BOSTON—Credit unions risk losing a significant share of their small- and mid-sized business members unless they accelerate digital innovation, according to new research released by PYMNTS Intelligence and Velera.
The Credit Union Innovation Readiness: The Real Story Behind Member Churn” report finds that loyalty among small to mid-sized businesses (SMBs) is increasingly contingent on the quality and availability of digital tools—ranging from online onboarding to real-time payments—and that many credit unions (CUs) are falling behind both banks and fintechs, the companies reported.
“SMBs expect the same level of digital convenience from financial institutions as they do in their personal lives,” the report states. “Credit unions can close this experience gap by delivering seamless, self-service tools that make managing cash flow and accounts easier than ever.”
SMB Loyalty Under Strain
SMBs have historically valued credit unions for relationship-based service, but rising expectations and digital competition are reshaping those loyalties. According to the PYMNTS Intelligence and Velera analysis, more than six in 10 SMB CU members say they are “not at all” likely to leave their institution in the next year. But the remaining 38% say they are at least “slightly” likely to switch, including 12% who are “very” or “extremely” likely to depart.
That makes SMBs one of the highest-risk segments for churn—second only to Gen Z, the researchers found.
Among SMBs planning to leave, 75% say their next destination will not be another credit union. Roughly six in 10 say they expect to move to a national, regional or local bank. The primary driver: stronger digital capabilities elsewhere. Business members most often cite frustration with limited digital services, including the inability to complete transactions online and a lack of personalized digital tools, PYMNTS and Velera reported.
Rural Members Are Not More Loyal
The researchers said the findings also challenge assumptions about rural loyalty. While only 5% of small-town SMBs say they are “very” or “extremely” likely to leave—compared with 10% of metropolitan SMBs—far more rural businesses fall into the “slightly” or “somewhat” likely to switch categories.
Just 56% of small-town SMBs say they are “not at all” likely to leave their CU, compared with 66% of urban SMBs.
PYMNTS Intelligence notes that the finding may reflect more limited financial institution options in rural areas, leaving SMBs open to switching in principle even if alternatives are fewer.
Innovation Readiness Determines Retention
The report identifies innovation readiness as a decisive factor separating top-performing credit unions from middle performers—and ultimately determining SMB retention.
Middle Performers Are Falling Behind
According to the company, the companion PYMNTS Intelligence–Velera study, “Credit Union Innovation Readiness: How Middle Performers Can Become Top Innovators,” finds that middle-tier CUs offer significantly fewer SMB-focused digital tools. For example:
- Only 42% of middle performers offer contactless debit and credit cards, versus 90% of top performers.
- Top performers offer 49% of available financial products; middle performers offer 36%.
- Gaps are widest in priority areas such as small-business credit, real-time payments and payroll services.
The report also notes that SMBs that have already left a CU are 117% more likely than average to want small-business credit products and 173% more likely to seek business payroll tools.
Partnerships Differentiate Top Performers
Top-performing institutions rely heavily on outside vendors and service organizations. The report finds:
- 84% of top performers cite consultants, vendors or CUSOs as essential to their innovation strategy.
- That compares with 64% of middle performers and 50% of bottom-tier institutions.
- These partnerships help CUs overcome system and resource limitations, speeding adoption of modern digital features, the report found.
- Middle-performing institutions, meanwhile, report persistent barriers, including system integration challenges (57%), core limitations (55%) and compliance burdens (59%), according to the research.
Digital Tools Drive the Experience Gap
SMBs are emerging as one of the most digitally demanding segments credit unions serve, the report found.
- While 51% of all CU members still prefer in-person interactions, SMB switchers show sharply different preferences:
- 70% prefer online onboarding for new products.
- SMBs that defected are 111% more likely than average to expect digital onboarding.
- The report also finds that SMBs using a CU-issued card as their primary payment method are 50% more likely to value loyalty programs—an indicator that SMBs reward institutions that combine digital convenience with engagement tools.
A Clear Roadmap for Innovation
According to the report, SMBs that recently left their credit unions are:
- 168% more likely to want open banking functionality.
- 139% more likely to expect instant card issuance.
- Significantly more likely to want biometric authentication and card transaction alerts.
Top-performing CUs already offer these features at far higher rates than bottom performers, according to the Index:
- Digital onboarding: 63% vs. 25%
- Mobile card apps: 48% vs. 7%
- Open banking: 86% vs. 13%
- Budgeting tools: 53% vs. 27%
Building Business Loyalty Through Digital Innovation
The report concludes that in today’s digital business environment, retention increasingly depends on how effectively credit unions modernize their systems and services.
PYMNTS Intelligence recommends that credit unions:
- Prioritize innovation readiness, which strongly predicts long-term loyalty.
- Invest proactively, rather than waiting for member dissatisfaction to surface.
- Empower self-service, since SMBs overwhelmingly seek convenience, digital onboarding and intuitive tools.
“Small businesses are the backbone of local communities—and their needs are unique,” Ashley Dobbelmann, vice president of product enablement at Velera, said in a statement. “Credit unions have an opportunity to prioritize investments in the digital innovation SMBs now consider essential for managing cash flow and driving growth. Looking ahead, success will hinge on making it easy for small business owners to engage digitally.”
By embedding digital innovation into their strategy, the report concludes, credit unions can convert at-risk SMB relationships into long-term loyalty and strengthen their competitive position in the modern financial landscape.
The report can be found here.
