Filene Study Suggests CUs Shift Focus to Differentiate and Serve More Members
Stuart Hart, a professor of sustainable enterprise at Cornell University, and a colleague, Monica Touesnard, conducted the study.
"Rather than competing directly with banks, Hart and Touesnard conclude it may make more sense for credit unions to go 'back to the future' by using their unique historical and organizational characteristics (e.g., tax-exempt status, cooperative ownership, community lending and focus on the underserved) to offer a set of products and services that differentiate them from banks and other financial services providers," wrote George Hofheimer, chief research officer for Filene in an introduction to the report. In the beginning, credit unions as financial cooperatives served the financial needs of people who were largely overlooked and ignored by a traditional banking industry intent on serving the needs of business or wealthier classes of people, the authors argued. But over time, the banking industry has changed to offer financial services in a more universal way and, ironically, credit unions have not become more like banks but banks have become more like credit unions, they added.
This has led to a financial services market which has become significantly more crowded and where credit unions suffer disadvantages because of their smaller size and resources as they seek to serve some of the same customers with the same or very similar set of products and services.
In order to thrive and not merely survive, Hart and Touesnard argued that credit unions need to become trailblazers again in the changing social and financial services environment, shifting their traditional mix of products and services toward ones which are more sustainable and which seek to meet a differing set of financial needs.
As examples, the authors contended that twin pressures squeeze credit unions in the U.S. On the one side, the banking industry seeks to limit CU access to so-called mainstream consumers and financial service markets. On the other side, credit unions have already begun to see micro-finance organizations appear to serve the practical financial needs of many of the people on the lower end of the financial spectrum.
"As micro-finance has gained momentum in poor countries, there is now growing interest in offering similar services in the developed world," the authors wrote. "Indeed, the working poor in developed countries experience similar challenges to those in the developing world when trying to access financial services at affordable rates. Internationally recognized MFIs [micro-finance institutions] such as the Grameen Foundation and ACCION Network are now expanding their services to the United States."
"Ironically, then, as the direct descendants of European cooperative societies, most credit unions today have lost touch with their ancestry. With a few notable exceptions, credit unions no longer serve self help groups through small-scale loans and financial services. Indeed, it is now unusual for credit unions to even be part of the dialog in current micro-finance circles," the authors added.
The authors looked beyond what many understand as merely the green issues of how credit unions could do things differently and combined both environmental sustainability and social sustainability. It is not enough to make grants or to launch products and services that tend to be nothing more than loss leaders. Instead CUs must adopt broader strategies that underpin those sorts of products and services.
Hart and Touesnard recommended a four-fold credit union approach to sustainability.
First, credit unions can create sustainable value by reducing the level of waste and pollution associated with their operations, they wrote. Second, they can operate at greater levels of transparency and responsiveness, taking the entire product life cycle into account. Third, they can create sustainable value though the facilitation of new, inherently clean technologies that hold the potential to dramatically reduce humanity's environmental footprint. Finally, credit unions can serve the needs of those at the base of the income pyramid in a way that facilitates inclusive wealth creation and distribution. They also examine specific cases illustrating each of these four strategies for sustainability.
The report cited examples from 35 different financial institutions, not all of them U.S. credit unions, that other financial institutions had cited as leaders in the different aspects of sustainability.
For example, the authors discussed Vancity, Canada's largest credit union, and its effort to advance lower carbon dioxide emissions. They praised the credit union's alternative travel program, through which Vancity helps its employees do every thing from taking public transportation to riding bikes to work to buying more fuel efficient cars if they use their cars on credit union business.
Australia's MECU drew praise for its energy and solid waste reduction programs, while Navy Federal Credit Union, the nation's largest credit union, was cited for its new green call center.
Other CU programs which drew attention included philanthropic programs rooted in Visa card use, making CU facilities available to community groups, socially responsible investing and making loans for fuel efficient or hybrid cars.
"Our research indicates that the emerging challenges associated with sustainability do indeed offer substantial opportunities for credit unions to leverage their unique heritage in the financial services sector by going 'back to the future,'" the authors concluded.
"Given their tax- exempt status, credit unions are in a prime position to offer innovative new products and services that would be difficult for banks to justify in the near term. Credit unions can also benefit greatly from the experiences of micro-finance institutions from the developing world in adapting strategies to serve the working poor and the unbanked in the developed world setting," the report concluded.