6 challenges facing small credit unions

CUNA white paper identifies key issues and offers recommended solutions.

July 13, 2021

Small credit unions are a vital part of the credit union movement. Millions of consumers depend on small credit unions for their service and services, and these institutions are critical to maintaining our not-for-profit tax status.

But small credit unions face serious challenges requiring innovative solutions, according to “The State of Small Credit Unions Today,” a white paper from the CUNA Small Credit Union Committee.

The report outlines the top six challenges facing small credit unions and offers recommended solutions.

1. Technology

The overriding challenge with technology is cost. Small credit unions often don’t have the scale to afford new technology.

Plus, new technology is both time- and resource-intensive to implement and maintain. Employees at small credit unions typically serve in several roles, and the time to learn, implement, and maintain new technology only adds to their workload.

Recommended solution: Create a grant small credit unions can use to invest in technology that improves and modernizes member service.

Also, create educational programming that strengthens small credit unions’ knowledge of technology best practices.

2. Board leadership and engagement

Many CEOs and managers of small credit unions plan to retire in the coming years. Boards that increase their involvement in CEO succession planning can help their credit unions succeed.

Alternatively, credit union leaders must increase their role in recruiting and retaining a deep bench of board members who think strategically and enable the credit union to evolve.

Further, prioritizing board member onboarding and training will help small credit union boards capitalize on opportunities for growth, adapt to new technology and products needed to remain relevant, and plan for leadership succession. 

Recommended solution: Catalyze a culture shift that allows small credit unions to:

  • Instill a growth- and niche-focused strategy.
  • Create a pipeline of diverse board members.
  • Address the challenges of CEO and board succession.
  • Improve how board members perceive their role, ensuring they focus on the credit union’s high-level strategic direction, not day-to-day details.
  • Develop a training program that both raises awareness of the need for this culture shift and provides the steps and strategies necessary for implementation.

3. Member growth

The two significant factors that limit member growth are a lack of relevance and visibility.

Many small credit unions can’t offer a full complement of loan products and services and, consequently, lose members who prefer to do their business at one financial institution that has more a comprehensive selection.

Plus, marketing remains a big challenge. Many small credit unions lack the scale or budget to maintain a digital or physical presence similar to larger financial institutions.

Recommended solution: Form a marketing mentorship program to help small credit unions identify and refine their niche, develop a clear brand around that nice, and bring the brand to market with a strong strategic plan.

New technology is both time- and resource-intensive to implement and maintain.

4. Income generation

The coronavirus (COVID-19) pandemic has slowed growth and reduced income for many individuals, families, and businesses nationwide. 

Loan volume is down, and rate sensitivity is high, often taking precedence to loyalty to the credit union. Other challenges include:

  • Inability to offer a full complement of loan products, particularly mortgages, business loans, and even credit cards due to scale and regulatory restrictions.
  • Discouragement from examiners when introducing new loan products due to possible risk.
  • Limited budget to hire full-time marketers who can create awareness of the credit union’s loan products.
  • Competition from larger providers.

Recommended solution: Guidance on loan participations and increased lending training. 

5. Health care costs

The rising cost of providing health care benefits to employees and their families puts a significant strain on small credit union budgets.

This makes it harder for small credit unions to attract and retain staff and to invest in technology that allows them to grow and thrive.

Recommended solution: Form a national health care task force comprised of credit union leaders to explore how to address rising health care costs.

6. Increasing overall costs

Some of the most challenging line items to get under control are core processor costs, card services and ATMs, regulatory burden, office supplies and personal protective equipment, and marketing costs.

Recommended solution: Buyer groups and vendor management collaboration to leverage economies of scale and reduce time demands.