2013 was a mixed bag. We saw Dell go private, Twitter go public, and Miley Cyrus go nuts. We lost dictators and peacemakers. We gained a prince. We saw tragedies in Boston and Oklahoma, and a miracle in San Francisco.
The credit union world followed a similar path. While membership grew by 2.1%, assets increased by more than 4%, and deposits by 4.3%, the number of credit unions and trade associations continued to decline. 214 credit unions were merged out of existence. Cornerstone Credit Union League and Carolinas Credit Union League were formed, turning five trade associations into two (16 leagues have merged in the past 7 years).
As we look forward to 2014, I thought it would be interesting to get some of the top minds I know to discuss what it all means for credit union decision-makers. Specifically, I was interested in four questions:
- What should credit unions start doing in 2014 to position themselves for success?
- What should credit unions stop doing in 2014 to position themselves for success?
- What was the biggest missed opportunity of 2013 for credit unions?
- What was the biggest opportunity of 2014 for credit unions?
But before I get to their answers, I thought I’d share my own insights. First, the data point that worries me the most: 8.7%. That’s the share credit unions have of the U.S. consumer loan market. While this number is an improvement from the 8.3% mark last year, it’s a far cry from the nearly 12% level reached in 1994. Ups and downs in the economy, consumer confidence, unemployment, and the host of other shocks credit unions have faced over the past 20 years (if we’ll agree that banks faced similar externalities) are canceled out in this metric. If our market share declines, it means our story is broken: either our product isn’t compelling, our processes (marketing, technology, delivery) are not competitive, or our people simply aren’t getting the job done.
In the name of asset quality credit unions have started down a sad path to irrelevance. Now don’t get me wrong, asset quality matters. Making good decisions with members’ money is an incontrovertible mandate for responsible credit union boards and employees. But improved asset quality cannot come at expense of mission quality. When Alphonse Desjardins formed the first caisse populaire 113 years ago, he wanted to make sure that weren’t exploited by moneylenders. Small borrowers had virtually no access to traditional banks. Without an alternative source of funding, people who needed to borrow for provident or productive purposes often found themselves either left out in the cold or caught up in an endless cycle of unaffordable debt. The mutual self help model of the caisse populaire solved this problem. Like-minded people with a common bond were organized to save together so that, when needed, they would have access to affordable credit.
Today, credit unions’ common bonds have never seemed more precarious, it’s increasingly difficult for ordinary people to access credit, and 91.3% of consumer loan needs are being met by non-credit unions. If credit unions want to return to relevancy, our creativity and attention must be fully applied to how we might improve underwriting, and how we can tighten our common bonds. If we continue to make the same types of loans, at the same terms, to the same people as banks, we don’t matter. We need to matter. Consumers need us.
Now for smarter people than me to give their takes.
What should credit unions start doing in 2014 to position themselves for success?
Mike Higgins, Jr., Mike Higgins & Associates:
Three things immediately come to mind: differentiation, recurring revenue streams and outsourcing & shared services. Let’s take a look at each one.
Differentiation: Between credit unions and banks, there are approximately 14,000 choices in the marketplace. What are you doing to make yourself stand out from crowd? Outstanding customer service is not the answer. At least 13,990 of the 14,000 already say that. While showing significant asset growth, credit union market share has not moved much. It hovers around 6% and begs the question, why does 94% of the marketplace shun credit unions?
Individually, each credit union should ask what it can do differently to set it apart from all financial service providers, credit union or otherwise. Think about focusing on a specific, but sustainable, niche or segment of the marketplace. Those that do so successfully not only stand out from the crowd, but create a defensible position due to their heightened focus and superior skill set. Become a specialist, not a general practitioner.
Recurring Revenue Streams: Seek out non-traditional, recurring revenue streams such as wealth management, insurance and fee based services/bundles that consumers are willing to pay a fee for. These product lines not only produce income, they are capital independent; producing income to fuel asset growth, not the other way around. The only way credit unions are going to capture market share is to grow capital faster than their competitors. Recurring non-interest income is the fastest and most efficient way to make that happen.
Outsourcing and Shared Services: If the largest credit union were a bank, it would be ranked somewhere around 35th in terms of asset size (an unknown player). The top four banks (JP Morgan, Bank of America, Citibank and Wells Fargo) each individually have more assets than the entire credit union industry. How do you compete against that? Individually as a credit union, you can’t and you never will. I’m willing to wager what each of these four banks spend in a day surpasses most annual credit union budgets. The only way to begin to compete is to leverage the resources of industry experts that you cannot afford to hire on a full time basis; hire them on a part-time basis (shared or outsourced) instead.
Tim McAlpine, Currency Marketing:
It's time to get back to basics and stop trying to be all things to all people. Credit union executives should spend time and energy trying to really figure out who their core members are and what they can do to make themselves irreplaceable to that select group of members. This could be a unique product or service or a marketing program that will be amazing for this group or location and will seem totally crazy and useless to anyone outside of it.
Julie Ferguson, JRF Consulting:
Hire the right people, focusing more on personality, sales skills and the ability to engage with members and coworkers at a high level. Having the right people in place to truly innovate forward and engage with members online and offline is critical to success.
Denise Wymore, 6th Story:
Focus on how they can cooperate with credit unions rather than see them as competition. We are better together.
What should credit unions stop doing in 2014 to position themselves for success?
Mike Higgins, Jr.:
This one is easy. Stop comparing yourselves to banks. Define who you are, what makes you different than all financial service providers and why you are the best option.
They will stop letting leads die on the vine. Lead generation and follow up is necessary to build relationships with new members and deepen relationships with existing members. For many reasons; time being the number one excuse, as an industry we haven’t done a good job following up with leads that are generated through all channels. Credit unions are recognizing this and in 2014 will start taking more action.
What was the biggest missed opportunity of 2013 for credit unions?
Mike Higgins, Jr.:
Failure to capitalize upon bank transfer day. Sure, a lot of “accounts” and “hot money” transferred over, but not much in the way of market share. I don’t understand why the credit union industry can’t produce a “Got Milk?” type of campaign to deliver a consistent message to the marketplace. I asked my smart phone to find the closest credit union and it directed me to a bank. The industry needs someone to “take the bull by the horns” on this topic.
The biggest missed opportunity in 2013 was to collectively capitalize on the distain for large banks. The afterglow of Bank Transfer Day and the Bank of America proposed fee for low-account balance customers is waining and people are becoming complacent once again. In 2014, instead of focusing so much cooperative energy on political lobbying, credit unions should be coming together to promote one or two simple and compelling reasons why credit unions are a viable local alternative to publicly trading national banks
Deepening relationships and wallet share with existing members. There is so much opportunity with the existing membership and working hard to communicate with them about how you can help solve their problems is the constant issue at hand. Transitioning the messaging and making it more about them and their problems and goals is one component of many.
Shared branching. If you’re not part of that network you need to seriously take another look. If all credit unions in America were part of the shared branch network we would have our national brand campaign.
What is the biggest opportunity of 2014 for credit unions?
Mike Higgins, Jr.
Two words: Value Proposition. As a consumer, I don’t care what the sign in front of your brick and mortar says or how “friendly” you claim to be ... I want to know what you are going to do for me. What is your value proposition?
Getting more employees involved with business development and the sales process. Working toward the high tech, high touch solution, which is not easy. Engaging with your field of membership and truly differentiating from the competition is what’s needed in 2014.
To hire the 6th Story crew to help you get your story straight.
So, what about you? How would you answer these questions?
- Matt Davis