Jeffry Pilcher at FinancialBrand.com has written an excellent article on the credit union industry outlook. I would recommend you read this but more importantly read the comments because they are the key as to viewing how individuals perceive the result of this information.
Here in B.C. we have already gone through a “shrinkage” of credit unions over the last 20 years. In 1992 when I came back into the system there were 107 credit unions, now there are 44. The larger CUs have an 80% + total of the BC system assets at large. That is held by fewer than 10 credit unions. And yes we heard the ‘economies of scale’ proposition put forward at least 1,000 times in the last 20 years in all its hues and colours. But what really happened to those credit unions? What is the unknown cost of this ‘shrinkage’?
I believe the key component to loosing credit unions is their own belief that they are no longer relevant to their membership based on criteria that they inherited from outside sources. They begin to drink the wrong coloured Kool-Aid. They are so preoccupied with the ‘system’ template on how to run their organization they forget to leverage their strengths and develop and reinvent themselves in this very different financial world. By following the Pied Piper of ‘bigger is better’ they forget the culture they have and the history they have come from. To put it bluntly, they just give up, ignoring the wealth both financially and culturally that their credit union has established in their community.
There is nothing wrong with numerous credit unions in the same market. We all agree on the free market concept. What is neglected is that as credit unions we must align some strategies as financial co-operatives. No credit union is an island. At the same time individual credit unions must develop strategies that are dynamic and relevant. Those strategies must come from the source of collective wisdom of their membership. The direction that they set will be unique, growing and vital to their own ongoing future.
Listening, formulating, innovating, creating, respecting, and working towards a common vision is not easy. It is work. The end result will be a credit union that does not worry about how many CUs there will be in the future as you will be too busy maintaining that relevance with your membership and also contributing to the health of the credit union movement.
The cost of loosing CUs is huge. There are too many ‘funerals’ and not enough ‘births’. I believe smaller CUs are sometimes the conscience of the movement. Being smaller also gives a huge advantage for innovation and quick time of delivery for products and services. There is a role for both smaller and larger CUs to tackle our aging and declining membership base. What I have seen recently in the BC Credit Union movement has given me a new direction and a very positive view of the synergy used by both ends of the spectrum. It begins with discussing our cooperative nature and respecting our strategic differences.
7 thoughts on “The age old question of how many CU’s in the future”
I couldn’t agree more. Having worked for a $4 million CU and one over $1 billion – the staying power is in the leadership – not the number of branches or employees. If we buy into the bigger is better concept we are doomed to be “too big to fail” and look what that did for the US economy. How quickly we forget. In the US, small business (not big business) will improve our economy.
You also bring up a very valuable point – there are so few births in the credit union movement and many funerals. I was approached by a group of artists and craftsmen in New Mexico last year that wanted to start a CU. The NCUA’s “onboarding” packet is about six inches thick and daunting to say the least. There’s no encouragement for start-ups – quite the opposite.
Credit unions have yet to see that a merger is really a blending of families. It’s not a combination of assets on a balance sheet and a computer conversion. it’s two unique and long standing cultures that are combining business models. Seldom is it handled in a way that respects the history and the individual memebers that built the co-op. And just because you “merge in” assets – there’s no guarantee you get to keep them.
New communities, passions, causes, and needs are being born every day. The affinities thereby created are powerful. Instead of harnessing these opportunities, however, we ignore them. You see, the modern credit union prefers breadth over depth. This is our fatal flaw.
The Mt. Lehman Credit Unions of this world prefer depth, and so do their members. Success there is lasting.
I have yet to see a compelling argument for what the “right” size of a credit union (or bank, for that matter) is, or a compelling argument that are too many or not enough credit unions in existence.
Gene, you lament that there aren’t enough credit union births, and I’d bet a lot of CU folks agree. Let me play devil’s advocate for a moment: What’s the big, unfulfilled need in the market that more credit unions are going to fill?
Consumers don’t need any more credit unions, “financial cooperatives,” or banks.
Consumers need better help managing their financial lives. As far as I’m concerned that’s the unfulfilled need because NEITHER banks (large or small) nor credit unions are doing a great job in that department.
The arguments for and against size of FI is another misguided conversation. Seems to me that a lot of people have blinders on when discussing TBTF institutions. It was actually large institutions — JPMC, BofA — that bailed out other failed institutions.
The proponents of small (evidenced by comments like “small business (not big business) will improve our economy”) also fail to understand the impact of ecosystem. I work in a small business — a small business that counts big businesses (including many TBTF institutions) as its clients. So my small business wouldn’t exist without big business.
It’s true outside of financial services. I don’t think a lot of people realize how many small businesses thrive because of the business they do with companies like IBM and General Motors.
Also, if large FIs were broken up (and I’m not sure where anybody would draw the line), then it’s quite feasible that a CU like Navy Federal would, by default, become a large FI, instead of a mid-sized FI.
The arguments regarding the “right” size of an FI are nothing more personal opinions.
You make a good point about small businesses thriving because of the big businesses that exist. I know when I was self-employed I relied on United Airlines to shuttle me around to gigs, Apple for my phone and computer needs and Chico’s for my clothing. But I still think my argument is valid. If small businesses don’t continue to grown in numbers- those big businesses will fail. Or am I getting that wrong?
Math is hard.
And I hate to admit that I do agree with you that we all need to do a better job at what we do. The Baby Boomers didn’t do so well managing their finances – and that was our charge.
We used to go around the state teaching young kids how to manage their money. Recently I heard a teenager in high school say “You know, we don’t need to learn how to manage our money at this age – we need to learn how to MAKE money.” Profound. It got me thinking – is that our job? Should that be our cause? Hmmmmm……..
I was alluding to your comment that “small business (not big business) will improve our economy.” It’s simply not as black and white as that. And when I talked about the “ecosystem” I didn’t small businesses as CUSTOMERS of big businesses — I was referring to the other way around.
My belief is this: BOTH large and small companies contribute to the health of the economy. Not only is it wrong to only give credit to small companies, it’s wrong ti vilify big businesses, as many people (not including you, here) do.
Ron, love your responses. An ecosystem is a perfect metaphor for small biz/big biz. It’s also the perfect metaphor for small credit unions/big credit unions. Larger credit unions offer their smaller brethren support in terms of compliance help, back office work, etc. Small credit unions provide the mom and pop feel that the lobbyists take to the Hill. All are capable of being worthy and need each other.
One key point to take away from The Financial Brand piece is that the smaller credit unions have negative asset and membership growth, BEFORE considering US population growth. Of course there are many really great credit unions out there under $100M in assets, but for the others, small or large, that’s not a sustainable business model. What’s the answer? Growth? Merger?
As Gene, Denise and Matt have said, leadership is a key ingredient. The question is how many smaller credit unions can afford great leadership? Some serve out of love for what they’re doing, but there are only so many of that kind to go around.