Solving the small credit union puzzle

What are thriving smaller credit unions doing differently? The Filene Research Institute spent six months answering that question with the belief that smaller credit unions can provide lessons that resonate throughout the movement. 

The research, presented in a recent Filene and CUNA Mutual Group webinar, found that the small credit union puzzle includes five categories: market, identity, strategy, the balance sheet, and shareholders.

The study suggests that credit union leaders trying to solve the puzzle:

• Embrace the challenges of running a credit union as a puzzle to be solved.
• Learn the needs of their community and identify a core market.
• Articulate and reinforce a clear organizational identity that aligns with their market and differentiates them from alternatives.
• Create a cohesive strategy that embraces trade-offs to invest in the offerings and operations that matter most to your market and support the credit union’s identity.
• Make internal and external stakeholder partners in supporting the credit union’s strategy, and proactively communicate to show and tell the reason behind the strategy.
• Leverage the balance sheet to tell the credit union’s story and track the progress with carefully chosen metrics.

Filene provides a strategic playbook for the five areas:

1. Market

Filene Senior Director of Research Taylor C. Nelms says thriving smaller credit unions leverage an understanding of their community, defining member compatibility as “the fit between members’ needs and expectations and the credit union’s offerings and operational model.” 

Filene found that thriving small credit unions: 

• Focus on a clear target market. 
• Define success in terms of their relevance to members and their ability to serve them.
• Dedicate resources to understanding their members.
• Evaluate their offerings and operations against what their members want and need.
• Seek out a niche but don’t necessarily shy away from competition.

2. Identity

Filene found that thriving smaller credit unions:

• Proactively shape the expectations that stakeholders have. 
• Reframe challenges and risks as strengths and opportunities. 
• Leverage focus on members to build a differentiating value proposition. 
• Claim a place in their community so people can find them. 
• Embrace, cultivate, and take pride in being agile, bootstrapping, experimenting, and innovating.

3. Strategy

Carma Parrish, CEO of $48 million asset NorthPark Community Credit Union in Indianapolis, says NorthPark’s recent bold strategic move—becoming a virtual credit union—reallocated resources to focus on income-generating actions. Other ways in which thriving small credit unions solve the strategic puzzle include:

• Leveraging their understanding of members to identify market gaps.
• Building strategies around organizational identity.
• Embracing trade-offs to zero in on the investments that matter most.
• Focusing on products that produce high performance, but also investing in infrastructure, service, and marketing to accelerate product performance.
• Measuring success with carefully chosen metrics.

4. The balance sheet

Thriving smaller credit unions that strengthened their balance sheets between 2005 and 2021:

• Engaged members to maintain market relevance and saw higher rates of member growth and core deposit acquisition.
• Focused on lending and leveraged non-interest income to grow; saw higher loan growth and loan-to-asset ratios; saw greater non-interest income per member; and saw a higher return on assets.
• Made trade-offs to control costs and realize economies of scale, while seeing output grow faster than non-interest expenses and digital investments.

5. Stakeholders

Thriving credit unions that have solved the stakeholder portion of the puzzle:

• Take a multistakeholder approach. 
• Leverage external partners and collaborations to efficiently execute strategy.
• Strategize how to communicate to different groups.
• Help stakeholders understand the “why” behind decisions.
• Invest in talent, team development, and succession planning.
• Own their impact internally and externally.