I just spoke at another credit union-specific products and services conference, and here are some observations:
We are the ostriches with our heads in the sand
The sky is falling. Or not falling. It’s all a matter of perspective…
If you are a large credit union ($1 billion +), you think you’re immune to being merged. If you are under $250MM in assets, you are likely trying to buck the merger trend and allure from large credit unions. In between $250MM-$1B, you are either trying to merge and dissolve as many charters into your charter as possible, or you are that ostrich with your head in the sand, perhaps not even thinking that you are a target for other CUs.
We lose 200+ credit union charters a year. That’s 2,000 every ten years, 4,000 charters lost in 20 years, and remember there are just over 5,000 credit unions left today! If the trend continues (and there is no indication based on the last 20 years that this trend will abate), 20 years from now there will be 1,000 credit unions or less left in the US (and in all likelihood, perhaps just twice that amount of community banks).
Speakers at the conference – for the most part industry experts in their respective fields, with banks and credit unions as their primary customer base – were clearly indicating their concern for the industry. Several speakers at this conference presented the exact same data indicating that unless smaller financial institutions learn to scale, collaborate, aggregate, and grow, they will be gobbled up or wiped out by competitors in their marketplaces. As I listened and watched, it was unbelievable to me that so many participants either shook their heads in agreement (thinking, “of course, but they would not be the ones gobbled up”), or argued in disbelief, claiming that their CU and the movement were strong and would surely survive.
The presenters know the truth. Unless they can help the market survive (individual charters) many of us will see businesses fail, right along with the industry.
That’s the ostrich with the head in the sand. “We’ve made it thus far, so if we just keep doing what we’re doing, we’ll be fine.” Ah…Not!
The key strategic and tactical implications for every business in the future are clear. They need to be implementing scale through aggregation, even collaboration, and most definitely automation.
How to scale efficiently through automation (letting the member/customer drive their own delivery process) seems to be a key theme of where the market is going. If you pick your head up from your smartphone for a minute, almost anywhere you are and at any time of the day, you’ll see it happening all around you every day. We were in San Francisco and, as I waited for my ride (Uber) to the airport, I didn’t see one person flagging down a taxi. But I did see at least a half dozen people get into cars on the street with Uber and Lyft signage in their back windows. So tell the taxi companies that they have nothing to worry about from the new-fangled competitors. Then tell the credit unions that invested (loaned) heavily in taxi medallions, that they’ll be OK one day. The market will turn around. Not! That bubble has burst, forever! The market is not changing – it is changed!
Are we so close to the forest that we can’t see the trees? We are all involved in a growing, burgeoning industry, yet a huge segment of the industry fails or gives up each year (i.e. 200+ credit union charters, with billions in assets, and hundreds of thousands of members are lost each year). You can argue that the assets and members are not lost in a merger, but you can argue that the charters and distribution points are lost forever. Almost no one is starting new credit unions to replace any or those lost charters. And again, the same trend continues in banks. Meanwhile, finance companies and peer-to-peer lenders, with online channel growth, are beating traditional sources.
There’s a message here. Scale. Automation. Online Access.
If these are not on your strategic implementation list, they should be.You’ll need all three of these not just to survive, but to thrive in the future.
If you are a larger-sized institution, and are resource-rich enough to afford to do everything you need to do on your own, then by all means implement today. If you are not so resource-rich, you’ll likely need to find ways to build scale through aggregation. If you can find the right partners, collaboration is the longest lasting and most competitively sustainable option. Both banks and credit unions have multiple past and current examples of successful aggregation and collaborative ventures that have served them well.