Throughout the past 10 years, many vendors and CUSOs havewitnessed credit unions convert from SEG-based charters tocommunity-charters. This change involves adjustments for both thevendors and CUSOs. And for the credit unions themselves.

“There are significant pros and cons to the charter-changequestion that need to be heavily weighed by credit union executivesand boards,” said Lisa Renner, CEO of CU Holding Co. LLC in Lenexa,Kan. “Just because you change the charter, it does not mean theywill come.”

First, consumers must be educated about what a credit union is,Renner said. Second, they need to have a compelling reason to jointhe credit union over another financial institution. And third,they need to be made aware they are eligible to join.

“This is a lot of information that has to be communicated to thenew target audience, so it has to be broken up into small bites.And one bite isn't enough,” Renner said. “It takes many exposuresto a consistent message to cut through the clutter. Therefore, theprocess of attracting new members takes time and substantialinvestment. Additionally, the financial service market space issaturated, and consumers demand high levels of convenience,superior service and vast product offerings.”

Renner advises credit unions to evaluate their offers againstthe market before making the change and be prepared to makeadjustments that will provide competitive differentiation. She saidthis is where vendors can help.

“CUSOs can be a resource for broadening the offer withoutbuilding from scratch,” she said. “Changing to a community chartertypically broadens the market potential significantly for a creditunion-so much so that it can certainly be worth pursuing. If thecredit union is committed to a long-term growth strategy, and iswilling to make the investment, it can absolutely pay off.”

David McConney, executive vice president, client services forHarland Financial Solutions in Orlando, Fla., said that as many ofhis company's credit union clients expand their membershipfootprints, Harland Financial Services is experiencing increaseddemands to serve as the primary partner. CUs want delivery of thesolutions and services necessary to ensure they remain competitiveand have the ability to serve this growing member base.

“This broader and more diverse member base requires that thecredit union have additional options and delivery channels invarious areas, including business intelligence and marketing, inorder to assist the institution when communicating and promoting tovarious member segments effectively,” McConney said.

This includes self-service, particularly in the areas of Gen Xand Gen Y, he said, business services for small businesses andoutsourcing to help offset many of the day-to-day burdens creditunions are currently facing.

“To accommodate this trend, we have had to reprioritize in theseareas to ensure our time to market is met for the client base, aswell as rethink and expand our service offerings,” McConneysaid.

Larger member bases are also resulting in additional challengesfor credit unions and vendors, particularly in the areas ofregulations and compliance.

“With the onslaught of regulations, and a foreseeablecontinuation of this trend, we've shifted our focus in order tocommit our efforts and resources largely to helping our clientsmanage this risk and remain in compliance,” McConney said. “Creditunions also persist in looking for ways to gain more efficiencies,which has driven us to focus on delivering solutions and servicesthat assist in these strategic areas. And helping our clientsoffload some of the operational and security burdens has led us todevelop new outsourced services to support these tasks so thecredit unions can focus on what they do best-serving theirmembers.”

GrooveCar Inc., in Hauppauge, N.Y., has had many of its creditunions change to a community charter.

“We were then faced with the challenge to change with the timesor get washed away by them,” said David Jacobson, president ofGrooveCar. “We spent each day researching and fine-tuning how wewould continue to be the solution credit unions required in orderto service their members and grow their auto-lending business.”

The strategy they came up with was to provide each credit unionwith a personal identity while still using the power of the creditunion movement as the driving force.

“Like a football team, each player has critical personal goals,but the championship belongs to them as a team,” Jacobsonexplained. “The team provided the ability for the individual tosucceed. Many in the banking community believe community chartercredit unions will cannibalize themselves. However, our creditunions did not forget that gaining market share as a movement andto continue to build the credit union brand as a whole continues tobe critical to them individually.”

Jacobson agreed that the transformation of credit unions fromSEG-based charter to community charter comes with many newchallenges but said that GrooveCar's ability and the credit unions'willingness to maintain this cooperative environment in spite ofthese challenges has paid off.

“GrooveCar's credit union market share is at an all-time highand the dealer network is more cooperative than ever,” Jacobsonsaid. “The only thing that is certain is change and the challengesthat come along with it. The key is not to fear change but toembrace the opportunity that change provides. A prepared andproactive environment is necessary in order to meet them headon.”

William McGuire, CEO of McGuire Performance Solutions Inc. inScottsdale, Ariz., said the one area where there are no transitionchallenges is in the service culture.

“Fortunately, the high service culture characterizing successfulcredit unions seems to readily translate when entering thecommunity charter world,” he said.

But that doesn't mean there's adjustments needed in otherareas.

“The most obvious change from narrow SEG to community charterinvolves returning service delivery solutions-no more in-factory,narrow-hours-only branches, for example,” he said. “I suspect thecost of being service competitive in what is the community bankspace that community charters play in has surprised many creditunions.”

It's not just branches to build, staff and operate, heexplained, but also more full function websites, and Web-servicecapabilities-where costs can add up quickly.

McGuire said the most interesting thing he has observed aboutcommunity charter versus SEG credit unions is the behaviors of coredeposits.

“We long ago noticed that forecasts of future supply andretention behaviors based on statistical analyses of historiccredit union data showed that core deposit behaviors for communitycharter credit unions were much more comparable to core-depositbehaviors for similarly sized community banks and thrifts than tobehaviors for size-comparable, narrow SEG credit unions, which arevery specific to the type of member,” he said. “That tells me thatcommunity charter credit unions very quickly adapt to competitiveconditions in their deposit markets. Since market conditions areusually set by banks, some of the uniqueness of the credit unionexperience is lost, at least with respect to core deposits.”

One advantage of a community charter that McGuire thinks is notgiven enough emphasis is that it removes potential SEG-basedconstraint on growth.

“The whole community, not just the SEG can join,” he said. “Inthe current environment this is very important, as the minimumsurvival rate of credit unions is shooting up in light of newregulations, service and delivery expectations, and regulatorypreference for few credit unions. Bigger is indeed better herebecause mass generates the needed income to fund costs and createincreased equity. Without the community charter I don't see howmany credit unions can attain a large enough size to survive.”

That said, McGuire noted that growing larger can actually bringchallenges, such as the credit union message of small credit unionsgetting lost.

“I would also expect more regulatory scrutiny as asset sizerises, especially related to being able to quantify howbalance-sheet risks-such as interest rate, liquidity and creditexposure-are being measured,” he said.

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