Given the monumental growth in memberships and lending the credit union movement has seen over the last five years, executives entering their strategic planning sessions for 2017 are now faced with the question of how to capitalize on that success while also preparing for the possibility of a plateau.
Though some CUs are focusing on ways to adapt to a changing marketplace, concerns related to technology, revenue streams, regulatory burdens and new memberships are on the minds of executives and board members. These issues – combined with the constant struggle of staying relevant and serving an institution's community – show CUs have their work cut out for them even if all signs point to a continued growth for the industry.
Focus Groups on Growth
Brian Best, CEO at the $1.8 billion GTE Financial based out of Tampa, Fla., said his position puts him at the front and center of strategic planning for the CU, but he suggested the planning is "truly not a one person aspect" and it is driven up from the bottom of the organization through employees and members. Best has only recently taken the helm at GTE, though for six years prior he worked as an executive leading the strategic planning process.
GTE utilizes focus groups when vetting new ideas for the institution, and Best said that strategy "is s a great format for us to throw out some ideas, products and virtual innovation pieces we have done."
GTE, which serves 244,000 members, has student interns from the millennial generation who have the opportunity to run two branches in the Tampa area, as well as a seat on the board when it comes to discussions regarding future strategies. "What is important there is that, as a [member of generation X], I can't look at it and say 'the millennials are expecting these products'," Best said.
As a new CEO, Best revealed the most important aspect he has observed is remembering the top spot serves two constituencies: employees and members.
"You see that all the time in businesses: they will get away from their core fundamentals," Best explained. "From a CU standpoint, we are the experts in consumer advocacy. I think that is something absolutely special to the CU industry and something we cannot lose sight of."
Regulated Revenue
Other credit unions are grappling with how to position themselves in the marketplace while also working to protect existing sources of revenue and generate new ones.
"Are we going to become a tech company that happens to offer banking services [or] a banking institution that offers some forms of technology," said Brandon Michaels, CEO of $570 million Mazuma CU based in Overland Park, Kan. serving 62,000 members. "The order of those words has a large impact on how you shape your strategy for the future," he added.
Michaels explained the need for "dramatic" shifts in thought and processes to mitigate changes to revenue models in the next five years.
"When you look at how we get our money today – fee-based services, branch transactions, interchange – there are pinches. The margin on each of those products is decreasing every year," he said. The industry has been working on ways to restructure their business models to keep up with the significant shifts in what a consumer wants and what the industry can offer; compounded by the accelerated pace of new technology and changes to regulations.
Mazuma's CEO suggested that thanks to the "Uber-ization" of financial services, credit unions need to recognize some mechanisms are "primed for disruption." He mentioned automated clearing house systems, debit cards and credit cards as some examples of some mechanisms the industry may be taking for granted.
Consumer advocacy groups like the CFPB "don't like fees" Michaels said. In light of the push by regulators and advocacy groups to limit the fees a financial institution can collect, Mazuma, an institution who has thrived on fee income over the last 10-15 years, has eliminated 14 of its fee-income mechanisms.
"[It] elevated everyone's work and mindset around generating revenue in other ways – CUSO revenue, tapping into and furthering our card portfolio, increased interchange and loan return," Michaels said.
GTE's Best pointed out that the compliance burden won't be getting any lighter, but said his credit union is not overly troubled by regulation – at least when it comes to strategic planning.
"You're always going to have regulation and different items that pop up – like TRID, for example – that is just the way business is," said Best. The CEO explained that regulatory issues are not directly pertinent to his CU's planning process. They may "push on the fringe," he said, but pending regulatory changes do not alter their strategic planning.
Making Saving 'Cool'
For Shreveport, La.-based ANECA FCU, the strategy moving forward is centered around promoting the credit union to the community and finding ways to improve members financial lives.
Stephanie Sievers, CEO of the $94 million institution, has witnessed struggles in her community caused by the shift in energy prices during the last year. "When I came here we were losing money – [our] first plan naturally was 'let's get the infrastructure in place,'" she said.
The CU, which serves 6,000 members in Northern Louisiana, had to be brought back under control – mainly through policies, procedures and spending, Sievers explained. After ANECA's original SEG was bought out by a company in Texas – the workforce in Louisiana was reduced to 50 –ANECA determined converting to a community charter was the best option available to them.
"The transition from a single SEG to be a community charter [is] not just a field of dreams," Sievers said. The CEO had to look for new initiatives to "redefine that value proposition to the community."
One of the ways ANECA looked to stimulate the credit union and the community together was through a business start-up contest. The program has been geared towards entrepreneurs who have been operating for three or fewer years. The business owners would pitch to the CU, as well as an angel investor group, and Sievers suggested the program has raised awareness of ANECA in the area.
"What we are trying to do is really get behind our area and see growth – if our area is not growing, the CU itself will not be able to grow as well," she said. The program has been such a success in the ANECA community that expanding the program to include area high schools is in the planning process.
"We decided we needed to take a stand on something," she said. "We decided that stand would be on community development, account growth and educating people. It all leads back to really helping people."
One initiative ANECA plans on implementing is finding a way to encourage members to think about their savings for the future. "Talking about savings is not cool – it's not resonating," she said. ANECA matches 401k contributions by members, but the issue remains: members are not keyed into the value of saving. "The power of the dollar is much more important in the early years; what are we going to do to make saving cool."
Resources to Fuel Change
Of course, one of the over-riding issues many credit unions face is they simply lack the resources necessary to fuel change.
"We can't go out and get money from our stakeholders for more capital to invest in IT infrastructure, [CUs] kind of have to piecemeal it every year as resources allow," Mazuma's Micahels said. He has observed that one of the primary issues holding back CUs is "inertia" and people's reluctance to change. "Any good CEO today understands positioning your organization forward is about changing culture more than process."
