Letter to the Editor: Another Look At Taxation's Effects
Can credit unions survive if taxed?
The short answer is yes. However, it will be extremely difficult for us to make the required financial modeling transition without diluting the overall value proposition that credit union members now receive. There is no question that taxation at the federal level will add an incremental layer of expense that will create fiscal challenges and constraints for credit unions.
As crucial as the tax exemption issue is for credit unions, the driver for survival-with or without taxation-lives in the arena of scale, process and operational efficiencies and innovative collaboration for credit unions. We all know that larger financial institutions bring scale, resources, purchasing power and bandwidth to a process or operational issue when it comes to the delivery of financial services products and services. Scale drives down cost and increases operational efficiency which enables the ability to put in place bolt-on applications and tools and/or more competitive pricing that enhance the member experience far more than adding headcount can.
Whether large or small, today, as we speak, credit unions have gaps in their processes, operational efficiencies and lack of functionality that cost them millions of dollars each and every year. This converts directly into increased expense ratios and reductions in ROA as a result and is likely as large in dollars as taxation could be, if not larger.
The channel and mechanism for eliminating these gaps is found in developing more innovative and collaborative business models by, to and from credit unions themselves, including our corporate credit unions. So, when credit unions truly close the gap in their scale and operational efficiencies taxation could in fact become a moot point. If we can be proactive and achieve competing process and operational efficiencies prior to any changes on the taxation side we will have the flexibility to adapt to a new operating model. If our tax-exemption remains intact we will be even better positioned for the ability to not only grow, but begin to move the overall financial institution market share metric from 6% to an even larger number. Until then, however, our members are certainly at risk.
Pete Snyder, President
SCS - Snyder Consulting Solutions
Letters to the Editor should be sent to Lisa Freeman at lfreeman