Since the industry's consolidation began decades ago, credit union professionals have forever argued whether mergers are good or bad for the movement.

A recently released white paper from a team of third-year students at the Southeast CUNA Management School program that weighs both sides of this salient issue contains new and perhaps groundbreaking industry research that answers what may be the most important question about consolidations: Whether mergers fulfill the original mission of the movement of adding value and improving the financial lives of credit union members.

"As we began to explore the existing data for this project, however, we noticed that there was a sizeable gap in the research that had been done regarding mergers and consolidations within the credit union industry," the authors wrote. "While there were plenty of articles and op-ed pieces that levied opinions about the merger trend, there was very little quantitative data related to how these mergers affected the member experience."

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To find the answer to that key question on whether mergers fulfill the movement's original mission of improving the financial lives of members, the white paper authors asked CUNA's Market Research to survey members whose credit union had been merged into another cooperative.

"I've been here for 30 years and I've never seen [this research] done before," Connie Dey-Marcos, CUNA's manager of market research, said.

The team that wrote the paper included Nathan Clough of the $248 million WinSouth Credit Union in Gadsden, Ala., Kim Gunter of the $146 million Bowater Employees Credit Union in Calhoun, Tenn., Ryan Hawk of the $311 million Peach State Federal Credit Union in Lawrenceville, Ga., and Billy Joiner of the $146 million Centric Federal Credit Union in West Monroe, La.

Completion of the written project and an oral presentation of the research report, titled "An Old Foundation Anchors a Renovated Structure: Perceptions and Realities Surround Credit Union Mergers," was a prerequisite for graduation from the program. This team of students received recognition at the 2016 SE CUNA Management School graduation ceremonies held in June for their exceptional work on both the written paper and their oral presentation.

CUNA's Market Research conducted the survey from December 2015 to March 2016 and sent an email survey to 18,000 members who had become members at six surviving credit unions through the merger of their former credit unions. The response rate was 5%, or 1,249, with a margin of error of 2.8%.

The survey asked members 11 questions and most of their responses were positive, indicating mergers are essentially fulfilling the foundational mission of the movement of adding value and improving the financial lives of members.

The survey also revealed the net promoter score among members of merged credit unions was lower than the industry average.

Nonetheless, the survey showed there are opportunities for credit unions to expand their wallet share among most members who are more likely to consider a credit union for their next loan.

Eighty-nine percent of members said they were very satisfied or somewhat satisfied with the credit union since the merger. Fifty-six percent of members also agreed or somewhat agreed that their access to products and services increased post-merger, and 65% agreed or somewhat agreed that their access to modern features such as mobile banking, remote deposit capture, online banking and shared branching, also increased after the merger.

Because of the lingering negative perceptions about mergers and some research that shows member attrition increases post-merger, Clough, WinSouth's director of compliance and training, was surprised with the survey results.

"I kind of expected people to react more negatively than they did," he said. "The fact that they saw there was some sort of value in the merger ultimately by responding that they were happy with their institution post-merger, that they were offered more products and services, and that they recognized that, was somewhat surprising to me."

What's more, the survey also found 47% of members strongly agreed or somewhat agreed that their level of member service improved since the merger while 38% neither agreed or disagreed, according to the CUNA survey.

Hawk, SVP of business development for Peach State, was also impressed with the positive responses of members despite some lingering negative views of the merged credit union losing its identity, which some members may want to hold on to for as long as possible.

"What stood out to me is that members were happy, and willing to stay and recommend the credit union, possibly because they were getting more out of their membership than they may have been receiving in the past with an institution that was maybe a little stagnant," he said.

In addition, the survey revealed before the merger, 76% of members thought credit unions were better than banks and 21% said credit unions were the same as banks, while only 3% said credit unions were worse than banks. Post-merger, however, 67% said credit unions were better than banks, while 28% said credit unions and banks were the same, and 5% said credit unions were worse than banks.

While most members responded positively to many of the survey questions, the survey also revealed some less than positive aspects of the member experience after the merger.

For example, the net promoter score based on the survey question of whether members would recommend their credit union was 44, which is 14% below the 58 NPS score members gave their original credit union before it was merged.

Gunter, vice president of human resources and marketing for Bowater Employees, acknowledged the lower NPS was a puzzling contradiction given the overwhelming positive survey responses.

"My guess is that net promoter measures enthusiasm and because the members didn't pick their new credit union, they ended up in it, I'm guessing maybe that would be why they would have less enthusiasm for it," she explained. "However, they still acknowledged that their credit union is a great place to be and their services have increased."

When members were asked how likely they were to recommend their original credit union, 71% were rated as promoters, 16% passive and 13% detractors. When members were asked if they would recommend the credit union they were merged into, 64% were rated as promoters, 16% passive and 20% detractors.

What also may be concerning for credit unions is that only 31% of merged members agreed strongly or somewhat agreed that the way in which credit union employees treated them was better, while 51% neither agreed nor disagreed, and 19% disagreed strongly or somewhat disagreed.

However, when asked if the way in which credit union employees treated them after the merger was worse, only 13% agreed strongly or agreed somewhat, while 42% neither agreed nor disagreed, and 45% disagreed somewhat or disagreed strongly, according to the survey results.

The white paper's authors addressed the issue of whether the member attrition rate among merged credit unions appears to be higher than the national average.

Gallup reported last year that the average attrition rate at financial institutions that were acquired was 8%, while the average attrition rate across the financial industry was 5%. Another study by the Deloitte Center for Banking Solutions suggested that customers are three times more likely to switch banks after their bank consolidates with another financial institution.

The problem with these studies, however, is that they do not solely focus on credit unions, the authors pointed out.

"Unfortunately, no one appears to have done a widely published study on member attrition as it relates to mergers in the credit union industry, and our members' survey was not the proper research medium with which to measure post-merger attrition rates, although the survey does suggest that the percent of members who consider their credit union their primary financial institution remains virtually unchanged when comparing merged members to the industry at large," the white paper stated.

The survey found 55% of members said the credit union is their PFI compared to 45% who said the credit union was not their PFI. Nevertheless, 76% of members said they definitely would or probably would contact the credit union when they are in the market for a loan or other product or service, while 8% were not sure and 17% said they would probably not or definitely would not contact the credit union.

Additionally, when members were asked where they use financial products and services, 62% said banks and 30% said other credit unions.

The authors believe this research shows there is tremendous opportunity for credit unions to grow their wallet share.

"In most cases, larger credit unions with the resources to employ a sales department are the one who stand the best chance of pushing the wallet share needle in their direction," according to the white paper.

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Peter Strozniak

Credit Union Times reporter covering credit union operations, fraud, M&As, leagues, business continuity, and breaking news.