By Henry Wirz
Dennis Dollar's comments (made at CUES’ Directors Conference and published on CUES' Web site) on the years ahead were very helpful. I would like to share my thoughts on the years ahead. I don't disagree with Dennis necessarily, but I see the world as a CEO in a very competitive market, Sacramento, Calif.
My thoughts about the future:
1. Credit unions should focus on how they will differentiate themselves from the other financial institutions. The trend has been for credit unions to move to community fields of membership and to offer a full line of service through most of the same delivery channels as banks. In addition credit unions are beginning to offer business services to small businesses. A "me too" strategy may not work. Credit unions need to offer members something different. I think some innovations that will differentiate credit unions are posting member direct deposits one day early, a form of negative float; guaranteeing members a closing date for their mortgage loan at the time of application; offering members a checking account with automatic reconciliation; helping members set up the bill-payer payee list; offering members analysis of their credit report and credit score.
2. Credit unions will find that the efficiencies of technology are just beginning. Innovations such as Check 21 will make it possible to eliminate courier runs to gather deposit checks from ATMs and branches, significantly reducing costs, reducing float and reducing check fraud losses. Credit unions will use automation to increase point of sale lending such as indirect auto lending, real estate lending for refinance and purchase and instant issuance of credit cards. Credit unions will use electronic signature capture to eliminate almost all duplicate forms and to allow members to make their Web site a virtual branch.
3. Credit unions will cooperate through jointly owned CUSOs such as CO-OP, FSCC, CUDL, XCU Capital, their corporate credit union and their league. Credit unions will have to cooperate to leverage their investments in infrastructure. Collectively credit unions have a great deal of capacity in branches and ATMs that if shared would give credit unions delivery channel parity with banks. More credit unions will realize that sharing and cooperation are a force multiplier. Sharing is something banks won't do and it gives credit unions a big advantage. And the public values cooperation among credit unions.
4. Consolidation will continue to reduce the number of credit unions through voluntary mergers. However many credit unions have high capital levels that allow management and the board to prolong the inevitable merger. In this way, some credit unions that are not providing their members good service or otherwise meeting their members’ needs are able to continue in business. In the banking world underperforming banks are quickly merged because their stock price declines, making them available for purchase or merger. The process for picking merger partners is flawed and is heavily weighted to meeting the interests of a narrow group--the board and management. I predict during the next year there will be more controversy regarding how credit unions choose their merger partner. I also predict that in some cases the credit union image of good service will suffer because too many underperforming credit unions continue to operate for too long hoping to put off a merger.
5. Member growth will become more of a problem for many credit unions. The large national banks have discovered the value of retail banking. WAMU, Wells Fargo and Bank of America have all made big improvements in serving the retail customer. These large banks continue to build new branches in convenient locations, they have good home banking and bill payer programs that are free, they have contracts that give them first choice of supermarket branch locations and they can support their growth with big marketing programs. Credit unions will revive member growth with cooperative advertising campaigns that build a brand identity and brand promise around the name "credit union". Credit unions will enhance their convenience with more shared branching, more ATM sharing, more home banking applications and free bill payer.
6. Credit unions will integrate the investment products that were once in a CUSO back into the credit union. Credit unions will learn that investment programs do not disintermediate deposits--they help attract deposits. The credit union will have licensed investment professionals on the platform and they will be part of the new accounts process. Members will be able to view their investments such as mutual funds, annuities, stocks and bonds through the credit union's home banking application. Members will be easily able to management their entire personal balance sheet through their credit union. This will increase the member's perception of the credit union as a professional and trusted advisor. Credit unions will cooperate through credit union-owned broker dealers such as XCU Capital.
7. Credit unions will change their legislative agenda and focus on becoming the member's consumer advocate. Credit unions will realize that bankruptcy reform, privacy, elder abuse, access to credit reports and credit scores, and prohibitions against telephone and e-mail spamming are all issues the consumer needs help with. Credit unions will more often find themselves on the side of consumer groups rather than aligned against them as happened with bankruptcy reform and privacy. Credit unions should look carefully when they find that banks take the same side as credit unions on a legislative issue.
8. Credit unions will adopt voluntarily the Sarbanes Oxley guidelines that are mandatory for banks. Credit unions have been the safe alternative to banks since the Great Depression. Banks have repeatedly found themselves in the headlines, usually as part of some scandal or financial misdealing. Credit unions have been a shining example of integrity and trust. I predict credit unions will continue that record by adopting the gold standard of internal controls specified in Sarbanes Oxley.
9. The community credit union will become the most common field of membership for credit unions. That change will put increasing pressure on credit union management. The community field of membership means that for the first time many credit unions will begin serving large numbers of underserved. Certainly the community field of membership is a better way to serve the underserved than the old method of chartering new credit unions in underserved areas. Community credit unions typically need more branches, more advertising and they have to become more politically involved. Community credit unions will see more demand for business services. Community credit unions have to sharpen their lending skills. Many credit unions that have single sponsors and then convert to a community field of membership will find their delinquency and charge-off ratios increase as they lend to higher risk members.
10. The change from a protected and sheltered single sponsor relationship to a community field of membership will put a premium on credit unions’ ability to measure and monitor key indicators of member service, financial performance, member relationships and branch/product/member profitability. We will see more credit unions invest in data warehouse technology, ALM software, cost accounting software, CRM, staffing models and MCIF models. That which gets measured will get done.
President
SAFE Credit Union
Direct Line 916.971.2201
Fax 916.348.8307
