WASHINGTON — With credit unions finally hitting the 100 million member mark last week, analysts and executives said the most powerful impact of reaching this milestone is the increased awareness of one of the "best-kept secrets" in financial services.
"It is exciting and an opportunity to bring visibility to our industry," said Brett Martinez, chief executive of the $2.3 billion Redwood CU in Santa Rosa, Calif.
CUNA Interim CEO Bill Hampel agreed, saying that the milestone increases the odds of the "average person" knowing what a CU is.
"Not only have we crossed 100 million members, but membership growth rates have been picking up over the last few years, and that means more people have been noticing credit unions," he said.
Young people are getting tipped to CUs via word of mouth and social media, as well as residual benefits from 2011's Bank Transfer Day, Hampel said.
"That sort of woke people up and got some people willing to overcome the inertia of switching financial institutions to try something different because they were angry," he said. "And when they did, what they found out was that this new credit union they tried — in almost all cases — offered the same service and convenience as the bank they were angry at and leaving."
But Dennis Dollar, principal partner at Dollar Associates in Birmingham, Ala., expressed some skepticism about CUNA's numbers.
"Probably as many as 20% of those [100 million] may be duplicates, people who are members of more than one credit union, like myself and many others," he said. "But even if you assume that 20% are duplicates and only half of the remainder really understand the difference between a credit union and a bank, that's still an army of 40 million credit union members who know what we are and would make a fairly strong political movement in support of credit union issues."
The bulk of the growth at CUs has been at institutions with $250 million or more in assets, whereas "over the last eight years, credit unions $100 million and below actually have had a net reduction in members," Dollar said.
"There's no doubt that it is a recognition of the economies-of-scale factor in credit unions. And that is that the larger the credit union, the better positioned they are to invest in future growth, whether it be branches, new products, technology, staffing, whatever," Dollar said.
More Mainstream?
Hampel predicted that CU membership growth rates will continue to rise and suggested that they might easily continue last year's 2.5% growth rate for the next 10 years.
But while CUs continue to grow, he and others dismissed the notion that as they become "more mainstream" they might begin to be painted with the same brush as banks.
"I do think that in terms of the way consumers look at the marketplace, they see credit unions as a better deal," said John McKechnie, a former staff member with multiple CU trade groups and now a partner at Washington-based consulting firm Total Spectrum. "Conversely, they perceive the banking industry as being somewhat uninterested in meeting the consumer needs in terms of the fees, [and] their customer service pales in comparison to what credit unions offer."
The fact that CUs have historically served those of modest means is a sign that they are in no danger of losing their status as an underdog in the financial services sector, Dollar said.
Both NAFCU and NCUA declined to comment, but NCUA spokesman John Fairbanks wrote in an e-mail that the regulator would issue its own membership figures when it releases its second-quarter industry report, most likely after Labor Day.
Asked if NCUA's numbers could be expected to differ from CUNA's, he declined to specify but noted that CUNA collects data from a wider range of institutions than NCUA, which only gathers data on federally insured CUs.
Milestones and Timelines
It took CUs until 1958 to hit the 10 million member mark, and the 50 million member milestone didn't occur until 1985, according to CUNA data.
Hampel said that he thinks that if recent growth trends continue, CUs could hit 110 million members within five years or even 125 million members within the next decade.
However, "the next milestone could take a little bit longer, because the rate of growth of the population is quite a bit slower than the rate of credit union growth," he said.
Dollar noted that the current milestone is significant but "I'm not sure that it is as much a cause for celebration as it is a cause for introspection. The industry has a chance to now say We've reached the 100 million member mark; how effective are we in meeting the needs of that 100 million and providing greater depth to their membership affiliation?'"
The biggest boon for CUs may be the potential for increased political clout, Dollar said.
"The single greatest credit union strength is that credit unions have numbers, whereas the banks' political power is primarily measured in dollars," he said. "I think that every political victory we have won has been because of our numbers."
The catch: CUs have historically been more effective at using their clout to prevent bad things from happening than using their numbers to make good things happen, Dollar said.
"We can stop taxation and we can stop [the Community Reinvestment Act] from being imposed on credit unions, but we can't get a single member business lending cap increase that doesn't cost any taxpayer dollars," he said.
Meanwhile, some in the industry say that serious bumps lie ahead.
"The compliance burden is a real threat, and if new, additional compliance burdens are imposed on credit unions, that of course would retard growth, especially if those compliance burdens were more severe than those placed on other financial institutions," Hampel said.
But "I also believe that the tsunami of new regulations and new compliance burdens that came out of the financial crisis is largely behind us now," he said.
"This doesn't mean the rules are going to go away, but at least credit unions don't have to be devoting as much of their resources to accommodating or adjusting to new rules, because they will have worked out how to comply with the rules that have been imposed in the last few years," Hampel said.
In interviews conducted before CUNA announced that CUs had crossed the 100 million member mark, some executives expressed skepticism about long-term membership growth.
Gary Easterling, chief executive of St. Joseph Mich.-based United Federal Credit Union, said that growth will eventually flatten as banks continue to reengage with customers from whom they stepped away from during the depths of the recession.
"For CUs that are willing to go toe-to-toe with [banks] in the marketplace, I think credit unions can still win on our total value proposition," he said. "But it is going to be a tougher game for a while because the banks are now back in."
But Sundie Seefried, chief executive of Partner Colorado CU in Arvada, said that banks shouldn't concern most CUs because "I don't think they can change the culture and environment in which they're doing business and improve their service to the level credit unions have been operating with since the beginning of time."
Ultimately, "we still have much work to do," said Wally Murray, chief executive of the $489 million Greater Nevada CU in Carson City.
With about 80% of Americans categorizing themselves as "poor" to "middle class," he said that there are at least 250 million more people and 6 million small businesses in this country that CUs could serve.
"Our biggest challenge is that even after being around for more than 100 years, we still cannot effectively communicate our message in a way that the American public can easily understand," Murray said.
The lack of a simple "elevator pitch" forces credit unionss to continually spend vast amounts of time and money trying to educate the public and policy makers on the credit union difference and why that matters, he said.
