Can A Divided Movement Survive A Stress Test?

Credit unions seem to be dividing between mission-based and bank lite. What do you see?

Over the past several weeks I’ve been out talking with credit unions at several conferences. Through some conversations during breaks or over a meal I have started to see an emerging, diverging pattern.

For many years one of the things we worried about at Callahan was the changing of the guard at credit unions around the country. Would these new leaders share the cooperative, collaborative values the movement was built on and progressive credit unions still carry on or would they go it alone?

And, if they do take that more insular route ? if their values are more go it alone what will that look like? We’re beginning to see, and it sometimes looks a lot like a bank.

Different By Design

We’ve always talked about credit unions being different by design. Member-owned financial cooperatives are different, or can be. While I haven’t seen a lack of collaboration I am seeing some credit unions employ what I could call a banklite model. The credit union will look and act like a bank but with lower fees, and better service. There are many successful credit unions providing real value to members using this model. It’s not a bad strategy.

I’m also beginning to see a growing contrast to this group: those that see themselves as being mission-based organizations. They measure progress in terms of improved member financial health and community development. These credit unions see members and communities in need.

These are likely towards the bottom of the market in dollars and demographics, but they see themselves as serving higher goals. While most financial institutions are fighting over a shrinking top tier as the middle class continues its well-documented disappearing act these credit unions are building relevance by expanding their services to meet that new reality. This is not a strategy that works for everyone, but I’m seeing more and more credit union executives taking this path.

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A Simple Question

I often ask people I just meet a simple question: Tell me about your credit union. Depending on how they answer I can petty quickly tell in which of these two camps their strategy falls.

Music to my ears is when the reply starts like this: We were founded in 1938 by eight people who These credit union leaders generally go on to tell me about how they are positioned to help different segments of their community.

The questions I keep pondering is: Are these two strategies reaching the fork in the road and taking different paths? Will that splinter the movement?

The credit unions with the mission bent seem to be working together ever more closely. But what about the rest? Credit union suppliers have long told us that one of the differences they see in working with credit unions over banks is the level of cooperation with each other.

Will that continue? As many credit unions increasingly find themselves serving the same markets, will they keep up that spirit of co-opetition? Or will it devolve into simple competition? Are these growing pains or is something fundamental about to change?

This question is neither academic nor rhetorical. Would a divided movement be able to survive an external stress event? This isn’t the kind of stress test regulators demand of the balance sheet. These would be sea changes that would affect everyone all at once. Possible examples: losing the tax exemption or NCUA consolidation into the FDIC are good examples.

Maybe our common purpose will prove to be greater than our differences, but the latter seems to be getting bigger. What do you see?

Jon Jeffreys is managing partner at Callahan & Associates. Contact him at jjeffreys@callahan.com or 202.223.3920.

February 6, 2017

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