MIT Professor Warns CUs `Face Trouble' on Technology, Branching Fronts

LAS VEGAS – In a sobering and oftentimes gloomy message, an MIT professor of management has told credit unions already witnessing shrinking margins and a spate of mergers, they also suffer weak governance and poor product penetration, all factors harboring economic trouble in the future. In a closing day speech at the annual NACUSO conference May 18, Glen L. Urban, a faculty member and former dean at the MIT Sloan School of Management in Cambridge, Mass., said the tepid growth in members and market share coupled with the daily loss of CUs underscore industry difficulties. “Losing credit unions is certainly not a good thing,” declared Urban who presented to the NACUSO audience a list of industry weaknesses ranging from a general slowness by CU management to adapt to change to a lack of depth and experience in CU boards allowing banks and other competitors to move ahead. Moreover, while there are exceptions, a large number of CUs lack the resources and the agility to undertake thorough segmentation strategies or meet the Internet needs of baby boomers or members of generation X for products and services, said Urban, who also is co-director of MIT’s Center for e-Business. Young people, he argued, “simply don’t think of a credit union as the place to go for financial wealth” much less for mortgages. Industry statistics speak volumes, he said, of the slow pace of CU penetration, citing 6.5% of U.S. deposits, 2% of mortgages and 3.4% of checking accounts. Conditions are not completely negative, however, observed Urban noting that CUs have many strengths and opportunities, he said, listing an aggressive branch strategy and the industry’s revered role as trusted “advocate” for their members. Banks are way behind CUs in that area, he said, based on data compiled by firms like Forrester Research. (See related story on page 1.) Still “business as usual” for CUs will lead to stagnation and decline as innovative competitors seize the market. A key, however, to overcoming industry weaknesses may be in greater collaboration, a point which was a theme at the NACUSO conference and which Urban himself has played a pivotal role in advising some large CUs on ways to expand product lines and reach new audiences. Urban is co-founder and chairman of Experion Systems, a Maynard, Mass. firm with a CU client list of 24 CUs all of whom are subscribers to a “trusted advisor” line of automated advice products aimed at frontline branch personnel and call center staffers. Since the CU debut of trusted advisor three years ago, the company had hoped to interest a larger number of CUs in the Internet-linked, advisor suite of products but “the tight margins have played a factor in credit unions putting off making the purchase,” Urban said. “We are still very loyal to credit unions and they are our core market,” emphasized Urban noting, however, that a vast number of CUs are still way behind in making skilled use of the Internet and Web services. In his NACUSO talk, Urban took note of inherent problems of CU boards and fears of many CEOs to push through advanced technology because of board concerns. Pointing to the former CEO of Citibank, Urban said, “I don’t think you would see Sandy Weill having this kind of problem” in getting clearance for new products which he deemed necessary to compete. CEOs in CUs lack the clout of their counterparts in banks, while some CU boards which he described as “quite conservative” also lack those key individuals from the industry who can provide real knowledge, input and participation in helping guide the CU. The CU board may be filled with well-minded employees from sponsor companies, but they bring little in hard-nosed experience vitally needed by the CU. While urging caution, Urban also suggested CUs pay closer attention to bloggers and the Internet market to ensure CUs reach the baby boomers and generation Xers with products they need. The fact is, he said, many non-banks continue to make Internet strides pushing mortgages, auto loans, credit cards and other products. He pointed to Fidelity Investments, H&R Block, Charles Schwab and Met Life, as examples of firms which are gaining the loyalty of customers who might ordinarily go to CUs. If that weren’t enough, then there are the many new Internet banking firms like LendingTree and ING that CUs have to contend with, he said. Even CU branch expansion, while a definite positive with 2,000 facilities in four years, pales in comparison to the explosion of new bank branches, he said. It was noted that Citibank, as one institution, has 1,400 branches plus 3,500 ATMs worldwide. “I do see some glum faces,” said Urban as he made his remarks to an audience that was paying close attention and taking notes.

Later Urban said he meant his speech to be “well balanced” in showing both strengths and weaknesses of CUs.