Credit unions told to adapt to the new normal

The CFCFE conference looked at the challenges of Covid-19 and digitisation

With Covid-19 rocking a financial system already adapting to rapid technological change and consumer habits the credit union sector was given guidance on how to adapt at a recent conference.

The Centre for Community Finance Europe (CFCFE) held its online conference last month with an assessment of the new landscape. Chair Ralph Swoboda said credit unions had responded admirably to the pandemic in support of staff, members and communities but said: “We need to lift our heads from the urgent tactical response of the past few months to develop a more strategic view going forward.”

Speakers at the conference included Brian Corr, a senior corporate finance specialist in the Irish Department of Finance. He painted a stark picture of the “disproportionate impact” of the pandemic on Ireland’s domestic economy.

Labour intensive sectors had suffered most, he said, while knowledge-based sectors were more resilient because they switched more easily to home working.

The economy had enjoyed a summer bounce but there are uncertain times ahead, he warned, with workers still reliant on government supports. As these are withdrawn, and with pandemic restrictions affecting some sectors more than others, incomes in some credit union common bonds will be affected, he said.

Short term lending has fallen as a result of the crisis which means credit unions with longer-dated loan books should fare better.

And the pandemic is accelerating existing trends in the market – the decline of cash decline, the rise of e-commerce, online banking, contactless payments, the increased participation of customers and members, and the adoption of technology. The need for credit unions to keep up with these innovations is still pressing, he said.

The pandemic also brings new opportunities as governments look for partner organisations to help finance the recovery effort through bounceback loan schemes. Mr Corr gave the example of UK-based mobile-only challenger bank Starling a challenger which – “from a standing start” – has managed to lend £700m to small and medium enterprises.

With an Irish credit guarantee scheme recently launched to assist businesses through the recovery period, Mr Corr said he hoped some credit unions can be involved.

Marlene Shiels, chief executive of Capital Credit Union in Edinburgh, agred that the sector faces a mix of threats and opportunities. Alongside the pandemic and impending recession there is a rise in cybercrime.

And the sector still lags on digitisation, she warned – although there has been “huge innovation” over last six months and “credit unions have done things much quicker than anticipated”.

There is a still a serious problem when it comes to the legislative framework which leaves credit unions dependent on member-loan interest. “If we don’t have the opportunity to diversity our income we’re going to be under threat,” she warned.

Paul Norgrove, chief executive of Serve and Protect – the Police Credit Union – said it was vital for credit unions to diversify their product range and “de-risk” their business model.

This could mean diversifying the common bond, and strengthen digital teams. With a small investment – in an IT and innovations person and two people managing digital reach – a credit union can reach a lot of people, he said.

Seamus Newcombe, chief executive of Payac, an Irish credit union services organisation, said credit unions need to boost their spending power to beat the mainstream banking sector to new innovations.

Marlene Shiels agreed. “There are a lot of opportunities out there,” she said. “This is our time to collaborate … to learn from each other by digitisation. My credit union is no shining light at digitisation but we have a plan which we are putting into place and we want to share our lessons from this journey.

“Banks looking for millions of new savers – we need to get the jump on those banks and tell them to come to us.”

Ruth Dorman, chief executive of NHS Credit Union in Glasgow, also stressed the need for stronger messaging. Lockdown had shown this can be done, with her organisation adding thousands of app users – “people who would never have gone near digital; we talked them through learning to use the app”.

She said the credit union needs to invest some of its own wealth into innovation because “if we wait on govt funds we’ll be waiting for the next decade … We need to move to make sure we are people’s first choice”.

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