz shared her personal experience as a first-generation New York University student ill equipped to manage the slew of incoming card offers. She soon racked up $15,000 of debt.

Debbie’s app leverages behavioral psychology, actionable goal-setting, and financial curriculum to reduce debt, deploying rewards points to encourage constructive behavior. Although not explicitly targeted to Gen Y or Z, its online community features resonate with 20- and 30-somethings.

While building its direct-to-consumer member base, Liebowitz and co-founder Rachel Lauren came to recognize their commonality of purpose with credit unions. By the time they presented at Finovate 2023 (again winning Best of Show honors), its demo featured a co-branded experience integrated into digital banking offers at $7.7 billion asset Michigan State University Federal Credit Union in East Lansing, Mich.

Debbie is now available exclusively through credit unions as a member benefit. Legacy customers are being migrated to credit unions, a process that has gone surprisingly smoothly, Liebowitz says.

Debbie continues to market directly, serving as a credit union referral channel. It reports having funneled 1,500 new members to its four live credit union partners over the first three months of 2024.

For now, Debbie is channeling prospective members on a regional basis. Because one partner, $2 billion asset Lafayette Federal Credit Union in Rockville, Md., has a national field of membership, an option is available to all comers.

"Since going live with our partnership in the summer of 2023, Debbie has sent LFCU an average of more than 300 monthly new member applications,” said Gladys Magsino, senior vice president of administration. “Of those who opened accounts, more than half have adopted an additional product as well."

As their credit union network expands, Liebowitz acknowledges that sorting through the options will be “a nice problem to have. We’re building heuristics into our matching criteria. Credit unions are becoming specialized at solving niche problems for their communities. We ask a few questions in our intake process, which can help us serve up a short list of their best options.”

Interestingly, in converting their legacy clients Liebowitz observes that local presence continues to hold sway. “Even the young consumers still associate banking with something local, regardless of whether they plan to visit a branch.”

Debbie offers a free 15-minute coaching call to all members, which doubles as a great “voice of the customer” vehicle, per Leibowitz. One early partner, $1.6 billion asset Community Financial Credit Union in Plymouth, Mich., has extended that benefit to an hour-long personal Zoom membership onboarding session, with self-service scheduling available online at the credit union website.

Goalsetter

Contrary to popular belief, young people don’t want to get their financial advice from TikTok, says Tanya Van Court, founder of Goalsetter.

“Kids are acutely aware of their need for financial information—they feel vulnerable,” she says. “They want it in an engaging fashion from someone they can trust. But they’re skeptical enough about everything they see. They know this information isn’t vetted.”

Research from Mission Brands Consulting corroborates Van Court’s stance. Its recent study shows family members as Gen Z’s preferred source for financial advice—by a particularly wide margin among Hispanic youths.

TikTok influencers were the top choice of only 8% of respondents. Perhaps more surprising, 80% of Gen Z consumers say they wouldn’t trust AI to make financial decisions for them.

The issue is the dearth of information offered by elders, whether due to discomfort addressing the topic or a lack of confidence in their own knowledge. These conditions fueled the launch of Goalsetter, with Van Court’s past tenure at Nickelodeon and ESPN informing the “compelling content” imperative.

Goalsetter’s model is built around a debit card offering, issued on credit union bank identification numbers with education attached. “Learn before you burn,” is one of Van Court’s credos, pointing to a feature that freezes the card on Sunday morning for a child that hasn’t completed the weekly financial education module.

Despite the youth- oriented education, Van Court parents remain the product’s entry point. “Ninety-one percent of parents want a youth bank account,” she says, “and 71% want it to be app-based, through a financial institution.”

Drawing from past experience, Van Court is equally adamant that the educational programs can’t be one size fits all, but rather tailored for audiences from kindergarten through adulthood.

“The program grows with their kids,” she says. “We graduate them into the credit union at age 18, delivering them as educated members with no parental controls.”

Separate from the debit card and app, Goalsetter has delivered middle/high school curriculums in partnership with financial institution and foundation sponsors at the district level in 10 states and counting. Van Court touts this as a credit union white label opportunity, addressing a community need for financial literacy that often comes in the form of legislative mandates without guidance on or resources for curriculum.

Goalsetter has attracted celebrity investors such as basketball stars Kevin Durant, Chris Paul, and Carmelo Anthony, as well as industry bellwethers like Fiserv, TruStage Ventures, and Reseda Group.

The latter trio is an indication of Goalsetter’s strategic direction. “We haven’t spent a dollar on consumer marketing in four years,” Van Court says.

The synergy extends beyond financial literacy as well. “Credit unions care about deposits right now, so we’ve done the hard work of connecting to their cores,” she says.

Integrations with Fiserv DNA, Jack Henry, and Corelation will be live in market by mid-year. Credit unions can also leverage Goalsetter’s educational capabilities without core integration, but Van Court finds most are interested in the added benefits—including deposit growth—that accompanies integration.

GLEN SARVADY is managing principal at 154 Advisors.