Emerging Markets Have Always Been Here

Credit unions that want to juice membership growth face a limited set of options. If the field of membership is not broad enough, the credit union can petition to change it and serve new groups. Often the field of membership is expansive enough, so the challenge becomes how to bring in members of a group who will complement the credit union and allow it to grow.

A handful of successful credit unions originally incorporated around a demographic niche. Think Polish & Slavic in Brooklyn, N.Y., which grew in just 41 years to U.S. $1.8 billion in assets; or consider Latino Community Credit Union in Durham, N.C., which has attracted 68,000 members in just 17 years. In Quebec, the Desjardins network of local caisses populaires – the original North American credit union system – has become one of our continent's largest financial institutions on the strength of its close social and cultural ties to the province's eight million citizens. But what about an existing credit union that wants to seek out and serve a new niche well?

Some refer to this opportunity as an "emerging market." This is a curious term; from where did this market emerge? I imagine a gaggle of previously unknown groups emerging from the fog to mystify today's credit union leaders with their strange and unknown needs. Emerging markets have always been with us. They are termed emerging because the service providers have not properly met or understood their needs.

To lift the fog on this topic, this article will 1) identify unique (and emerging) markets for credit unions to pursue and 2) present lessons learned from credit unions that have successfully met the needs of these new markets.

Credit unions were founded on the basis of serving the unmet needs of consumers: Financing large consumer purchases like winter coal or refrigerators are some of the historically strong examples. Here are few opportunities to consider in today's increasingly complex and competitive marketplace:

Lifestyle is the new field of membership. In the past, credit unions formed strong affinity groups around workers of a particular employer. With a few notable (and large) exceptions, this approach is more difficult today. With decreased tenure and loyalty in today's workforce, creating affinity around "lifestyle" may be an emerging market for credit unions to pursue. Lifestyle simply refers to how consumers live today, and lifestyle can take many forms. A simple example of this approach is how university-based credit unions focus on their football, basketball or hockey teams and their fans. Some other less obvious examples may include other lifestyle groups that have unique wants and needs, including your local LGBTQ community, long-distance bicyclists, video gamers, Harley owners or gun enthusiasts.

Focusing on challenged economic groups. Since credit unions have evolved largely through an employer-based relationship, many of today's "community-based" credit unions find it difficult to figure out how to serve today's economically struggling consumer … and there are a lot of them. Filene is currently working on a variety of product ideas that give credit unions a low-risk on-ramp to better serve this poorly-served market. It is important to note that we are not necessarily talking about poor people (though they definitely fit), but groups that could benefit with a lift from an understanding financial services provider. Some examples include young families living in high-cost communities striving to buy a home, the increasing number of people participating full-time in the "gig economy," high potential students with crushing student debt and high potential students that are deciding not to go to college because of the fear of debt.

New technologies leading to unique consumer/business needs. Many credit unions are not involved in commercial or small business lending; however, new instances of technology may create emerging market opportunities for credit unions to serve sole proprietors and other micro-businesses. The most controversial example involves the legalization of recreational marijuana in eight states. A handful of credit unions are leading the charge (and doing quite well) in serving this new market. Other less controversial but equally interesting markets may include financing Tesla's home battery concept or working with the financing needs of Lyft and Uber drivers.

Whichever approach your credit union takes in the emerging market opportunity, here are a few key success factors to consider. These factors are culled from the Filene Research Institute's extensive research library and field work with individual credit unions:

Focus is key. Successful credit unions start by identifying a local, definable market niche. Targeting young adults is viable in almost any market, but the groups have to be big enough and cohesive enough to justify a long-term focus.

Root out biases early. Even innocent preconceptions can scuttle potential partnerships. To guard against this, successful credit unions spend significant time working with consultants or target group partners to ensure that the partnership starts on solid footing. In some cases, managers and board members may be in your target market and could be key information sources.

Make it somebody's full-time job. Credit unions' senior leadership, and usually the board of directors, should fully commit to the move and then take the critical next step of hiring or assigning an employee for the full-time care and feeding of the emerging market initiative.

Let it age. Expecting payoff after a year or two is unrealistic. Successful credit unions are willing to commit beyond a five-year horizon.

Partner up. Leaning on a larger partner or organizations with deep connections to the target group allows the credit union to spread the marketing burden around. When credible partners are invested in the credit union's success, that success becomes much more likely.

George Hofheimer is Chief Knowledge Officer for Filene Research Institute. He can be reached at 608-852-4632 or [email protected].