We recently posted a fresh economic and credit union forecast on our new Web page. Although this outlook isn’t much different from last quarter’s, one defining characteristic demands attention: the disconnect between large and small credit unions.
Smaller credit unions continue to report operational challenges while most of their larger counterparts seem to have fully recovered from the Great Recession. As we enter the strategic planning season, we should ask, how can credit unions both large and small increase the likelihood of success and sustainability?
I recently posed that question to members of CUNA’s Small Credit Union Committee and to state credit union leagues. While opinions differ, one thing is abundantly clear: there are no silver bullets. Hard work and an ability and willingness to change are common refrains.
Beyond this, I’ve identified five main themes:
1. Focus your mission
If you’re surrounded by other financial institutions trying to serve the same market, you’ve become a commodity. Identify and seek out consumers that other institutions aren’t serving—or aren’t serving well.
Be a problem-solver, not an order-taker: What are your member’s problems and how can you help? Realize that differentiating on price exclusively can be a losing proposition, particularly for the small shop with relatively high expenses.
Recognize your employees are a big differentiator—good or bad. Make sure your employees sincerely care about your members.
Cross-selling also is important. Many mention CUNA Mutual Group’s Lender Development Program as a difference-maker.
2. Price for your market
Don’t let directors or regulators set prices. Don’t follow the herd and don’t vow to offer the best price.
Instead, implement risk-based pricing. Why charge everyone the same rate when some have excellent credit and others owe everyone in town?
Also, create pricing benchmarks for deposits. Let your wholesale funding option and a servicing cost adjustment serve as your benchmark.
The objective is to minimize your marginal cost of funding within the context of your balance sheet and member relations constraints.
Talk to members that others have turned away—that’s probably your sweet spot.
And consider member stories in your lending decisions. Your larger competitors are much less likely to do so. This creates loyal members.
Charge fees for services: Noninterest income is crucial.
3. Be consultative
Focus on what’s best for members. It’s the best way to earn trust. Anticipate needs and ask for member business.
Educate members and put them on the path to independence. Helping them make small improvements will yield incredible results.
4. Make lending your top priority
Learn to say “no” without shutting the door on members. Always leave a door open for them.
Establish participation arrangements with other credit unions, offer mortgages, provide secured or low-balance credit cards to help members repair credit, and consider subprime lending. Done properly, it can make a big difference.
5. Use available resources
Take advantage of CUNA, league, and chapter meetings. Interacting in these settings is the best way to get to know and learn from others.
Look into NCUA resources, too, especially webinars and grants. And collaborate with peers to reduce back-office expenses, such as sharing a compliance person or core processing platform.
This isn’t meant to be an exhaustive list, and it contains no easy cures. Many of these points undoubtedly seem basic.
Nevertheless, conversations around these themes will likely benefit credit unions of any size during this year’s strategic planning season.
MIKE SCHENK is vice president of CUNA’s economics and statistics department. Contact him at 608-231-4228.