Small Steps, Big Gains: Innovation Gap Narrows as Small CUs Catch Up

Innovation in financial services is no longer the exclusive domain of the largest credit unions (CUs). In recent years, a subtle but powerful shift has been underway. Smaller institutions, once seen as slow to adopt new technology, are closing the innovation gap. These CUs, often embedded deeply in their local communities, are proving that agility and ambition can rival scale when it comes to modernization. Rather than falling behind, a growing number are now stepping up as early adopters of key technologies. This shift is reshaping how they serve members and stay competitive. What’s driving this surge? A focus on younger consumers and digital-first experiences. These innovations reflect a broader trend: meeting members where they are—and where they’re going.

• Small Credit Unions Are Closing the Innovation Gap
• Contactless Payments Are Key to Meeting Younger Members’ Expectations
• Small CUs Step Up Mobile Platforms to Meet Gen Z, Millennial Demand
• Accelerate Innovation to Compete—and Lead—at Any Size

Small Credit Unions Are Closing the Innovation Gap

Focused on fraud prevention, efficiency and member experience, credit unions are partnering with tech firms to accelerate progress. Small CUs are rapidly narrowing the innovation gap, with early adoption rates surging.

Credit unions focus their innovation on fraud protection, efficiency and member experiences.

The smallest credit unions are no longer lagging on innovation, proving that size doesn’t determine potential.

Moreover, smaller CUs are making rapid innovation progress. Among CUs with less than $500 million in assets, far fewer are lagging when it comes to innovation. Back in November 2023, none of these small institutions were ahead of the curve. Over the next 12 months, however, the share of them becoming early adopters spiked to 8.5%. Moreover, the share falling behind on innovation plummeted to 15% from more than 55% during the same time frame.

Contactless Payments Are Key to Meeting Younger Members’ Expectations

Younger generations are driving innovation at credit unions. For the smallest institutions, this means meeting millennial and Gen Z members’ demand for low-friction tap-and-go options.

Like their larger peers, small credit unions are innovating to meet the needs of future members.

Meanwhile, the smallest institutions (defined as those with less than $500 million in assets) have prioritized the addition of contactless debit and credit cards. The shares offering these products rose 61% and 58%, respectively, in the same time frame. Additionally, the share providing student loans rose 28%.

Indeed, younger credit union members seek contactless payments.

Millennial and Gen Z members often utilize tap-to-pay capabilities. In fact, 56% of younger and 54% of older millennials use contactless cards at least a few times each week. Additionally, 48% of Gen Z individuals do the same. In contrast, only 21% of baby boomers do so.

Small CUs Step Up Mobile Platforms to Meet Gen Z, Millennial Demand

Small credit unions are expanding mobile wallet and card app options to attract and retain tech-savvy Gen Z and millennial members who prioritize mobile payments.

Smaller CUs are doubling down on mobile wallets and card apps to meet members where they already are: on their phones.

Indeed, Gen Z and millennials seek out mobile payment experiences.

Thirty-eight percent of Gen Z individuals, 36% of younger millennials and 38% of older millennials use mobile wallets at least a few times a week. In contrast, only 15% of Gen X individuals and 3% of baby boomers do so. Plus, a significant 12% of Gen Z and 10% of younger millennials say mobile wallets are their most preferred payment method. As such, if credit unions want to specifically target the needs of younger generations, mobile payments are a key consideration.

To meet young consumers’ demand for frictionless digital payments, small CUs need to step it up.

As it stands, mobile-connected credit union members are not always satisfied with their institutions’ apps. Data shows that CUs’ mobile apps receive both fewer and lower app store ratings than those of banks.

Tech providers are working to close the gap for credit unions by introducing new mobile functionality to improve the user experience. For instance, Velera recently launched real-time account validation—a tool designed to boost the security and efficiency of members’ mobile experience, among other benefits.

Accelerate Innovation to Compete—and Lead—at Any Size

As small credit unions close the innovation gap, the opportunity to deliver modern, seamless, member-centric experiences has never been greater. However, sustaining this momentum requires more than ambition—it demands targeted investments, operational focus and a sharp understanding of what younger members expect.

To accelerate this progress, small CUs should focus on four key priorities:

• Double down on innovation. The share of small credit unions identifying as early adopters spiked to 8.5% over 12 months—clear proof that even smaller institutions can lead with the right strategy.
• Align technology with member needs. Fraud prevention, operational efficiency and enhanced member experience top the innovation agenda for credit unions. Smaller institutions can achieve these through savvy partnerships with tech providers.
• Deliver seamless, tap-and-go payments. Younger members expect frictionless payment options, whether through contactless-enabled cards or mobile wallets. Small CUs must accelerate adoption of both to stay relevant and competitive.
• Elevate the digital experience. Small CUs still trail banks in mobile app performance. Closing this gap—through better usability, reliability and features—is critical for member satisfaction, retention and growth.

Small credit unions that embrace these priorities won’t just close the innovation gap—they’ll redefine what’s possible at any size.

We’re seeing firsthand how smaller credit unions are narrowing the innovation gap—not by outspending competitors, but by embracing agile technologies and designing around real member needs. When your technology roadmap aligns with your members’ life journeys, you create the kind of seamless, trusted digital experiences today’s younger members expect. Innovation isn’t just about adopting new tools—it’s about removing friction, deepening trust and ensuring your credit union remains relevant in a rapidly evolving landscape.”