It's Not How Many Members CUs Have But How They Perform; Consultant Argues CUs Need to Focus on Members Again

SEATTLE – Tony Ward-Smith, noted credit union consultant and one of the organizers of the members group which succeeded in blocking Columbia Community Credit Union’s attempt to change to a bank, wants CUs to focus their minds and business strategies not on gaining new members but on serving better the members they already have. “Credit unions should aim first at what they are supposed to do best – serving their own members,” Ward-Smith said. “Not just getting bigger or selling more products but by offering their members the means and assistance they need to better their financial condition. Then, once they offer that service, their income will increase, their assets will grow and they will begin to attract more members. But member focus comes first, not growth.” Ward-Smith is so convinced of this fundamental aspect of credit union business – the reason, he said, that CUs even exist – that eight years ago his Ward-Smith and Company began issuing a list of what it called “high performance” CUs, CUs which have the greatest numbers of accounts per member and the highest average balance per account, as reported to the NCUA. These CUs, Ward-Smith argues, reap the rewards not of selling new products to members or adding new members but of focusing their attention on the members they have and seeking, through everything they do, to better their members’ financial situation. And on the numbers it appears he has a point. This year, the 464 high performance credit unions (up from 409 last year) outperformed the rest on the number of accounts per member (2.74 versus 1.81), net earnings per member ($101 versus $32) and return on average assets (.90% versus .52%). The percentage of members with checking accounts in high performance credit unions is more than double that in the rest (52% versus 22%), their average checking account balances are $2,200 versus $1,200 and they have higher balances in CDs, money market accounts and IRA’s. High performing credit unions have more members with credit cards (22% versus 7%), higher credit card balances per account ($1,626 versus $739) and a greater percentage of members at high performing CUs have new and used auto loans, according to the data Ward-Smith has analyzed. He emphasized that the higher performing credit unions don’t necessarily specialize in marketing their products better or on only picking wealthier members. High performing credit unions succeed by putting the members’ financial needs first, by helping a member get the best deal on whatever their financial need might be so that when the member walks out of the credit union he or she is convinced that the credit union is in their financial corner and can be relied upon for help. “That member,” Ward-Smith said, “will turn to the CU first in the future for other financial products and services, will advise friends and family to join the credit union and will maintain strong loyalty to that institution.” He also added that these credit union members could be counted upon to retain that loyalty when it comes to credit union fights such as over their tax-exemption and additional powers. Ward-Smith admitted that focusing on the members CUs already have might appear, in the short term, to mean turning away from some of the other goals that some inside and outside the industry strongly believe CUs should have. Focusing on a credit union’s existing members, Ward-Smith maintains, is more important than adding underserved areas to a field of membership, a goal which he described as having more to do with the agenda of people outside the credit union industry than inside. It’s not that he is against CUs serving people in lower economic strata, but he argues that those folks stand a better chance of being helped by a credit union that is focusing on serving its members well than by a credit union which has gone out and added an underserved area out of a mistaken impression it had to be bigger. He argued as well that such high performance work builds on itself. “Let’s take the basic member,” Ward-Smith said, “he or she has a savings account as his share account, that’s all they need to start saving. But if they work and they need to pay bills they are going to need a checking account and a debit card, that right there is two or three relationships. Now, suppose they have a credit card with another financial institution, a bank, the credit union should be able to point out to the member that if they move their credit card balance to the credit union they may get a lower rate and almost certainly lower fees. That’s four relationships, see how it works?” The secret, Ward-Smith argued, is to be continually on the side of the member and to seek to offer them the products and services which are going to better their financial lives and save them money. By focusing primarily on the members it already has, CUs can build member satisfaction and will begin to build the public profile that is going to attract new members as well as grow and strengthen the credit union. But Ward-Smith also acknowledged that it is significantly easier for a larger credit union to become a high performing credit union than for a smaller one to do so, if only because of the additional products and services a larger credit union will be able to offer. But mere size doesn’t mean that a credit union will necessarily fit into Ward-Smith’s high performing model. The nation’s top two credit unions, in terms of size, the $25 billion Navy Federal Credit Union and the $13 billion State Employees’ Credit Union didn’t make the list, a factor that SECU CEO Jim Blaine attributed, in part, to his CU’s commitment to serving a very diverse membership, one which might not need as many relationships with their credit union as other members do. “The member with a savings account and a car loan might only have two relationships with you, but he may be among the most profitable members you have,” Blaine said. [email protected]