Navy Federal Plays on Tilted Playing Field
NCUA's granting Navy Federal Credit Union a field of membership expansion to all armed forces personnel, families and the Department of Defense is a logical move in view of the merging of military resources and objectives as one illustration suggests: the conversion of McGuire Air Force Base into a multi-armed forces mega-base.
While a number of credit unions with a military focus are waxing optimistic about what this means for them, the long range outlook may not be so bright. Navy FCU has the savvy, resources and expressed intent to grow rapidly. We all know that branch convenience is one of the primary drivers of member use and retention. This rationale is stated as the reason Navy will not be successful in existing unserved markets, but Navy FCU has announced its intent to add 150 branches over the next five years.
Where will these new branches be located? They will likely be located where the highest number of potential members live and work. In many markets in the Northeast and in other communities across the nation, military households can account for 15% to 35% of total households. If I were Navy FCU I would put branches where the greatest number of members can be developed and served. These locations are where many military-based credit unions feel they have control of their markets.
The difficulty for many military based credit unions is that they can only serve a specific military arm, which significantly restricts their growth potential to a portion of the military in the market. While it is less efficient for Navy to lay down one or two branches in remote markets, their significant advantage in terms of household eligibility will make these branches viable.
Is this good for the credit union movement? I think it will fuel even more mergers as military-focused credit unions in markets where community charters are not allowed either give in to the threat and merger with Navy FCU or quickly consider mergers with other military and nonmilitary credit unions for survival. Historically, this charter expansion of Navy FCU may be one of the big evolutionary triggers toward a Canadian-style credit union market.
It seems unfair that a mega-credit union like Navy FCU is given a multi-military FOM while small credit unions (everyone else) must compete on a highly tilted playing field. So, what can smaller credit unions do?
Hunker down and hope Navy FCU does not come to your market.
Lobby NCUA to level playing fields across the nation while improving existing military focused credit union's ability to compete against banks and alternative financial service suppliers by increasing their member potential.
Create associational SEGs to open eligibility to all military and community members as well.
Gain a community charter if possible.
Merge with other credit unions to increase the member base and eligibility and enjoy the economies of scale.
Expand into other lines of business.
Merge with Navy FCU.
Navy's move may provide the motivation for military-focused credit unions to look at how they will survive and thrive in the future. Now is the time to develop worst- and best-case business scenarios and invest in growth strategies that will really work and take immediate action.
Vice President Financial Services