Improving a System by Concentrating What We Do

To achieve economies of scale, credit unions don’t need to consolidate themselves—the better strategy is to consolidate what they do.


These are challenging times for credit unions.  Competitors continue to imitate our strong points while attempting to trim our market share. Outside observers, and some within our movement, say we cannot achieve the economies of scale needed to consistently offer and reap the best rates in the financial markets. Some say only concentration and consolidation is our future.

Consolidation, but of a Different Sort

We do need to do some concentrating, consolidating, and rationalizing, but not necessarily of credit unions themselves. What we need to concentrate are the entities that provide the services to the credit unions.

CUDL and Prime Alliance have shown that concentrating and consolidating processes rather than credit unions can create economies of scale that make us viable players in the financial markets.

Here’s another example. In Ohio, Wright-Patt Credit Union formed a CUSO for mortgage lending and has signed up 42 small and mid-sized credit unions ($2-$200 million).  In the first six months of the year, mortgage lending in Ohio grew 1%, but at the CUSO the number of mortgages grew 45% and the volume 49%. Each of the participating credit unions uses its own website, each with its own feel and brand -- the member never feels out of touch with his or her credit union. But the back office writes the mortgage and gives as good a deal as from a very large credit union. The CUSO created a system that delivers value to 42 points by consolidating effort and process, not the entities themselves.

Thinking System, Not Credit Union

We have a very great advantage over competitors because we can cooperate and they cannot. We can consolidate our back offices to make the front offices more efficient. But we have to cooperate – and give up something to get something -- in order to do this.

Take another example: shared branching. Some credit union managers might shun shared branching by saying their members would be annoyed waiting in line behind the member of another credit union. But, first, members are standing in a branch that is more convenient to them than any other another branch. And they – and the managers – have to accept the notion that any person in line is helping to pay for that convenient branch, is helping the team of credit unions be more efficient and convenient than if the two were working separately.

Something we need to keep far more in mind than most of us do is that we work within a system. We can have our own names, brands, business models, and so forth, but we are all part of a system that cooperates in order to help members.  We haven’t come close to doing what is possible. If we really did this right, all non-member Americans would wake up, slap themselves on the forehead and say, “Of course! This is the model that makes sense! How could we have been so blind?” And they would all join or form credit unions.

Americans outside the movement are going to understand, however, only to the extent that we first understand, practice, and demonstrate our cooperative nature.

And cooperating means sacrifice and compromise. No framer of the U. S. Constitution got everything he wanted or thought best for the country. But these framers realized that each section of the country would have to sacrifice something it wanted in order to make the whole – the United States – work. They understood this because cooperation and compromise had been working in their local communities for more than a hundred years.

How We Win

In these challenging times, we need not build moats and attempt to hold off competition attacks. Rather, we need to work harder at what we do best--cooperate. We need to show the rest of the country that we are a cooperative system working for the benefit of members. Our brand needs to be “credit union.” Our goal has to be that when anyone sees a credit union logo, he or she thinks not of the particular credit union but rather of the credit union system, the system that says to the world “member-owned, not-for-profit, member’s best interests, trustworthy and cooperative.”  Then we have won.

Then that person is going to wake up one day and say, “Of course!” And that person will be every person, and our challenging days will be behind us.

For more articles and thought-provoking insights from industry experts Bucky Sebastian, Chip Filson, and other key players, subscribe to The Callahan Report.




Dec. 11, 2006


  • Way to go Bucky! You have nailed it. As we are cooperatives, we must cooperate to survive.
    Eldon Hoekstra
  • BOOYAKASHA BUCKY! I couldn't agree more. We need to use our cooperative spirt more to gain an advantage over other financial institutions.