LAS VEGAS — In an era of tepid member growth and flat yield curves, some credit unions have discovered innovative ways to bring people in their doors and get them to open accounts.
That was the message from Mary Royston, marketing manager for Washington, D.C.-based Callahan and Associates. Royston told attendees of the recent CUNA Marketing and Business Development Council conference here CUs have received both good news and bad news in recent years.
The bad: a "growth stall." Member growth in 2006 was just 1.1%, down from 1.5% in 2005 and the lowest since deregulation, Royston said. Even worse: 25% of CUs account for 100% of share growth. Last year saw 4,982 credit unions (58% of all CUs) suffer share outflows, and 3,137 had loan balances decline.
Another bit of bad news: compressed interest margins continue to impact ROA, which dipped to 0.82% as of Dec. 31, 2006.
"We're all feeling this slow-growth environment, but there is good news," Royston said. "The real story is, member value is increasing across the credit union community."
Among the positive examples she cited:
- A record $15.7 billion in dividends was paid to members last year, up $5.9 billion (61%) from 2005.
- CUs saw double-digit growth in real estate loans and credit cards, up 12% and 11%, respectively.
- Outstanding credit card balances at CUs reached an all-time high, and credit card market share increased to 3%.
- CUs opened more than 800 new branches last year.
- Members opened more than 2 million checking accounts.
- CUs held 44 million outstanding loans at year-end.
- Year-end quarterly share growth was at its highest level in four years.
In addition, credit unions originated $54 billion in mortgages, boosting their market share to 2.2% from 2%, which Royston termed significant given the circumstances."Overall, mortgages were down 17%, yet credit unions picked up share in a tough environment," she said.
Some have questioned if there still is a need for CUs. According to Royston, the answer is a resounding "yes," for many reasons.
If nothing else, she said, consumers need some assistance in "The Era of Predatory Lenders."
"Payday lenders are running rampant. There is a lot of financial manipulation going on. That's why credit unions are rolling out payday lending alternatives," she said. "But beyond these short-term loans, life is getting more expensive. Goals, such as education, are expensive. How do we allow people to realize their dreams?
"A loan is offering an economic opportunity," she continued. "People want to buy a home or a car, but lenders are manipulating people. They are putting people in perpetual debt."
CUs have reached an "inflection point," Royston said, and must decide which direction the movement will take. Options include developing new growth models, traditional organic growth, mergers ("One credit union is being merged away each day."), or finding a niche to serve. Two other choices: simply declining as a financial institution, or leaving the CU system via conversion.
"We must recapture our growth momentum," she said. "We can do this by identifying and capturing new organic growth strategies."
Vancity Credit Union in Vancouver, British Columbia, is an "institutional success story," Royston said. It has employed a number of techniques to connect with its members on a personal level, which she said has led to remarkable growth in both members and shares.
"When you go to the Vancity website, it is product free. There are no mentions of rates-all they talk about is their approach," she explained.
Vancity promotes what Royston terms a "values-based approach." The credit union states on its site an integral part of providing banking services is "being a good neighbor and community leader. We just can't have one without the other."
Said Royston: "Vancity gives its members something to talk about. The CEO, Dave Mowat, has worked with Al Gore. Mowat blogs about Vancity's global climate change efforts, not about mortgage rates. Vancity talks about community leadership, getting involved and changing the environment.
"Another credit union might not be interested in global climate change, but the point is: what are your members passionate about? Have a section on the website letting people know what the credit union is doing, such as offering 'green' loans," she advised.
The results seem to validate Vancity's approach. Royston said the CU has experienced 11.6% member growth, 18% share growth and 12.5% growth on its balance sheet. Perhaps most important, 13% of the new members came through referrals, and 40% of new members were under 25 years old.
"This is a staggering number," she declared. "It is a big issue today, as credit unions are trying to lower the average age of their membership."
Other organic growth strategies include innovation, SEG development and cooperation, Royston said. Examples of these three include:
- BECU in Seattle had 17.2% share and 11.1% member growth in 2006, thanks in part to its "Member Advantage" and "Early Saver" accounts.
- Baxter CU in Vernon Hills, Ill., differentiated itself by strengthening its executive-level relationships with its SEGs, increasing the value it provided, and its visibility to sponsor companies and individual members. "BCU made sure the credit union is seen as a value-added benefit for the employer. It has brought in nearly 36,000 new accounts in the past two years, and has reached 34% penetration in its six core SEGs."
- MyCUmortgage, a CUSO based in Fairborn, Ohio, allows credit unions as small as $5 million in assets to originate mortgage loans. Royston said the CUSO hosts the back-office functions and allows the process to be invisible to members of the participating credit unions.
"We are pygmies in a land of giants and we need to generate economies of scale. CUSOs are the fastest-growing segment of the industry," she said. "They are a way to innovate and to get around regulatory restrictions."(c) 2007
