It’s Time For Credit Unions To Challenge Themselves

The quarterly performance of the credit union movement once again demonstrates a growing impact on members and the market.

Third quarter credit union growth trends surged past that of community banks and the overall banking industry. Auto finance market share hit a post-recession high of 19%. Year-to-date first mortgage origination market share was 8.1% just below the 8.6% record posted in the first quarter. The industry’s share of both revolving and non-revolving consumer credit hit new highs of 5.7% and 12.9%, respectively. Given this data, it is not surprising that member usage of key products such as checking and credit cards was also at an all-time high.

Credit unions have made significant gains since the Great Recession started 10 years ago. Measures such as loans, shares, capital, and membership have all reached new levels. Ongoing missteps by the largest banks have raised the profile of credit unions and the cooperative model as a consumer-focused alternative. Radio, television, and newspaper advertising combined with sponsorships of local events and activities have all raised the public visibility of credit unions.

These gains are all notable and meaningful; however, they are backward-looking. The important question to ask is: Where will credit unions be in the next 10 years?

Will the movement sustain, or even accelerate, its momentum? Will the performance dynamics of large and small credit unions change, or will the gaps in growth rates and earnings continue to expand? Will the value and values of cooperative financial institutions resonate with potential new members, or will price and convenience rule all? ContentMiddleAd

A Shifting Environment

It is important to ask these questions now, when credit unions are delivering strong results, because changes are ahead.

A new generation of leaders is taking the helm at credit unions across the country. NCUA leadership also will change over the next few years. The regulatory pendulum is swinging back and could change a playing field that, in many respects, reinforced the credit union values of fair terms and transparency. The economy has been on a steady, though moderate, expansion for more than 100 months. This is the third longest in U.S. history how long will it continue?

One way credit union leaders can think about where the cooperative might be in 10 years is to ask: What will the 2027 annual report look like?

Will the credit union be celebrating its growth and impact over the past year, or will it be discussing how it is navigating through a difficult period? Will the letters from the board chair and CEO focus on credit union investments that further member value, or will they address the credit union’s relevancy in coming years?

Nobody can predict how the environment will evolve over the next decade, but credit unions can define who they are today and where they want to focus in the coming years. They can ensure the organization’s mission is clear.

Mission-Driven

On a recent trip to the West Coast, I visited CEOs at a half-dozen large credit unions most community-based but a couple with strong SEG relationships. Every one of the CEOs has been in their role fewer than five years, most came into the position from another credit union, and all had been in the industry prior to becoming CEO at their current shop.

These CEOs were enthusiastic about 2018 and talked about how their credit union was moving forward. The CEOs who have been in their position for less than one year are focusing on culture, ensuring employees understand what the credit union wants to achieve and how they are integral in making that happen. The CEOs who have been in the seat a bit longer are taking more of an external perspective, driving toward the opportunities in front of them.

But each CEO is thinking about the distinct role the credit union wants to carve out in the communities it serves. These credit unions are focusing on their mission.

The credit unions with SEG relationships are developing programs that extend value to employers and employees alike a true win-win-win.

The community credit unions are engaging with area organizations and working on solutions to build stronger communities. The ties they are building to the communities they serve are an extension of the legacy of their credit unions. Today, these credit unions bring more resources and solutions to the table and make a greater impact than the cooperatives’ founders could have ever imagined.

Nobody can predict how the environment will evolve over the next decade, but credit unions can define who they are today and where they want to focus in the coming years.

During this fall’s strategic planning sessions, Callahan’s facilitators noticed a regular discussion around the delivery of unique value. For some credit unions, this translates into differentiation. Others are looking beyond differentiation into what makes a credit union a different kind of institution altogether.

This approach requires a credit union to address, not avoid, challenges and to look at activities and results through a lens that brings novel solutions to problems. One example comes from outside the United States.

I was fortunate to visit Vancity Credit Union in Vancouver, Canada, with a group of U.S. credit union executives last month. We had dinner together at a farm-to-table restaurant that is also a member of the credit union.

The restaurant approached Vancity a few years ago for working capital. Rather than just providing a loan to the restaurant, Vancity also offered a grant that could be used to invest in the restaurant to a local farmers cooperative. This gave the restaurant a more solid financial foundation and strengthened the tie between the restaurant and the local farmers from which it sourced food. Vancity strives to live by the cooperative principles and was able to support a fellow cooperative. Solutions like this occur when a cooperative lives its mission and leverages its connections across the community to further the well-being of all involved.

The Long View

A core credit union strength is the ability to take a long-term view. Public companies strive for quarterly and annual earnings, whereas credit unions can be patient with their capital. Ideally, this leads to better decisions driven by sustainable success, not short-term wins.

But a credit union should also apply that same long-term view of capital to the organization as a whole. Leadership must reflect on how the credit union wants to impact its members and community. It is a challenging process that often takes years to clarify, but it is essential to the organization’s long-term health.

There has never been a better time to be a credit union. That means now is the time to ask the tough questions that will ensure the industry thrives in 2018 and beyond.

Strategy & Performance 3Q 2017

Credit unions have made significant gains since the Great Recession started 10 years ago. Third quarter credit union growth trends surged past that of community banks and the overall banking industry. Measures such as loans, shares, capital, and membership have all reached new levels. These gains are all notable and meaningful; however, they are backward-looking. The important question to ask is: Where will credit unions be in the next 10 years? In this issue of Strategy & Performance, learn why now is the time for credit unions to challenge themselves.