Credit Unions: Prove Thyself!

Strategists, new Filene report say credit unions need new metrics to show the world how and why they matter.

Are credit unions worth more than $200 a year to the average member? If so, they better be able to prove it. That and a clarion call for better metrics were major points in a new report from the Filene Research Institute.

The 63-page report is titled Choosing Relevance: How Credit Unions Can Harness Transparency And Show Impact and the author is Bruce Cahan of Urban Logic Inc.

A visiting scholar at Stanford University, Cahan interviewed more than a dozen leading credit union industry executives, among others, in his research. Some of Cahan’s findings sound familiar & use mobile apps to reach millennials, promote financial literacy, etc. & but there also were some fresh, provocative conclusions.

In short, credit unions do a poor job of showing their own impact, Cahan says.

One major point, reiterated in an interview this week with Ben Rogers, research director at Filene, and Filene’s chief impact officer, Tansley Stearns, is that credit unions need to find something other than bank metrics to show their worth.

Rogers says that will matter if or when the moment arrives that there is real danger of losing the exemption.

We need to get ahead of that by actually trying to quantify, for instance, how we serve underserved members now, he says.

The report notes that while credit unions publicize their roles as volunteers and philanthropists, none of the credit unions studied had quantified their impact on meeting the objectively known needs of their members and communities.

It also bemoans the absence of a robust set of sustainability goals and metrics for benchmarking the impacts of its and its members’ transactions or setting interest rates in line with sustainability goals.

Sustainability In The Millennial Age

Cahan, Rogers, and another credit union strategist who spoke to this week agree that the playing field for credit unions today is similar in some ways to the first burst of industry growth in the century just past.

Go back to the 1930s when FDR signed the Credit Union Act and you’ll see our mission was pretty simple: Provide affordable access to credit to the working poor, to the common man, says Scott Butterfield of Your Credit Union Partner.

Now, in an environment where the gap between rich and poor is similar to what it was at the birth of the movement, the mission remains the same, Butterfield says. But there are some crucial differences.

For one thing, boomers came up in a time when parents were more able to co-sign for that first loan.

Now 50% of the adult population has subprime credit, Butterfield says. Who’s going to help the millennials?

Of course, the accepted propensity for the younger set to use prepaid cards and disintermediators like myriad digital wallets, Amazon, and PayPal is well covered. So is the idea that millennials are the prime movers behind the growth of a new paradigm that combines new mobile channels with emerging senses of altruism and pragmatism. Time magazine hits on that theme this week in an interesting piece about money fulfillment.

That’s another key point. Cahan repeats in his report the conventional wisdom that accumulating and owning assets is less valuable to millennials than they were to previous generations.

To boomers and before, credit unions were a means to share financial capital to acquire useful assets: Homes, cars, education, and daily needs.

Today, credit unions & once places to save and borrow money to buy what now can easily be and is being shared & make less sense to younger consumers, Cahan says.

Still, that yields opportunity.

Today, as cooperatives, credit unions could play a natural role in the sharing economy credit unions could be the broker of the persisted trusted identity, earning millennial members’ rights to use assets short term, Cahan says.

But how? And how do you prove it?

Some Actionable Advice

That’s the $64 million question, says Butterfield, the credit union consultant. We’re always pointing out as an industry that we save the average consumer $200 a year, but we have to go beyond that. It’s not motivating to most people. I agree we need to find ways to share our stories, but if we’re in a position now that we have to go out and sell our relevancy, we’ve got a problem.

The veteran strategist casts a wary eye at reports of credit union membership at all-time highs, noting that indirect lending is driving much of that growth, and that much of that growth also is at the largest credit unions, not the credit union space at a whole.

Credit unions need to better show their relevancy, Butterfield says, referring to a column he just penned that argues credit unions should adopt some Machiavellian principles.

We can say all we want that credit unions provide good things, he says. But we need to do more to make members willing to defend us, or in this case, bring us more business and tell their friends.

Butterfield also notes that there are now more than 2,000 low-income credit unions on the NCUA rolls, and that community development credit unions are seeing strong relative growth both because of their close ties to their members and because of their flexibility.

And they can yield usable metrics that tell the story, he adds, pointing to one client that uses improvements in credit scores to rate risk and is now showing a 50-basis-point improvement in members’ overall scores.

Indeed, says Rogers at Filene, Show how you have served the underserved, but also how you have been doing viable and important business around the community for years.

Stearns and Rogers at Filene also offer these tips, citing the About Us or equivalent page on every credit union’s website as a place to start:

  • Quantify how many members you serve who have been rejected or have a financial profile that makes them harder to serve at traditional banks.
  • Provide specific examples of how you helped in times of crisis, by deferring payments, for example. And how you helped with life cycle planning. The report cites back-to-work programs in place at two major credit unions.
  • Map your impact. Put a map on your website that shows where your lending activity has taken place. Just take your loan files and show them geographically, Stearns says. You can do that with your volunteerism efforts, too.

Along with going beyond traditional financial metrics, the Filene report also advises credit unions to reassess how they evaluate back-office ventures. Credit unions often measure the lifecycle ROI of the technology project for the credit union as an institution, in terms of the avoided cost of a given technology over its useful life.

A stronger measure of relevance is the ROI that a technology achieves for the credit union member as a human being, navigating the ups and downs of family, work, and community life, the report says.

The biggest takeaways: Measure impacts that matter to credit union members. And then spread the word.

January 15, 2015

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