WASHINGTON — Small credit unions that deploy a full suite of technology offerings — including remote deposit capture, mobile and online banking — stand a better chance at sustainable growth than those that do not.
These findings, from a new study by Callahan & Associates, again highlight what Credit Union Journal has referred to as the "Great Divide" between large and small credit unions.
In other words, the trend of large institutions growing while their smaller counterparts remain stagnant or worse.
"We wanted to identify small credit unions that are able to be really tech savvy and be able to offer a lot of different technology-related services to their members," said Andrew Bolton, senior industry analyst at Callahan, adding, "We wanted to highlight that it's not just always the big guys that are doing the cool things and doing a lot to serve their members."
Among the thousands of credit unions that fit NCUA's designation of "small" (assets of $50 million or less) Callahan identified only 21 that offered all five of the services it deemed necessary to have a full suite of tech offerings.
Among those small CUs, Callahan reported, average member balances are $10,439, compared with $8,966 at less tech-savvy CUs. Those 21 CUs also saw average member relationships rise by 10 basis points more than their peers that do not have a full suite of tech offerings.
Callahan's 21 credit unions vastly exceed their less tech-oriented peers when it comes to loan and share growth over the past five years, with tech-savvy credit unions of under $50 million showing a compounded annual growth rate of 3.6% for loans and 5.9% for shares, compared to 0.5% and 4.5%, respectively, for those without a full slate of technology on hand for members.
Credit unions with assets between $50 and 250 million reported similar compounded annual growth rates for share growth — a 10 or 20 basis point difference, depending on the asset class — but larger CUs averaged 2.3% loan growth, compared with 3.6% at Callahan's 21 small, tech-focused CUs.
The nearly two dozen credit unions identified by Callahan also exceeded others in their asset class in the fields of auto loan penetration (17.2% vs. 13.4%), credit card penetration (11.6% vs. 8.3%) and share draft penetration (38.1% vs. 31.6%). The only area Callahan highlighted where these CUs did not have a significant edge among their peers was in first mortgage lending (1.1% vs. 1%), though many credit unions of that size do not offer first real estate loans.
Callahan's Bolton said that these 21 CU's aren't doing anything revolutionary.
"I think they're taking a different approach to [technology] and coming at it as 'This is something that our members are going to be able to use, and it's going to make the experience with the credit union better for them, and therefore we're going to go ahead and [devote the necessary financial resources] because it makes a difference for our members,'" he said.
One CU's Success Story
One credit union from Callahan's report that Bolton cited specifically was Charleston, W.V.-based Element FCU.
CEO Linda Bodie explained that the full suite of technology didn't just happen all at once, but was implemented over several years.
The $26 million-asset credit union began offering remote deposit capture a decade ago, allowing members to deposit checks using a scanner, according to Bodie.
"We did that for years, and the reason we implemented that was at the time our field of membership was the Department of Health and Human Services in West Virginia, and we have members all over the state," she said. "It was kind of a burden for people not in our branches to deposit, and they would mail them in and that would take a very long time to reach us."
In subsequent years, the CU started offering mobile deposit, online loan applications and more as soon a secure technology was available. It has also implemented Skype conversations with members and texting via Google Voice.
"Our philosophy is you have people who want to come in and see you, people who want to shop online, and you have different kinds of people, and you want to serve them in their manner," said Bodie, noting that cross-selling strategies are still there, they're just done differently according to the environment in which the member interacts with the institution.
"You have to build that interaction or find a vendor who can give that to you that engages that online member, because clearly they are different than someone who walks into the branch, and you have to treat them differently and build a strategy around how that online person behaves."
Money Matters
Bodie noted that cost can be a hurdle for some CUs, but she also noted that the price of these services has declined dramatically in recent years.
Looking at some of Element FCU's own services, she pointed out that Skype and Google Voice are both free, remote deposit capture services are "a very minimal expense," and secure forms transmissions for online applications cost about $99 per year.
"The simpler you make it, the better it's going to be," said Bodie. "A lot of times you look at solutions that are very complicated, and from the member experience to use these solutions is very complicated." She added that Element's strategy is normally to keep processes as brief as three steps or fewer.
Callahan's Bolton admitted that many small CUs have limited technology offerings because they simply can't afford them, but he stressed that there are solutions in the marketplace for institutions wondering how they can put these services in place.
"Obviously money is tight at smaller institutions, but that forces you to be more creative in how you do things, whether it's leveraging the scale of a CUSO or talking to an outside technology vendor that has more of an off-the-shelf solution you can implement that would cost a lot less than you trying to build it on your own," he said.
Bodie and others interviewed for this story said that there's not one single service that can make a difference for CUs. Rather, it's a matter of having a variety of services available that members can use when they are ready.
"A more complex array of products is connected with growth," said Bill Myers, director of NCUA's Office of Small Credit Union Initiatives (OSCUI). "Depending on how you look at the environment, financial institutions on average are growing bigger.... One of the things we've talked with our credit unions about is the use of electronic services to, in a sense, appear to be a big credit union. They can't see you and they can't really see how big your branch is or how sophisticated it is if they only see you online. For small credit unions, you can take that as an advantage."
With that in mind, many of the credit unions that utilized OSCUI's latest round of grant funding were seeking funds to implement products like mobile banking, remote deposit capture and bill pay. Myers said that trend is a continuation of what the agency saw when it offered grant funding a year ago, as well.
What's important for credit unions to remember, said Myers, is that while mobile and e-service channels might seem expensive, "electronic services are less expensive to add than any of their other choices — they're certainly less expensive than a new branch or a new ATM or adding staff in a bank mobile that drives around the community."
So with usage of e-services on the rise and costs coming down, what's keeping small CUs from implementing some of these services? Particularly as younger members are increasingly likely to gravitate toward FIs with mobile services, one person says CUs must step up, no matter the costs involved.
"A lot of it is not knowing what they don't know," said Christopher Bruno, chairman of the Shapiro Group advisory committee, a division of the California & Nevada CU Leagues that works with small credit unions. "There's also the risk of hackers and what's going on in the industry right now. It's scary, and I understand that. But these devices are not going away, so we can either join today and figure out how to work with our membership base that is coming up, or we'll simply have to fade into the woodwork."
