This article could be called “Beyond Interchange Fees.” Thechanges that may come with a cap on interchange fees will bemastered by most credit unions. What this article zeroes in on arethe very real threats that may imperil the very existence of manycredit unions.

Some experts see the number of credit unions tumbling by as muchas 20% in the next decade. What will kill off those credit unionsare the threats from demographics, the government, obsoletebusiness models, failed mergers and from within the industry, saythe experts.

Multiple Business Models. There is no cheaperand easier way to operate a financial services institution than toserve one homogeneous demographic with one set of needs. That isexactly what many credit unions did for many years, particularlythose credit unions that served the employees of a particularcompany.

That was then, this is now. CUNA Mutual Chief Economist DaveColby elaborated that credit unions now must serve retired babyboomers, boomers who are still working, Gen X members who are atthe peak of their asset growth phase of life, and Gen Y members whocome into financial institutions with skepticism about them and awillingness to explore entirely new kinds of financial services(such as peer-to-peer payments offered by PayPal). The upshot is“to survive today, a credit union needs multiple business models,”said Colby, who added that doing this is both more expensive andmore taxing on the creativity of the leadership.

Traditionally credit unions have operated as what Colby called“spread businesses,” that is, their prosperity hinged on thedifference between the interest rates paid on loans and on savingsproducts sold to members. Easy enough, except, said Colby, “what doyou do when baby boomers no longer want to borrow?”

And those same boomers want maximum returns on theirsavings.

“Credit unions now need multiple business models that reflectthe changing realities,” said Colby, and for some coming up withfleshed-out, viable models that can stand up to 21st centurychanges is proving to be a challenge they just cannot meet.

For those credit unions, the countdown to extinction already hasstarted.

The Lost Generational Battle. Your members maynot be as happy as you think they are. And this is a very negative,long-term risk. Maybe credit unions have not lost this battle yetbut, right now, all the signs are bad, said Jack Bieda, CEO ofMYCUsurvey, a company that provides credit unions with membersatisfaction data. The trouble spot, said Bieda, is a gapinggenerational divide where younger members just do not value much ofwhat many credit unions pride themselves on. They do not want tovisit branches, they do not want to know tellers by first name,and, above all, they want to be able to access their financialaccounts when they want, using just about any high-tech device theywish.

And many credit unions do not get any of this.

Bieda added: “From our benchmark studies, attitudes are notnearly as positive about credit unions from younger people. Thisrepresents a huge challenge for the industry.”

“Young people do not interact with financial institutions theway their parents do,” said Bieda.

Big banks, suggests Bieda, are many steps ahead in recognizingthis. Credit unions are in a catch-up mode, but there is no doubtthe future lies with the young and if their business is lost, thefuture of the industry is necessarily gloomy.

Compliance Challenges. Ripple effects from theDodd-Frank Act, especially involving heightened disclosure andtransparency, are certain to have significant impacts on creditunions, especially smaller ones, said CUNA's Colby. “I see thishitting credit unions sized $250 million and smaller.” Colbystressed that the issue is not just the costs of compliance butalso the strains on leadership, who suddenly have yet another hatto wear.

New rules from the NCUA add to the compliance challenges, as doa variety of credit-related federal laws (each with its owndisclosure and transparency requirements). Compliance, suddenly,has become a major challenge for every credit union but especiallysmaller ones. “The strain definitely will be on the smaller creditunions,” said Heather Czermak, an executive with Wolters KluwerFinancial & Compliance Services. “They have to do as much asbigger credit unions but with fewer resources.”

Some credit unions will decide to close rather than comply. Ordecide to merge, which brings its  own risks.

Mergers. The urge to merge is strengtheningamong credit unions, as some corporate credit unions recognize thatthey will face enormous difficulties meeting newly stringent NCUAfinancial ratios and, with natural person credit unions, the smallones realize that scale is a huge plus in dealing with ever moretime-consuming regulations and trying to match the costlytechnology initiatives that increasingly define financial services.But mergers are not always a cure, they often can be fatal, saidMike Mossel, a managing director at consulting firm McGladrey.

Mossel elaborated: “Credit unions are not picking the rightpartners. They do not take the time to understand the philosophiesand cultures of the possible merger partners and often they clash.Then the merger will be unsuccessful.”

Competition. Call this the real problem facedby all credit unions: suddenly there is competition everywhere.There are big, exceptionally well-financed national banks(sometimes with branches seemingly on every corner). There is theemerging threat of nonbanks (everything from Walmart throughPayPal). And then there is the emerging issue of competitionbetween credit unions, as community charters set credit unions upfor toe-to-toe fights for customers, loans and checkingaccounts.

That last is a subject few credit union executives like tocontemplate, but it is reality. There is no better credit unionprospect than a person who already has demonstrated that he or shegets the credit union system, say the experts.

The question becomes how to maintain the cooperative spirit thatis at the essence of the credit union movement but still find thefocus to compete against all comers, inside and outside theindustry. Answers won't come easily, said the experts. But thecredit unions that survive and prosper will be the ones that masterthe art of 21st century competitiveness.

And then there is a sixth pervasive problem faced by many creditunions.

Exhaustion. “Everybody is so busy putting outbrushfires, they are exhausted when it comes to long rangestrategic thinking,” said Colby. Worries about interchange fees,pressures on sustaining free checking and issues with corporatecredit unions alone are plenty to keep credit union leadershipawake at night.

And yet there has to be more, said Colby, there has to be awillingness to explore the big challenges and opportunities thatwill define the future of credit unions.