GRAND RAPIDS, Mich. -
The collective wisdom of the CU movement posits that if credit unions could harness their power and overcome the underlying fear of failure they could have a much larger slice of the American banking/investments/insurance pie.
But many CEOs today just don't want to talk openly about the taboo subjects of CU conversions and the declining number of CUs, or what Randy Karnes, CEO of the Michigan DP CUSO CU*Answers, more directly calls "selling a credit union."
Controversial Idea
This once controversial idea was the centerpiece of Karnes' presentation to 50-plus credit union CEOs at the CU*Answers' CEO Strategies Conference. Behind the safety of closed doors, he presented his "Partnering with you" concept for discussion. The ensuing dialogue was quite interesting, he said.
"Everyone knows all the rules are changing, whether we talk about it out loud or not," he told the Credit Union Journal. "The status quo won't work if we don't find ways to be continually relevant to our members-and they are doing all kinds of things-they buy, they sell, they trade; we need to be competent at this issue today."
The idea of "Acquiring Credit Unions" was unthinkable ten years ago but may be a mandate five years from now, notes Karnes. Like any "big" idea it starts small and grows, or is even stolen from someone else. Bank of America is a huge organization that has simply "built a network," he says. In much the same way, CUSOs are built upon the idea of amassing more CU owner-members who, upon joining, find they are part of a larger collaborative.
The size factor can be overcome by realizing that CUs acting in partnership with one another can be more flexible and quicker to market than a single entity where all the parts must conform to a defined set of rules. Because everyone is worried about maintaining their own market share and worried about being a merger target or targeting another CU to absorb, perhaps a better alternative is slipping past, Karnes feels.
A Different Growth Strategy
"Acquisitions and mergers are a growth strategy," he says. But an "operational network, or New Age Networked Business Strategy" is another, and one he feels is more likely to stem the decline in overall CU numbers. This idea will preserve the individual CU brands while allowing participants to pick and choose the partners who provide services to them and "divide and complete the work necessary to service members."
Whether it's marketing and selling its own services or brokering opportunities to other credit unions, CU*Answers wants this business model to come out from under the bush and into the open. That's where the possibilities become tangible, and may be adopted by a large enough group to create force.
"Just where is the option to merge?" Karnes asks. "A credit union needs to have the model in place before the idea or need to find a merger partner is necessary," he stresses. Too many mergers are taking place in the false belief that size offers protection. "Is it enough to feel safe if you double your assets? No. There's a false promise in the word 'scale'. It's still the same stuff, just more of it."
What Karnes is shooting down is the idea that "economies of scale" which undoubtedly offer the potential of operational savings don't always result in better or more dynamic delivery of services. And often, they can backfire, or it can take so much time to integrate the systems that the advantage is moot. "Our collective says we should invest in credit unions that invest in themselves," he says. But Karnes is quick to defend against the charge that CU*Answers is "trying to take over," because he sees credit unions forming smaller versions of this sort of alliance all over. "I don't own stock in this company, after all." (CU*Answers is owned by more than 70 credit unions nationwide.)
Partnering, networking and collaborating are all nice inclusive words, he allows, but "this shouldn't just be about warm puppies and kittens," he warns. "People are getting hungry and the survival instinct is kicking in. This is a competition of ideas for innovation; it's not a competition to cut throats but to get to a working solution. It's a competition for the next template, the next model."
Because CUs don't generate profits for shareholders but rather exist to perform services to members their operational philosophy is parallel to banks (they do essentially the same things) but how they do it (their structure) is very different.
That structural difference may be the key to unlocking growth, a problem CUs are now facing. As an example, Karnes cited the subprime loan market, which some saw as a silver bullet to sagging loan portfolios. "Some CUs jumped into indirect lending with both feet (and got into trouble). "Instead of balance, where they could lend money in smaller groups (thereby spreading the risk)."
Is NACUSO the association to carry the idea through? "CU*Answers is a Platinum Partner and my enthusiasm for NACUSO is bolstered by Tom's (Davis) appointment. But NACUSO needs to step up and show stronger leadership in how collectives are on a par with individual efforts. It's the difference between hoping and carrying the message. The biggest challenge is getting organizations to act collectively because it means give and take. It means that you understand that what you do is more important than what you own. It's about earning alongside rather than in front of."
The All-Internet CU
While most innovations in the credit union movement have to do with new products and services, Karnes suggested the actual process and infrastructure of what is a credit union should be equally open to innovation, as well, particularly as CUs come up against increasing competition from ING and other companies that innovated the delivery channel, rather than the product.
That's one reason that CU*Answers has created "It's Me 247" to replace its CU
A way of competing with online banks is the virtual part of extending the reach of "It's Me 247" beyond just branching through a website. It's about creating a de novo Internet Credit Union Charter. "Who knows? Small charters might be more valuable than you think," says the promotional material. Another option is managing Internet Charters for other credit unions.
The possibilities are lucrative in considering the virtually branded credit union, but perhaps the biggest gain would be the creation of the CU brand itself, rather than some 9,000 separate and individual brands, each with its own website (see related story above.)
It seems a way to form a singular vision for Karnes' dream of the unified credit union network in cyberspace.
"NCUA has to allow de novo start ups in order to create this model, he said, "and what restrictions they place on them (if any) will make all the difference."
