As 2020 throws new challenges at the country, credit unions are demonstrating resiliency and an ability to quickly adapt to changing circumstances.
The pandemic remains the headline story even as communities across the nation, to varying degrees, relax individual and business restrictions. There are some indications of economic recovery, with unemployment numbers improving and data on transaction activity from both CO-OP Financial Services and PSCU showing both debit and credit card usage on the rise. However, retail businesses large and small are closing permanently, and airlines and hotel companies are announcing massive layoffs. As a result, the pace and level of economic recovery remains uncertain.
As the pandemic drives the national narrative, natural disasters are exacerbating difficulties in local and regional communities. Wildfires have engulfed much of California and Oregon. Hurricane Laura hit hard in Louisiana and Texas Gulf Coast communities — an early strike in what is already an active hurricane season. And towns in Illinois and Iowa are still rebuilding after a derecho caused severe damage, particularly to the Cedar Rapids area, in August.
Amidst these circumstances, protests and calls for social justice are ongoing in numerous U.S. cities. Many credit unions are engaging with local and national organizations as credit unions elevate diversity, equity, and inclusion as a strategic priority.
Credit unions have moved out of the react and respond phase that characterized March and April and into the recovery phase. Organizations have adapted to a new normal in their operations and are now evaluating programs and services based on data and experience. New challenges emerge with each passing day, making this a recurring cycle, but most striking is the resolve credit union leadership and staff have exhibited throughout this trying year.
Despite myriad challenges, credit unions remain focused on keeping employees and members safe while being financial first responders for their members and communities. Second quarter performance — including share growth and lending activity that reached record levels — shows member have turned to their credit union like never before.
The mid-year numbers are mind-boggling, particularly considering the environment. Share balances increased by more than $172 billion in the first six months of 2020, nearly three times the $60 billion increase credit unions recorded in the first half of 2019. The $115 billion rise in the second quarter alone is more than double the $56 billion increase in the first quarter — typically the highest quarter for share growth. Government relief packages and curtailed consumer spending certainly played a role in the increase, but it is worth noting membership expanded by almost two million in the first half of the year. This is a similar pace to 2019, although this year’s membership growth has occurred under very different conditions.
Loan originations topped $300 billion through June 30 for the first time ever and reached $314 billion. Consumer lending held steady in 2020 versus 2019, but mortgage lending volume rose an astounding 94% versus the first half of 2019. Additionally, more than 800 credit unions across all 50 states supported small businesses via more than 170,000 Paycheck Protection Program loans. Callahan’s analysis indicates these loans saved more than 1.1 million jobs.
Still, in a year full of surprises, one second quarter metric stands out: delinquency and net charge-off rates both declined. Credit unions actively helped members by automatically deferring loan payments as the pandemic began; however, those numbers will likely start to rise in the second half of the year as deferments end.
Will credit unions be reactive, adjusting only as members demand more capabilities from them? Or will they be proactive and rethink how they can help members achieve desired outcomes through new means that merge efficiency and the personal touch?
Will Credit Unions Build On 2020's Mindset?
The rapid changes credit unions have undertaken this year in response to an unstable and constantly shifting environment reflect not only the industry’s member service orientation but also its adaptability.
The speed at which credit unions converted to a largely remote workforce with limited business interruption should encourage members as well as management and boards. Some credit unions even accelerated the development of digital channels to seize on the shift in consumer behavior during the stay-at-home period.
Although a pandemic is not a situation anyone would wish for, credit unions have learned lessons they can apply moving forward. For much of the past decade, credit unions have viewed fintechs — with their entrepreneurial mindset, pace of product development, and focus on ease of use — as an emerging challenge. Although an increasing number of credit unions have adopted agile development practices, the industry does not have a reputation for implementing rapid change. Credit unions tend to play the long game, typically making investments over time after thoughtful review of their options.
Yet in 2020, credit unions have demonstrated the ability to make — and effectively execute — quick, sound decisions. Can credit unions emerge from the pandemic with a new mindset that builds on and applies these decision-making principles developed during a period of rapid change? Members have adapted quickly, too, and their expectations are likely to rise as they grow increasingly comfortable using digital channels for their financial activities.
Video conferencing has become the norm for business as well as family and friend interactions. This seems to be an ideal environment to extend such a tool to help members with complex financial questions. That is just one example of the potential to evolve thinking around member service. Will credit unions be reactive, adjusting only as members demand more capabilities from them? Or, will they be proactive and rethink how they can help members achieve desired outcomes through new means that merge efficiency and the personal touch?
This mindset could extend beyond the walls of the credit union, too. It presents the opportunity to form new partnerships, including with fintechs. It has become clear that although some firms might be competitors, many fintechs view the loyal membership bases of credit unions as a valuable opportunity. In an era of tightening margins, trying to keep up with consumer expectations is increasingly difficult to accomplish with a go-it-alone strategy. New alliances among credit unions, CUSOs, and entrepreneurs might shift the landscape over the next decade and position credit unions in a new light in consumers’ eyes. In times as challenging as these, innovation is not an opportunity for success, it’s a requirement.
Credit Union Values And Strategies Remain Relevant
Callahan has facilitated virtual planning sessions with credit unions of all sizes and in varying geographies this year. In many sessions, boards and management teams reflect on 2020 and evaluate whether their strategic plans remain relevant given the changes presented this year. The consistent answer is, yes, they do remain relevant. Why? Because the endgame remains the same: to increase the value the credit union is delivering to members.
Ed Callahan once said, “Credit unions are different and always have been. We never came together with the notion of making money but with the notion of helping people and improving their lives.”
The member-first focus he refers to is credit unions’ differentiator and fundamental to the industry’s success.
Credit unions are constantly evolving their methods and models to better serve members. In a year in which cooperatives have delivered under the most trying circumstances, they now have the opportunity to develop breakthrough ways to elevate member value. Can they turn a year of incredible challenge into a year of extraordinary change?
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