By Gary L. Easterling, CCE
This past November in Carlsbad, Calif., Sandler O'Neill's Peter Duffy (alias Adam Smith) and Decision Strategies' Franck Schuurmans (alias Karl Marx) were engaged in a lively debate as CUES' CEO Network panelists. The aliases were cleverly supplied by Cornerstone Advisors' Steve Williams, a third panelist.
The exchange centered over the inevitability of the economies in the industry vs. the credit unionâs social mission. It was humorous, lively and thought-provoking. Since the session, I have been pondering the question, "Are credit unions in danger of losing their heart and soul?"
The gist of the exchange was what will we do with the information? What decisions will we make as a credit union, as an industry, as a movement? As we become aware of the "death spiral" Peter referenced how will it change our business model? How have we changed? Will these changes threaten the social mission of the credit union movement? If the credit union's mission changes, will the credit union industry survive?
Traditionally credit unions have focused on doing the credit union cooperative "thing," reaching out to their constituency, building the common bond and, through their cooperative structure and not-for-profit status, returning good value to their members. As competition increased, margins decreased, and operating expenses have grown to require non-interest income (re: fees) for survival, the credit union difference has become vague.
The economics have created introspection. Our analytics have caused us to segment our members into profitability classes, relationship groups or contributing vs. non-contributing members. As we strive to compete more with the highly profitable, we reduce our margins and increase our expenses. A few, very few, have taken the overt step of "firing" non-contributing members through fees.
My concern is that we are applying the same tactics as the community banks with very similar results. We are shrinking in numbers and our bottom line is eroding. To coin a popular phrase of the day, we are embattled in a "red ocean." Credit unions actually left a "blue ocean" environment with strong SEGs and sponsors to embrace the red ocean of open chartering.
If Peter's analysis is correct, and I do not doubt it, the credit union industry is in a death spiral. The minimum asset size for a viable credit union will continue to grow, resulting in continued industry consolidation. Our awareness of the financials evokes managerial decisions that take us away from traditional credit union values. As we chase elusive growth opportunities we find our expenses are growing faster than our growth. We increase our competitive pressures as we engage the competition on more fronts.
Every other article you read speaks of differentiation. Our motto is not for profit, not for charity, but for service, and every bank in America is chasing service as a differentiator. Credit unions are in danger of losing what makes them unique, and perhaps we have already lost our uniqueness. The trend lines do not lie. But if you follow them to their inevitable conclusion, credit unions go the way of the dinosaurs, as do community banks and thrifts.
The heart and soul of the credit union movement is the common bond with a cooperative shared value proposition. Credit unions are so engaged in acquiring the next new market, we have allowed our current market to be compromised. We have abandoned our common-bond blue ocean, attempting to create a market niche within the red ocean through "enhanced value," "superior service" and "convenience." There are entirely too many players in the red ocean with the same tools in their belt.
For credit union movement survival, "enhanced value," "superior service" and "convenience" are the cost of entry. Survival requires we rediscover the essence of our common bond: our heart and soul. This is not about how we define our field of membership. This is about how our field of membership defines us.
What can we do to help our membership embrace the value of membership and to return to the day when membership equated to loyalty? It is not another new idea. Our industry is replete with new ideas. In 20 years I have ridden the crest of the wave of many new ideas. But too many new ideas float in the ocean without ever landing ashore.
If we want our members to embrace the credit union, the credit union needs to embrace the members. We need to take "know your member" from a regulatory compliance issue to an understanding of how our members define value. Of course all members do not define value the same way, yet from a traditional viewpoint of credit union fairness we create a one-size fits all approach.
At Century Federal Credit Union we are going to continue to provide solid credit union value to the membership at large; but we are focusing on niche specialties. We have narrowed our select employer group efforts to our top 12. (We stratified them based upon our SEG characteristics and ranked them based upon current value, potential and our opportunity to serve them).
Our Top 12 mission is to learn how to become part of their community. We will engage them in their culture, in their workspace and their causes. We are going to be interested in their lives and their needs. We are going to foster a common bond with them that focuses on their welfare--not just their financial well being, but their entire well-being.
Will this look the same at each select employer group? No, it will not. Our products, services and prices will be the same, but the bundling of the products will be different based upon the different needs of the individual groups. More importantly, our community presence within their space will be different. We may co-chair a fund-raiser for one SEG and we may sponsor a continuing education program for another SEG. We have called this re-engagement of our membership, our Without Walls Tactic. It is stepping outside of our branch walls and inserting ourselves into the community.
It is my goal, SEG by SEG, to return our credit union to the blue ocean environment of being the credit union that is a part of the SEG instead of being another financial institution in a confusing red ocean of competition. Whether SEG-based or community-based, credit unions must be prepared to become part of the membership community. I believe the blue ocean for the credit union movement is the common bond you can develop with your membership.
- Think of common bond as a relationship not a field of membership designator.
- Develop, deepen, strengthen the relationship in the minds of the member, not the credit union.
- Care about the whole member, not just the next product/service you can sell.
- Become part of their lives, not just a portion of their balance sheet.
Our future success depends upon our membership finding meaning in the credit union beyond financial products and services. Without this differentiator, the law of large numbers and the death spiral is the future.
Gary L. Easterling, CCE
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