Churn Sparks Reinvention as Credit Unions Race to Meet Gen Z

While many credit unions historically relied on strong community ties and personalized service, the youngest generation of members is increasingly eyeing the exit, demanding a digital-first experience that could redefine the future of these community stalwarts.

The July PYMNTS Intelligence report “Credit Union Innovation Readiness Report: The Real Story Behind Member Churn,” a collaboration with Velera, reveals a growing exodus of credit union members, particularly from younger demographics and small- to medium-size businesses (SMBs).

PYMNTS surveys of over 15,000 consumers and nearly 2,000 SMBs conducted in early 2025 attribute this churn to a widening gap between what modern financial consumers expect and what credit unions provide.

Only 23% of Gen Z consumers are credit union members, and a mere 14% use a credit union as their primary financial provider. This low initial adoption signals a disconnect.

Furthermore, 42% of Gen Z credit union members are certain they will stay with their current credit union. That’s less than half.

The data highlights an urgency for credit unions to address the preferences of Gen Z:

• Within the next year, 37% of Gen Z credit union members report being at least somewhat likely to switch to another financial institution, a figure more than double the 15% across all generations of credit union members.
• When Gen Z members do plan to switch, 82% are considering moving to a non-credit union financial institution, and 39% specifically are looking at a national bank.
• Gen Z consumers want digital onboarding 78% more than the overall consumer population, signaling a demand for seamless, tech-driven initial interactions with financial providers.

Gen Z consumers are signaling that their loyalty can no longer be assumed.

Among those who have left their credit unions, Gen Z consumers consistently cite the importance of strong customer service that fosters a closer connection, alongside desires for higher credit limits, fee-free ATM access and lower loan interest rates.

For credit unions, digital onboarding must be a core offering, not an afterthought, especially for this tech-forward generation. Credit unions must enhance their digital banking performance, ensure transparent fee structures and improve ATM access. Success hinges on integrating modern financial tools. This includes providing robust budgeting and card management applications, which is desired by 38% more ex-credit union consumers.

Gen Z shows strong interest in open banking capabilities (72% higher demand than other cohorts) and QR code payment functionality (67% higher demand), pointing to their need for mobile-centric solutions. Personalized communication and mobile-first features are pivotal, with competitive differentiation increasingly depending on technology parity with national banks and a deep understanding of young consumers’ priorities.

Expanding partnerships, streamlining account transfers and developing hybrid physical-digital experiences are among the key strategies to emulate larger institutions’ advantages while preserving credit unions’ community-focused strengths.

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