For the past 20+ years, credit unions seeking to grow, have made charter changes to community charters, often from multi-common bond or sole sponsorship charters. The goal was to minimize the perceived barriers to membership. The belief was that if anyone could join my credit union, growth would be unconstrained. In some cases, this was true; these credit unions did grow beyond their original charter constraints. But, in reality, the growth of credit unions with new community charters remained very incremental.

These new community-chartered credit unions quickly learned that they now faced a heightened level of competition. By disconnecting itself from its affinity relationships with key, select employer groups or their original sole-sponsor companies. They have become just another banking option in a sea of banking options. Compounding the increased competition was the increased cost of business. Marketing effectively to a community is much more expensive than marketing to a sole sponsor or a few major employer groups. This marketing cost was compounded by the need to change their branching and access strategies. No longer were branches based on the location of the employer group or sponsoring company; they now had to establish a branch network to serve the community.

Another downside of a community focus was the need to “be all things for all people.” The credit union had to become a player in a retail space where all of its products and services became commodities with little differentiation.

A Niche Strategy May Be the Solution: A niche strategy involves tailoring products and services to a specific target market or demographic. This strategy works best with small credit unions because it allows them to concentrate on meeting the unique needs of a particular group or groups of members rather than trying to serve a broad community and “be all things to all people.” This niche strategy involves tailoring their products and services to meet the unique needs of those segments.

This is a “Back to The Future” Opportunity: Almost every credit union started by building a business model based on the needs of an affinity group. Think about all the credit unions that began in the teachers’ lounges at the local schools, with the baby bell companies, universities, and union groups. Most credit unions started because each of these had challenges in getting safe banking access. Teachers struggled with loans that were paid twelve months a year when the teachers were only getting paid nine months per year. Union workers struggled with meeting savings goals and loan obligations due to seasonal or sporadic work and strikes. Bell Company employees often struggled to find a bank with the same cultural values of service and connectivity as their employers. University staff often found it challenging to find the banking needs they needed because of their abbreviated work calendars. In all of these scenarios, credit unions were started to meet the specialized needs of their originators.

By returning to this core purpose of credit unions of serving a unique market with unique needs, smaller credit unions have an opportunity to find niches in their communities or employer groups that they can serve better and with more flexibility than larger, less agile banks can.

Finding and Building a Niche: Building affinity relationships with employee groups, nonprofit organizations, organizations serving an underserved or marginalized consumer, or geography can all become niches. The key to success in building and serving a niche is to understand the unique needs of these consumers that other banking institutions do not adequately meet and then restructure some of the policies, criteria, terms, and conditions of the credit union’s suite of products to address these unserved needs. To identify these niche opportunities, look at the demographics of your market and identify groups of consumers struggling financially due to low wages, inconsistent frequency of work times or opportunities, seasonal workers, or workers in a low-wage industry. Once you identify a group of consumers or industry that traditional banks are not serving, the following must be done:

Identifying Those Unique Needs: Find a way to meet and get to know these potential members. This meeting intends to understand what they need from their bank regarding access to deposits, loans, financial literacy training and counseling, and hours of operation. Learn where traditional banks are failing them as a group.

Build Your Product and Service Model: Once you know what your niche needs from their credit union, identify what you can do to meet this need. The ways to meet these unique needs may require an innovative mindset. Some examples might be to add greater flexibility in your lending terms. For example:

• Investigate whether the payment terms can be amended to automatically have built into the amortization skip-a-pay allowances to compensate for seasonal or unpredictable work schedules.
• Consider a broad range of credit builder products that will provide better interest rates on loans and deposits with a payroll direct deposit as long as the loan remains in good standing. This could be a one or two-percent rate discount with the payroll direct deposit and autopay, but the loan would revert to the standard rate if the loan terms are unmet.
• Consider paying a higher rate on checking and savings products with direct payroll deposit to encourage savings and wealth building.
• Consider a unique mortgage product with a preferred rate and flexible payment terms with payroll direct deposit and autopay to help this niche build generational wealth.

The options are only limited by the needs and your imagination of ways to meet those needs.

Advantages of a Niche Strategy

Specialization: By concentrating on a specific market segment, credit unions can develop a deep understanding of their members’ needs and preferences. This allows for the creation of highly tailored specialized financial products and services that cater to the unique requirements of their target audience, a clear and tangible differentiator from traditional banks. This will create a competitive advantage and build a loyal member base.

Less Competition: Credit unions are now in a market niche without competitors. This makes them the experts in that market. The impact on member loyalty and word-of-mouth referrals is unquestionable.

Personalized Relationships: Because of their agility, smaller credit unions can establish more profound, personalized relationships with these niche members. These personal relationships foster community, trust, and loyalty, almost becoming a “cult.” Think of the “cult” attributes that companies like Chick-fil-A and, in its heyday, Chipotle had with their consumers.

Risk Mitigation: Focusing on a niche can help credit unions manage risk more effectively. By understanding the unique challenges and opportunities within their chosen market, credit unions can make informed decisions to mitigate risks. We can’t deny if the chosen niche faces economic challenges, the credit union may be disproportionately affected, making it more vulnerable to external economic factors; we can agree that when there exists a relationship and special bond of loyalty between a credit union, and it’s members, there is a solid impetus to protect that credit union.

Marketing Efficiency: Niche credit unions can optimize marketing efforts, focusing on channels most effectively reaching their specific audience making marketing lists more defined and focused. This can lead to a more efficient use of resources in member, product, and balance acquisition.

Purpose-Driven: When a credit union honestly meets the individual needs of marginalized and underbanked consumers, the mission and purpose become obvious. This purpose-driven model enhances every employee’s loyalty, engagement, and commitment.

The decision between a niche and a community charter strategy is pivotal for small credit unions. They can try to “be all things to all people” and market to a broad and highly competitive market. But it doesn’t have to be the sole solution to ramp up credit union growth. Credit unions may also explore hybrid strategies, incorporating elements of niche and community charter approaches by continuing to serve their current membership with traditional products and services but building the product and terms flexibilities into their product and service model to support one or more niches.

Ultimately, the key is to strike a balance that aligns with the credit union’s mission and enables it to thrive in a competitive financial landscape. Small credit unions can chart a course toward sustainable growth and community impact by carefully considering the advantages and challenges of both niche and community charter strategies.