In order to thrive and be relevant, small and medium sized credit unions will have to find new ways to pull resources where they can.
Speaking at the World Credit Union Conference in Denver, Mollie Bell, chief engagement officer at the Filene Research Institute looked at the state of credit union collaboration in the US. The session also explored the “Network” credit union concept model.
Filene has conducted a series of research studies that examined the notion of collaboration, not only among credit unions, but also between credit unions and the wider co-operative sector.
One of the key challenges facing credit unions is embracing new technologies. By pulling resources, credit unions can achieve more. Ms Bell explained how technological collaboration was easier than 20 years ago.
“Why is collaboration important? We have to figure out how to serve members especially with this new population, Millennials. We need to meet their needs if we want to stay relevant,” said Ms Bell.
Technology enables credit unions to collaborate in the ways we couldn’t have before, she explained.
“What makes it so difficult is credit unions have to figure out who’s going to be junior in the partnership. One of the lessons learned from our research is that credit unions can think big but act small, in other words take steps, not leaps as we go down on collaboration path.”
One example could be credit unions sharing resources like chief financial officers or IT specialists.
This approach could also help credit unions retain their voice, brand and membership through collaboration instead of merger, she added.
Another case study featured in Filene’s reports is the collaboration between Bethpage Federal Credit Union ($5.5bn) in Long Island, New York, and Bellco Credit Union ($2.3bn) in Denver, Colorado. Together they launched Open Technology Solutions (OTS), a shared expenses collaboration. SECU of Maryland ($2.7bn) joined in 2008. Each of the member credit unions is of a similar asset and membership size and the credit union service organisation operates on a very simple model: they take all expenses and divide by three.
Today the CUSO has become a comprehensive technology provider, and some of its member credit unions handle all their IT through OTS. In addition to providing IT services and support, the CUSO also helps the three member credit unions negotiate more effective third-party agreements. Each of the three partners has an equal share in investments and expenses and an equal share in governance.
“CUSOs are actually a good example of collaboration among credit unions for core business components,” said Ms Bell.
Credit unions can also work with the co-operative sector in areas like cross marketing and cross promotion.
In Madison, Wisconsin at Willy Street Co-op the ATM available in the shop is a University of Wisconsin Credit Unions ATM. “That’s a super small and simple way to think about it,” says Mollie Bell.
More collaboration between credit unions and co-operatives would benefit both sectors. Another report by Filene reveals that if co-operatives in the USA shifted a large fraction of their deposits (50% or $27.5bn) from commercial banks to credit unions, they could earn an additional $2.2bn in interest over 10 years.
They could also work together to host networking events inviting co-operative leaders in local credit union branches. Filene’s report suggests reminding credit union employees that they are part of the bigger co-operative movement as well as scheduling employee training days that focus on the seven co-operative principles.
“We are worse off today around the globe than when credit unions were being founded, the working family in the USA is worse off than in the 1900s,” said Mollie Bell. “It’s an amazing opportunity for credit unions to seize the day . This is who we were founded to help”, she said referring to the world’s poorest 3.5bn people, who are as wealthy together as the 80 richest half.
“Credit unions were founded to make loans for all people. The majority of people do not have a steady income.”
Also speaking at this roundtable, Bob Hoel, Filene adviser, highlighted that collaboration could bring some challenges. “There is a great place for local financial institutions including small institutions as well, the difficulty is how do we want to make that work,” he said. “Collaborating isn’t easy all the time, there’s a certain inefficiency with collaboration. It’s frustrating. A lot of time spent at meetings on how to collaborate, there are some inefficiencies.”
One of the options to deal with inefficiencies is to change the structure of credit unions, he said, by creating a credit union network. This network would have more divisions and each division with its own chief executive and advisory board. “You can choose what you want to centralise,” he added.
The network model is permissible under the USA’s Federal Credit Union Act and Field of Membership Manual, which is now part of National Credit Union Administration’s rules and regulations.
Within the Network Credit Union merger process, a preliminary surviving credit union will be selected in order to minimise the mark to market impact. Once this process ends the name of the new network credit union will be changed and it will have to include the term “network credit union”.
The board members of the Network Credit Union are elected by the members of all the divisional credit unions. Each divisional board appoints a member on the network’s board. This new merger model allows credit unions to join together as partners so that they can leverage their financial, human and operational assets to provide better services for their members.
While they will have a common vision, strategy and initiatives, credit unions part of the network, they will maintain their local identity. A similar structure is used by Desjardins Group in Canada, the largest association of credit unions in North America. The advantage of centralising certain activities enables credit unions to broader base for non traditional product sales including investment services, insurance services for all retail and business members.