It’s a strange time for credit unions. Credit unions are facing unprecedented pressures from regulators and examiners, and capital pressures for net interest margins and fee income. Often they don’t have the benefit of “economies of scale” or the resources, people, and capital, to invest in the infrastructure demands of vendor due diligence, regulatory compliance or technology demands of their members. How are they going to navigate through this “perfect storm”?
Credit unions can respond three ways:
One, they can toss in the towel and begin to negotiate the best merger.
Two, they can form business management cooperative or a CUSO with other small credit unions for infrastructure services like core systems, compliance services, HR services and marketing services to realize the economies of scale enjoyed by larger credit unions.
Three, they can continue like it is business as usual, hoping the competitive and consumer climate miraculously improves, member demands for low fees, high deposit rates, and low loan rates subside, and the credit union philosophy of “people helping people” once again matters to consumers.
Here are five questions senior management and Board need to be asking to discover how to respond:
- Does the credit union have the capital to absorb the loss of fee income, competitive pressures, and compressed net interest margins?
- Does the membership understand and value the products, services, and relevance of the credit union?
- Is the credit union able to compete on access, price, and service levels?
- Is the membership genuinely engaged with the credit union or are you cherry picked for products that, as a result of pricing strategies, fail to be profitable for the credit union?
- Is there a group of like-minded credit unions nearby that you can “partner” with on a shared services agreement?
A credit union can get caught up in the “romance of the movement” and lose sight that it is not able to provide the products, services or access that their membership demands. As a result, the credit union is not genuinely serving their members and if they are not able to build economies of scale, the access and products to meet member demands, time is working against them. Too often we see a small credit union seeking a new CEO when an objective response to the above questions would indicate what they need is a merger, not a CEO, to adequately serve their members.
This business climate is not going away quickly (if ever) – it will never again be business as usual. Now, more than ever, credit unions need to re-invent themselves and their model to attain sustainability. Strategic Planning needs to be an exercise in transformation and differentiation, followed by expert execution of the tactics designed to attain these aspirational goals.