Membership Drop: Seasonal Blip Or Bigger Issue?
WASHINGTON-Credit unions have been lauding their membership growth and the steady march toward 100-million total members in the U.S., but the country's CUs actually lost members during Q4 of 2010.
Is the decline merely a typical, seasonal blip in the radar screen, or is it a more serious indication of the shape of things to come?
Credit union economists generally agree the drop is likely seasonal in nature, but also expressed to Credit Union Journal some concern that there may be more due to the decline and that credit unions should take heed.
Arguing on the side of a typical, seasonal blip was CUNA Mutual Group's Dave Colby. "In five out of the seven years, we have seen membership declines in the fourth quarter," he noted. "Early in the year, the marketing budgets are flush, and credit unions aggressively market for new members. Then around mid-third quarter, as the budgets start to be depleted, you typically see a pull-back in marketing. Also, at the same time, this is when credit unions tend to look at the profitability of their inactive accounts, and they start looking to either increase the activity and profitability of those accounts."
But NAFCU's Tun Wai said that Q4 decline-and the numbers for all of 2010-may be cause for concern. "Yes, membership growth was positive for the year overall, so you could argue the decline in the fourth quarter is just a seasonal thing, but even the positive growth number for the year is a little bit low," Wai suggested. "My theory is, if you look at lending, you will see that loans are the primary reason people join credit unions. Then you see that loan growth actually went negative. So, if the primary way you attract members is through loans, and loan growth goes negative, what does that do to your membership growth?"
The Indirect Effect
This is especially true for CUs that have primarily relied on indirect auto lending programs, Wai said, as auto sales have declined.
"The fact that the fourth quarter was weak is not unusual," said CUNA's Mike Schenk. "We have seen declines in the fourth quarter in seven of the last 10 years. But, the fact that membership growth for the year was up only .7% is not something I would have people be satisfied with-we should be a little concerned about that. That's about half the level of growth in 2009 and is probably the weakest in close to 10 years."
And that may be a trend that goes well beyond a seasonal slimming of marketing budgets and seasonal shedding of unprofitable members. "Credit union income is, relatively speaking, quite low, and there has been a major focus by credit unions on controlling expenses."
One way to do that, of course, is to trim marketing budgets, and not just for a season. Another, Schenk added, is to cull dormant accounts and do away with expenses related to keeping an unprofitable member on the books.
Like NAFCU's Wai, Schenk noted the relationship between loan growth and membership growth. "Everyone needs to be concerned with loan growth, or the lack of loan growth," he said. "A lot of members remain in debt up to their eyeballs, and that means they're going to remain focused on paying down their existing debt, not taking on additional debt. Credit unions are either going to have to be looking at stealing loans [as refis] away from other institutions or diving more deeply into the credit pool."
Taking that plunge is something some credit unions are reticent about, lest it mean exposing them to greater risk, but Schenk said CUs can make that deeper dive without actually increasing their risk. "Credit unions are smaller [than banks] and know their members better, so they are in a better position to listen to members' stories and make sound judgments on whether to make the loan. You can't just go by the numbers on the credit score."
Other membership growth strategies, Wai offered, are going to a community charter, reaching out to new SEGs and mergers-but each of these comes with a challenge.
"One of the issues, as you try to expand, is the delivery of service. At some point, is it feasible for you to serve a membership that is so spread out," Wai asked. "What will alleviate that, however, is the rapid improvements in and adoption of technology. Your membership growth is going to have to come from younger members, and your younger members are very tech-savvy and will be very comfortable with remote service."