LAS VEGAS -
Most are aware that approximately one credit union disappears every day, most in mergers. And most view that trend from the perspective of their own credit union. But what does that consolidation portend for credit union community?
"If we continue to lose a credit union a day, and if all the little credit unions go away first, in our lifetime we'll have 1,000 mega-credit unions left in the industry," predicted Mike Hales, a partner in the Rochdale Group. "At what point then does Congress ask 'Why do you need a separate regulator? Why shouldn't you be insured by the FDIC?" At that point the ballgame is over. So what can we do today to keep that from happening tomorrow. You can't change trends without taking action."
One trend Hales said should not be given too much weight is total membership numbers. He polled his audience for how many are credit union members, and everyone (laughing) raised their hands. He asked how many also belong to more than one CU, and about a third kept their hands up.
"I'm not as concerned about the number of credit union members as I am with how we will continue to serve members," Hales said. "These new members don't care if we have the latest furniture; they don't even plan to visit their money. They just visit online."
'Imperative To Look'
In remarks before CUNA's America's Credit Union Conference here on emerging operational models for credit unions, Hales suggested the only way to guarantee a future for both the individual credit union and the CU community itself is through the emerging operational models available through collaboration.
"It is imperative we take a look at different ways of doing business, and even take a look back at why this industry was created," Hales stated. In particular, he pointed to a number of CUSOs and partnerships currently in place around the country that he believes are models for what can be done elsewhere, if not everywhere.
Another key reason for innovation, he said, has to do with the asset size breakdown of credit unions. Of the country's roughly 8,300 CUs, approximately 7,400 have assets of less than $100 million (86% of total). Some 5,100 of those have assets of less than $20 million. He added that the riskiest portfolios can be found at the smallest credit unions.
Why innovate? As Hales observed, "It's not exactly the best of operating times for credit unions."
"Credit unions must reduce operating expenses, must collaborate to gain economies of scale and scope, and must have innovative growth in profitable product lines," he said. "Maybe it's a matter of independence vs. interdependence."
In short, he said, credit unions must do more to collaborate, noting it is the only way to effectively compete with the INGs and the HSBCs, not just the Internet-based rivals. And that's hardly the first challenge to building a competitive advantage.
"Most people don't know the difference between a credit union and a bank, Hales explained. "We know our trump card is service, but unless someone really experiences that how do we sell it? How fuzzy is it getting today between CUs and banks? We need to be able to focus on what a credit union is all about."
'Getting Right Brained'
But what it's all about is a positive operating margin, a growing challenge to many CUs, and Hales advocated the collaborative opportunities presented by CUSOs and other alliances.
"The world is not coming to an end," Hales reassured. "We have the talent in the world in credit unions. But we need to start getting a little more right-brained: random, intuitive, holistic, synthesizing, subjective, looks at wholes, etc."
Business lending CUSOs are a perfect example of how credit unions working together can solve a real problem, he said, citing Cooperative Business Services in Cincinnati, which was founded by seven credit unions in 2003. He also pointed to another Ohio-based CUSO, Shared Resource Tech Group, which is owned by AurGroup, CINCO, River Valley Credit Union.
Some credit unions are reluctant to enter into CUSOs fearing they are "recipes for a merger," Hales said. Instead, he reassured, "Some don't want to merge, they want to be independent. A CUSO can be a poison pill alliance to avoid a merger."
