How can credit unions grow in a sustainable way?

Four international stories of sustainable growth in credit unions

In a breakout session at the World Credit Union Conference in Vienna last week, credit union professionals shared their organisations’ stories of sustainable growth. They looked at the potential of mergers, working with fintechs and attracting new members.

Australia

Dave Taylor of G & C Mutual Bank in Australia described how the organisation had to play by the same capital rules as other banks.

“Looking at organic growth and consolidation in Australia credit unions and mutual banks consolidated voluntarily and boosted strength of movement,” he said, adding that it was important for mutuals to find the right kind of growth.

Two years ago G & C started to work with a fintech called Society One, a peer-to-peer lending company. It was a natural synergy between the two organisations, said Mr Taylor, as mutual banks and credit unions are the original peer-to-peer lenders. Rather than have Society One cut their business, they partnered with them to diversify their lending mix and attract a new demographic of members.

Mr Taylor explained how over the past 25 years the bank had faced a decline of personal loans as a proportion of total loans from 90% in 1995 to 10% in 2015. Since working with the fintech, the bank has granted 822 loans though their own channels and 6,891 through Society One’s platform. Their personal loans proportion has increased to 11%.

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Mergers are also on G & C’s agenda. Last year they merged with Quay credit union, which helped remove back office costs and provide services and improved technology to Quay members. The two organisations retain their brand identity, adopting a multi-branding strategy.

When it comes to mergers, three key issues dominate the negotiations, says Mr Taylor: Will the brand be retained?; Who will be on the board?; and Who will be the new CEO? However, he argued that these problems should not be key on the agenda, because they do not determine what is best for members.

Ireland

Also speaking at the event, David Matthews of the Irish League of Credit Unions talked about the main challenges facing credit unions in the region. The league represents credit unions in both Northern Ireland and the Republic of Ireland.

A key barrier preventing growth is the fact that the return on surplus funds is at an all-time low. Around 70% of the balance sheet of credit unions members is earning 1.4%. Mr Matthews explained that while services to members are better than ever and credit unions remain the most trusted financial institutions, they were still attracting more savers than borrowers.

To address this the league is working to maximise the impact of the effectiveness of credit unions by encouraging co-operation to make better use of resources. Sharing skills can help to avoid the duplication of costs and allows product standardisation, he said.

The league is also advising on home and business loans, providing central support to ensure they are issued in an efficient and compliant manner.

“Providing credit will always be the main reason we exist – we need to expand the areas of loans. The way to do it is to co-operate to mitigate extra risks by standardised processes and share resources and skills,” he said.

For the years ahead the league’s key objective will be to capitalise on the credit union difference, make credit union loans their primary income generator and use strategic co-operation to reduce costs, adapting credit unions’ risk appetite for the future.

Canada

Tony Webster of First West Credit Union in Canada talked about how the organisation had grown from CAD$3bn to CAD$11bn in assets over the past nine years. The credit union was formed in 2008 with the merger of Envision Financial in Langley with Valley First Credit Union based in Penticton. First West Credit Union also acquired Enderby & District Credit Union based in Enderby, in 2013 while Island Savings joined First West on 2015. At first the credit unions joining were allowed to retain their brands and IT systems, which, according to Mr Webster, was eroding efficiency. First West is not on the third year of a five year plan to transform the organisation, adopting common systems.

They have set a target of membership growth of 3% every year and hope to also bring down the membership average age. They are working on attracting more members aged between 29-45 by offering free accounts and full unlimited transfers.

“When we create products less focused on loans and deposits but what can we enable digitally,” said Mr Webster. Over 61% of actions are done automatically now at the First West credit union, which enables staff to focus on more complex things, he added.

Also addressing the issue of mergers, Mr Webster said that the credit union functioned based on the principle of creating value for members. Some activates are centralised. For example, all credit unions merging with First West have to have the same interest rate, given that it acts as a single legal entity. And while they get to maintain their identity, the credit unions have “a division of First West written on their branches.

Brazil

In Brazil, Sicredi is among the country’s biggest financial players, including a network of credit unions and a bank. The bank is growing at a rate of 20% a year, more than traditional banks (13.9%). Its capital ratio is 24%, above the Basel Committee’s minimum capital adequacy ratio that banks must maintain is 8%.

João Tavares, executive president of Sicredi said that both the bank and the credit unions followed the same long-term strategy. While the credit unions are present across the country, they focus on the relationship at local level. They use technology to reduce costs and improve the experience of members but do not strive to become a fintech, said Mr Tavares. Sicredy has a five-year strategy in place, which sets out its long-term objectives. If a new product or software is launched, it will be run by the credit union. However, the decision to launch the product is taken by the credit unions.

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