In credit unions’ early days, each production line in a factory might have its own credit union office, a volunteer treasurer often did the accounting by hand, and a credit committee assessed risk, relying on personal knowledge of the borrower when making loan decisions.
“Recommended for you” or “you might also like” came from familiarity with the member’s character, not an algorithm.
These credit unions were relevant to their members, who might not have had other options. Even after credit unions grew larger, expanded their fields of membership, and used credit reports to approve loans, the maxim “you’re a name, not a number” prevailed.
Fast forward to the digital age.
While staﬀ still greets many members by name when they walk into the lobby, a growing contingent interacts with credit unions primarily on their handheld devices and rarely visits a branch. Members joining a credit union via an indirect loan might have little other contact, virtually abandoning their minimum balance accounts or withdrawing their memberships once they pay oﬀ their loans.
“Every credit union is unique, so it wouldn’t be right to make a blanket statement that the impact is the same for all of them,” says John Myers, president/principal of the credit union consulting firm C. Myers. “However, if we can make an assumption there’s a pool of members with only a $25 share account and who have been inactive for a long time—in other words, no loans, interest-bearing deposits, or active debit cards—then the impact is not a good one.”
It costs money to maintain each account, including charges from the core processor to the cost of paper or electronic statements. “It’s not too difficult to figure out that monthly cost,” Myers says.
Say that a $500 million asset credit union with 50,000 members has 4,000 members with $25 share accounts and inactive checking accounts—not an unreasonable assumption, Myers says. “Now imagine the cost of maintaining those accounts is $1 per month,” he says. “Over the course of a year, the hard cost could be nearly $50,000—or one basis point. To many credit unions, a full basis point hit to the bottom line is not desirable.”
The potential for fraud also exists. A dormant account, for instance, could lure a dishonest employee to take over the account and fund fictitious loans, causing both financial and reputational consequences.