Are credit unions facing a do-or-die moment – or to put it in the language of business strategists, is this a strategic crossroad? That is the provocative idea tossed out by CUNA Mutual Group executive John Lass in an eye-opening talk Wednesday at the New Jersey Credit Union League’s “Reality Check” conference in Atlantic City.
Lass’ thesis: credit unions are facing big challenges to the industry’s vitality and prosperity. He stressed: “I love the credit union system. I hate the politics and the ego but I love the system.” And that system, said Lass, is under real threat.
A starting point is channel change: “Member channel preference is changing. Within five years mobile users will outnumber online. We are in a new era of how we consume financial services.”
There are ever more non-bank competitors, from Apple to PayPal to Isis, the consortium of mobile carriers and big banks that is looking for new ways to facilitate mobile payments and, right now, said Lass, credit unions are not at that table and that is not good news.
Lass also hypothesized that there are likely to be government caps on the NSF/courtesy pay fees that presently constitute 28% of large credit union fee income, by CUNA Mutual’s count. He added: “If you are doing non-sequential processing of debit processing, they [the federal government] are coming after you.”
Factor in the probability that the traditional spread income that has kept credit unions buoyant will continue to be “compressed”, Lass said, in an atmosphere of reduced loan demand and what gets clear is that credit unions need to rethink business models in an era of mobility coupled with pressures on traditional income sources.
“Income comes from fees or spreads, that is pretty much it,” said Lass.
What to do? Lass urged credit unions to be “brutally” frank in assessing where they are and what their strengths are and then to act. “You need to decide what you will invest in to excel at.”
At the same time, said, Lass, credit unions need to decide what they won’t invest in – what they “will be bad at.”
Such decisions, he acknowledged, won’t be easy.
But Lass also made clear that, in his view, the present strategic crossroads makes it imperative to make those hard decisions.
