How can credit unions be successful? Make money, stay solvent and grow, says Bill Hampel, chief policy officer at the USA’s Credit Union National Association (CUNA).
Mr Hampel, in the UK to speak at the annual conference of the Association of British Credit Unions (ABCUL), said: “A credit union that consistently loses money won’t last.
“A healthy buffer is critical. A healthy capital is critical. Growth means relevance.”
He told delegates that US credit unions have continued to grow despite increased regulatory burdens and rapid technological developments. While some have chosen to merge, others have managed to grow organically.
The number of credit unions in the USA has fallen from more than 20,000 in 1982 to 6,000 today – mostly through mergers rather than closure.
Around 3.5% of credit unions closed down in 2916 – but looking solely at small credit unions with less than $100m in assets, that figure reaches 7% a year.
Referring to a business analysis by Prof Michael Porter of Harvard Business School, Mr Hampel highlighted three ways a business can become an industry leader: leadership; differentiation; and focus. In 2001, CUNA’s Lending Council set up the Porter Lending Project to explore these ideas.
The group of experts looked at how to apply Porter’s principles to credit unions, to develop a set of recommendations credit unions can use to enhance their lending business. Mr Hampel suggested credit unions could focus on either being the low-cost provider, developing unique products, or member intimacy.
CUNA has also set up a Small Credit Union Committee to discuss issues of concern for smaller credit unions. The committee asked credit unions what they thought were the key elements to success.
Their recommendations were:
Differentiate – Be the low cost-provider, develop unique products, or establish close relationships with members
Consult – Educate members, focus on what’s best for them, help them reach out to them let them know you’re available. Cross-sell: if you have great savings products and they come for a loan, ask them to make a deposit
Price for your market – Do not let directors or regulators set your prices; do risk-based pricing, not just risk-based lending. Charge fees for services
Lend – The best asset a credit union can have is a loan, and those with strong lending programmes are the most successful
Use available resources – reach out to other people
Also speaking at the conference was Marshall Boutwell, president and chief executive of the Peach State Credit Union in Georgia.
Starting as a small teachers’ credit union with only $14m in assets, the organisation has grown to include 49,000 members with total assets of $320m. Over $260m of asset growth came from organic growth rather than mergers, he said.
“Education is what we do, have great relationship with the schools system. We are not the low price provider, we are focused on becoming the primary financial institution for our members,” added Mr Boutwell.
Half the credit union’s members are signed up through payroll deduction but this does not bring with it a lower rate.
“We assume people are going to pay us back,” he said. “When lending to lower credit folks who have jobs that are stable, they will keep paying you.
“People deposit money in credit union and use credit cards so they get to build a credit score – then a year later they can take a loan.”
While the credit union continued to focus on education – its common bond – it also welcomed members from the local community, including those with issues accessing financial services.
Years ago, Peach State Credit Union changed its lending policy to enable Bosnian refugees with stable jobs but no credit record to access loans at better rates.
“It became a success within the community,” said Mr Boutwell. “We didn’t have delinquency, much less a loss, so reaching out and serving underserved communities worked.”
The credit union has a centralised lending system, which Mr Boutwell says helps ensure consistent underwriting and ensures no discriminatory decision-making takes place. Members have a delinquency rate of only 1%, half the national average for banks.
Members also benefit from credit counselling, with advice on how to qualify for loans or be offered smaller loans.
“I don’t have a competitor,” he added. “I focus on my members. None of them can compete with us. We are the best.”
He added: “When members call to complain, the complaint is used to educate employees. A complaint call is an opportunity to make another sale.”
Mr Boutwell advised credit unions in the UK to “keep it simple” – focus on knowing who they serve and what their niche is; to grow as much as they can; and, if needed, to find the right partner.