New & Old Pressures Building for Small Credit Unions

What’s the biggest challenge facing small credit unions? It’s an important question.

A new report released Tuesday, “The State of Small Credit Unions Today,” provided several answers to that one question: Regulatory requirements, keeping up with new technology, membership growth, rising health care costs and more.

A small credit union is defined as a credit union with less than $100 million in assets.

Twenty years after the development of the CUNA Small Credit Union Committee, it has released its second such report, the last of which came out in 2009.

In an interview with CU Times, CUNA’s Manager of Small Credit Union Initiatives, Tom Sakash, said the updated report found one glaring problem for small credit unions that was not a concern 20 years ago – technology.

“Twenty years later, it’s about can you be digital enough? Can you be online enough? Do small credit unions have the resources and the know-how to be able to implement the technology that will keep them relevant in the eyes of consumers moving forward?” Sakash said.

On the plus side, the report found that 53% of small credit union CEOs are female, compared to 23% of the CEOs at larger credit unions.

Another positive trend, the report found, was that operating expenses for small credit unions, on average, hovered at 3.58%. The average for the larger credit unions was 3.63%.

But, the cost of simply doing business as a small credit union continued to be a lopsided affair as it relates to compliance and regulatory burdens.

“The cost of regulations rose for credit unions, under $100 million in assets, by 5% between 2016 and 2018,” Sakash said. “And for the rest of the movement, it was only 2%. And so you see when regulations change or laws are added, disproportionately affects smaller credit unions.”

The report showed that regulatory costs totaled 73 basis points in 2018, compared to 47 basis points for the larger credit unions.

Of the six biggest challenges for small credit unions, as outlined in the report, technology was at top of the list. “Small credit unions often don’t have the scale to afford newer, non-revenue-generating technology,” the report said. “Beyond the financial impact, new technology is both time and resource-intensive to implement and maintain.” And since the average number of employees at a small credit union is seven people, “Employees typically serve in several roles at small credit unions, and the time to learn, implement and maintain new technology only adds to their workload,” the report stated.

CUNA’s Small Credit Union Committee recommended in the report two possible solutions to the technology gap: Create grant programs to assist small credit unions to afford technology upgrades and create educational programs to “strengthen their knowledge of technology and best practices.”

Other big challenges listed in the report for small credit unions included:

• Board leadership and engagement;
• Membership growth;
• Generating income;
• Increasing overall costs; and
• Heath care costs.

The report found that the rising costs of providing health care to employees at small credit unions has created such a significant budget constraint, and become so prohibitive, that it has cut into the credit unions’ abilities to invest in new technology or even hiring additional employees and retaining the talent they have.

“Certainly small credit unions with smaller staffs have a harder time having the scale to drive down the cost of health care; but it also bled into talent, which is one of the biggest existential threats for small credit unions,” Sakash said.

The report encouraged the cooperative spirit between large and small credit unions, especially with the belief that there are major benefits to having strength in numbers. The report indicated those numbers translate into adding voices to support efforts such as preserving the credit union tax status and the creation of a more diverse credit union movement.

Download the full report here.