Can Credit Unions Win?

There are winners and losers in many aspects of life, and especially in business. The process of understanding that concept leads to a question for credit unions: How do you win?

That question, and different forms of it, were asked of three credit union executives recently as they discussed how they make strategic choices for growth, success and possibly victory.

CUNA Mutual Group hosted “Making Strategic Choices for Growth” as part of its Discovery Webinar Series last month to talk about the challenges faced by credit unions, and how or if there’s a clear path to success through growth, technology and partnerships. During the discussion, CUNA Mutual released the results of a new research survey of 183 credit union executives from around the country. According to the findings, one in five credit unions with less than $1 billion in assets lost members between 2017 and 2020. The same survey found credit union member satisfaction has dropped below that of banks. And credit unions’ market share for some loan classes has declined.

One staggering result of the survey found that one in four credit unions polled had merged “during the pre-pandemic ­period or during the pandemic.” Another 15% said they were planning on merging by the end of 2022.

Tom Munley, vice president of sales for CUNA Mutual Group, said the survey found a real push for field of membership expansion, especially by the bigger credit unions.

“What we found was the survey showed that larger credit unions are much, much more likely to have expanded their field of membership by expansion into new counties and states. From a merger and acquisition perspective, 25% of credit unions surveyed expanded their field of memberships with merger and acquisition activity.”

Munley said executives included in the survey, and CUNA Mutual’s own chief economist Steve Rick, believe credit union merger activity will surge in 2022 and that the surge is expected to last through 2024.

One of the panelists, Kelli Ellsworth Etchison, who is the chief marketing and diversity officer for the Lansing, Mich.-based LAFCU ($926.8 million in assets, 69,974 members), pointed out the staggering growth of the online banking platform Chime as a concern for her, as the online bank has seen nearly nine million customers join in three years.

“And so that is just saying to us as an industry, that there are some things that we really do need to readjust to make sure that we even have staying power. So we have to use the 2020 word: Pivot,” she said.

How does a credit union pivot to win?

The other panelists included in the discussion were Charlotte Nemec, president/CEO of the Spokane, Wash.-based Canopy Credit Union ($191.7 million in assets, 12,461 members) and Jeff Disterhoft, CEO of GreenState Credit Union ($7.9 billion in assets, 329,188 members) in North Liberty, Iowa. For Nemec and Disterhoft, that answer appeared to revolve around doubling down on creating the right services and culture at their credit unions in order to compete with other credit unions, let alone the big banks.

“We try to be good at the rest, but really great at a few things. And so we try to be really good at service,” Disterhoft said.

As the leader of a smaller credit union, Nemec said she realized that she can’t necessarily go head-to-head with many of the other financial institutions. “I think that if we have the most basic [services], making sure that we serve our members in a digital realm the way we know we can, and continue to find what we believe to be a winning aspiration, then we can be successful.”

Nemec added that one aspect of winning could be in creating digital partnerships with fintechs. “Trying to buy our way into the digital market – and I do agree with fintech partnerships, that you’ll want to play in that realm – that’s the only way I think we can possibly compete there.”

Disterhoft said fintech partnerships are so important to his credit union that they’ve become one of top three priorities for growth. “We have a number of fintech partnerships. In fact, those fintech relationships have generated somewhere between 30% and 35% of our loan growth so far this year.”

For many credit unions, those fintech partnerships come into play with core services, as well as digital and mobile banking services. According to the CUNA Mutual executive survey, attitudes about mobile banking before and during the pandemic shifted dramatically. Before COVID, only 42% of credit union executives believed mobile banking apps were a top-three distribution channel. Once the pandemic hit, that number jumped to 69%.

In Etchison’s case, LAFCU has leveraged those fintech relationships to develop and make major enhancements to the credit union’s mobile app this year, including a marketing program within the app and improvements to the digital onboarding experience for new members.

“So with those capabilities and really stepping up our mobile banking platform, I think that’s going to speak volumes. We’ll be able to do things like card-on-file. They’ll be able to get a [digital] token from that digital onboarding platform … that will allow them to further engage with us through the mobile banking platform with activating their debit card and so forth. So we’re excited at what that’s going to do,” Etchison said.

Correlating with the rise in importance of mobile banking, CUNA Mutual’s survey found a drastic drop among respondents in the expectation that branches will remain an important distribution channel going forward. Before the pandemic, 88% believed in the future of branches. That number declined to 51% for 2022.

“From a depositor perspective, I think the branch has to still play a role,” Disterhoft said. “From a lending perspective, maybe not as much. I mean, there are more cost-effective ways to deliver those products and people are more than happy to shop for a car loan in their pajamas. Right?”

But Nemec added, “I hope branching isn’t going away!”

As a CDFI credit union, Nemec said Canopy’s few branches are vital. “So we’ve had these opportunities to connect with people through the branch platforms, through ITMs, in-person and our call center,” she said. “We are able to coach those folks and really give them some good financial counseling through those avenues.”

Etchison said the function of the branch shifted for LAFCU five or six years ago once it invested in more than 20 ITMs. In fact, in 2019, all of LAFCU’s drive-thrus were converted to ITMs. “That played a huge role in how we were able to get our employees home safely when the pandemic hit a few months later. Who knew? But we were able to still drive our members to our branches through our ITM channel, and so one of our strategic initiatives is ­continuing to grow that area and leverage that,” Etchison said.

CUNA Mutual’s survey results found the top five competitive advantages for credit unions included member service, the ability to serve members in their channel of choice, strong community presence, organizational culture and attractive interest rates.

The panelists agreed with those competitive advantages, but each found one item that they’ve seen as more important in their service areas.

“We found out that through the hiring process this year, it was kind of interesting, at what candidates find important to them … those things that were really important to them [included] culture,” Etchison said. “We do have a diversity, equity and inclusion initiative, so that was very attractive in attracting high talent to our organization.”

Nemec said, “Three years ago, when we became a CDFI credit union, we made a commitment and we have a strong belief that what our credit union can do is build a stronger community through financial inclusion and financial education. So whether you’re financially thriving or struggling, Canopy Credit Union is a place where your story matters and you’re more than a credit score. So we stick to that theme day in and day out.”

Disterhoft’s credit union found that its value proposition is based on price. “We all as credit unions find a different way to provide value to our member-owners. In some cases it’s supporting the community. In other cases, it’s pricing. And in other cases, it might be service. And so in our case, it is really two things – our pricing and our culture,” he said.

The panelists agreed that a winning strategy has many answers, including leveraging big data, partnering with CUSOs, having a diverse culture, forging fintech relationships, being involved in the community, and investing in staff and technologies.

While there are of course wrong answers to developing a strategic path to grow and win, it appears there are numerous right answers as well.

“Whether you choose to sell car loans or credit cards or popcorn, if you get the best people, I think the rest will kind of fall into place,” Disterhoft said.