With many management transitions happening or pending in the credit union movement, Chip Filson has a question: Does the next generation of leadership have the same passion that Dave Chatfield, Dick Johnson and Ed Callahan had?
Filson, the president of Callahan & Associates, Washington, challenged credit unions at the California and Nevada CU Leagues' annual convention to respond. He noted the upcoming retirement of CCUL/NCUL CEO Dave Chatfield, along with changes at NCUA (two new board members), CUNA Mutual (new CEO), US Central (interim CEO in place), plus retirements by CEOs at many large CUs and wondered: "Will their successors be managers or leaders?" (Johnson was the long-time president at WesCorp and Callahan was the former NCUA chairman who co-founded the firm Filson now heads.)
"What does it mean to be a credit union today? Will credit unions continue to imitate what is out there?" he asked. "Too many financial institutions are competing in the same market with the same products."
Filson cited two books as being potential sources of inspiration and direction to the CU movement: "Good to Great" by Jim Collins and "Blue Ocean Strategy" by W. Chan Kim and Renee Mauborgne. Filson said Collins' book calls for a combination of passion, doing what a company does best and leveraging economic drivers. A "blue ocean" strategy is not competing with rivals head on, but instead making them irrelevant by looking for different ways to enter the market.
"Are we heading for an apocalypse, or are we winning by finding blue oceans?" Filson asked the audience. "Frankly, it is hard to find parts of the marketplace that are wide open, but there are blue ocean strategies being used every day in credit union circles."
As examples, Filson said networked cooperation and innovation by CUs have created new opportunities to excel. Partnerships with sponsors, with other credit unions, with CUSOs and other forms of cooperation can create "intelligent design," he asaserted.
Locally Grown
California credit unions' share of all CU assets is steadily increasing, Filson said, thanks to the CO-OP Network, WesCorp and Credit Union Direct Lending (CUDL). "All organizations that started locally, but now have a larger impact and are helping California credit unions compete. Another way California credit unions are unique: their share of the state's financial institution assets is double the national average."
However, California CUs' good fortune is not being shared nationally, Filson explained. Credit union mergers have been holding steady at 3% per year for several years. In 2004, there were 331 mergers, with $3.1 billion in assets involved.
Over a five-year period, it is the smaller CUs that are dissolving or merging, and the larger ones are surviving, he said. "Consolidation is not just about size, it is about market forces. For example, many credit unions have exited the credit card market."
Consolidation is occurring across the financial services industry, from check processors to leagues to corporates, Filson said. He questioned if consolidation is inevitable; if market forces are driving greater concentration in all industries.
Three troubling trends for CUs, he continued, are a slowdown in growth, an inability to attract new members and charter conversions.
"What's going on is there are financial pressures from narrowing margins and flatter yield curves. As credit unions get larger, they are not becoming more efficient. Therefore, asset growth is not providing economies of scale."
Only the largest CUs-$1 billion or more in assets-have maintained ROA over the last 10 years, Filson said. Membership growth is down, and not enough is being done to reach the "critical" Generation Y market-people born after 1980, he suggested.
"Banks are outperforming credit unions on several key measures," said Filson. "Banks have been the beneficiaries of the decline of the thrift industry. Banks have been the primary winners of market share over the past decade, while credit unions have not picked up many former thrift customers."
Solutions?
Many CUs have switched to community charters to increase growth, but Filson questioned if this strategy is working: "Are credit union values clear? Are they relevant? Were community charter expectations realistic?"
"The number of 'potential members' is up dramatically in the past four years, but that has not improved membership numbers," he continued. "Members have multiple opportunities for relationships, and many potential members already have established relationships."
According to Filson, another problem dogging CUs is that many people aren't aware of what a credit union is. They don't know if there is a difference between a CU and a bank, or exactly what the difference is.
"Going back to the 'blue ocean' thinking, are credit unions going to become 'bank-lites'-paying a little better on savings, charging a little less on loans-or, are they going to make themselves different?"
Potential areas for innovation Filson foresees include Internet-enabled mobile devices, combined with efforts to bring broadband web access to entire communities. He said CUs might be the ones to bring Wi-Fi to cities.
"Every person in America should know about credit unions' purpose and relevance, but they don't. The next generation of leaders must do this."
