Can credit unions regain momentum in membership growth?

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The coronavirus has further slowed credit union membership growth and that could spell trouble for some institutions.

For the last several years, the industry has enjoyed strong gains in membership as consumers joined credit unions to take out new loans, especially to buy a car. But an overall drop in lending, widespread branch closures and a bad economy could make it difficult for credit unions to regain momentum in this area.

“Years ago, I had a board member in a planning session say that they don’t care about membership growth,” said Tom Glatt, founder of Glatt Consulting Group. “He didn’t mean it wasn’t important but just that [they had] a limited field of membership and only certain people can join. … But that perspective can’t survive anymore since there are so many credit unions that are competing in the broader market place. If you don’t have growth, you won’t survive.”

Membership growth was already slowing in 2019 as auto lending also began to drop but that trend has accelerated this year. Credit union members increased by 2.7%, to 123.3 million, in April from a year earlier, according to the June trends report from CUNA Mutual Group. That’s down from the 4.2% increase posted in April 2018 and 3.9% in April 2019, according to the CUNA Mutual data.

CUNA Mutual expects membership to increase by just 1.5% this year — which would be the lowest annual growth rate since 2011 — and then just 2% each year through 2023.

There are several reasons for the drop in membership gains, experts said. For one, credit unions still pick up new members from workers switching jobs and then joining because their new company is a select employer group for a particular institution. Though the unemployment rate has ticked down from its peak of 14.7% in April, it was still 11.1% in June, according to the Bureau of Labor Statistics.

“With COVID, the hiring process has been put on hold,” said Steve Rick, chief economist for CUNA Mutual.

Additionally, the top reason for consumers to join a credit union is to take out a new loan, Rick said. Since overall loan demand has slowed, it makes sense that membership growth has also taken a hit.

Credit union loans ticked up by 6.4% in April from a year earlier, according to CUNA Mutual data. But most of these gains came from mortgages, which increased by more than 15% year over year. Other categories either posted low single-digit increases or declined from the previous year.

The industry in particular has gained members in recent years through indirect auto lending, but demand for credit to buy vehicles started dropping in 2019 and has continued into 2020. Credit unions added at least 1 million new indirect auto loans each year from 2015 to 2018 but that number fell to roughly 668,000 last year, Glatt said.

The increase in mortgages isn’t enough to offset the decline in auto loans, experts said. For one, there is an issue with volume. Fewer homes — roughly 5 million — were sold last year in the U.S., compared with roughly 17 million vehicles. Additionally, credit unions have a smaller market share for mortgages than car loans, said Steve Reider, president of the consulting firm Bancography.

The industry’s reliance on indirect auto to drive membership and loan growth could be a problem. For one, it’s likely that most of these borrowers did not make that credit union their primary financial institution. Rick noted that normally the conversion rate for this is less than 10%.

“It is extremely difficult, even though credit unions try,” Rick added. “Banking relationships are very sticky.”

Because of that, credit unions that have relied heavily on indirect auto lending for growth could see their membership bases and loan portfolios shrink as these car loans get paid off.

“If you can’t replace the dollars that are leaving as indirect loans are paid off, where is your income coming from?” Glatt asked. “You will have to replace that somehow.”

Although credit unions can’t fix the broader issues that are contributing to a slowdown in membership growth, they need to be aware of their own account opening process during the pandemic, Reider said. Since branch lobbies have largely been closed during the outbreak and consumers have been staying home, credit unions must ensure potential members can easily open new accounts online.

“It’s imperative to audit your own capabilities in that area relative to competitors,” Reider said. “It’s not a bad idea to benchmark yourself against your colleagues to see how they are faring in terms of reviving the pace of account openings.”

Despite the economic slowdown and closing the lobbies of branches, Teachers Federal Credit Union in Hauppauge, N.Y., has maintained decent membership growth. It had more than 344,000 members in the first quarter, up roughly 4.6% from the same period a year earlier, according to call report data from the National Credit Union Administration.

Brad Calhoun, president and CEO of the $7.8 billion-asset credit union, attributed those gains to a focus on its mortgage operations, a recent rebrand — which included the new tagline “Smart for All” — and being active in the community, even during the height of the pandemic in New York. He noted that word-of-mouth referrals have been strong for the institution.

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Teachers has also worked to make sure it’s easy to open accounts online. For instance, management learned from member feedback that the process was taking too long because of a backlog. They ended up shifting more employees to that area to get all of the new accounts opened.

Calhoun believes that the switch to virtual channels could be permeant.

“You have people who didn’t shop at Amazon or before and now their behavior has shifted,” he added. “That will cause them to think about alternative ways to do their banking.”

However, credit unions also need to be wary of merely focusing on adding new members, said Ben Loveless, managing director of consulting firm Sentinel Project Management. Instead, executives should prioritize getting existing members — and any new ones that are recruited — to utilize as many products from the institution as possible.

That’s how the credit union will ensure their members are active and profitable, since it costs money to open and maintain accounts. A credit union’s profitability-per-member can quickly decline if too many people don’t do any business with the institution beyond just depositing a paycheck.

“If you focus on growing the number of members and you are not focused on your bottom line, you are focused on a demographic rather than the efficiency of your credit union,” Loveless said. “Profit is an issue with everyone. … More members don’t make your more money.”

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Field of membership Consumer lending Consumer banking Growth strategies Coronavirus Auto lending