Regarding “Reports of the Death of Small Credit Unions Are Greatly Exaggerated,” cutimes.com, July 21. I agree with Mike Schenk that the death of small credit unions is exaggerated. Whenever you are talking about such a large group (there are over 6,000 credit unions with under $100 million in assets), you cannot generalize across the whole group.
Many small credit unions are doing quite well, but the signs are that overall, many credit unions under $100 million are not doing well.
Schenk attributed the problems due to compliance burdens, corporate stabilization costs, back-office redundancies and succession planning. This description of the problem reminds me of a blind man describing an elephant after taking hold of the elephant's tail. As far as it goes it's accurate but leads to a misleading description of the elephant.
Member growth is one of the best indicators of health in a credit union. Credit unions under $100 million in the aggregate have lost members over the last three years. Negative member growth is a sign that a CU is not meeting the needs of its members or potential members.
I would attribute the problems to one major environmental change and a long list of operational problems. Many credit unions have lost their sponsor support, and about 38% of all credit unions are now community credit unions. Even those credit unions that are not community and are SEG based have little or no sponsor support. I argue that it is difficult to be a small credit union without sponsor support.
We believe there are three ways to compete: service, price or convenience. We, like most credit unions, compete on service. The mantra has always been that small credit unions offer great service because they are small and can be close to the member. I agree, but when we merge small credit unions, we find that they know the members who come into the branch. Unfortunately, most members don't come into the branch. Much of today's service is driven by the quality of data processing that supports service. Small credit unions rarely have the staff or the resources to have good data processing, a broad menu of services and rarely have the expert staff to support the services they offer.
If I had a small credit union, I would focus on:
Developing the means to compete with or without sponsor support. If there are other small community credit unions in the area, merge with them or develop a CUSO and share most of the back-office services with them.
Hiring the best CPA firm you can get. Most small credit unions have less internal control and therefore they need a good audit.
Hiring a lawyer to review all vendor contracts. Aggregate your buying if you can with others to get a better price.
Paying frontline staff more so the starting salary is competitive.
Competing on service with a focus on exceptional member experiences, best solutions and professional experts to help the members improve their financial well being.
Evaluating the CEO on positive ROA, positive member growth, checking penetration above 60% of members, member satisfaction ratings and a good CPA audit and prompt resolution of all management letter issues.
It is always wrong to generalize. Small doesn't say anything about a credit union. Being small may be a disadvantage in the current environment without sponsor support. Those credit unions with good management and a good field of membership can succeed at any size. All it takes is a lot of work and great leadership.
SAFE Credit Union
North Highlands, Calif.