Come 2030, credit unions will be in business serving up some kind of financial services, essentially one generation removed from today. However, getting there will be as wrenching—as full of dislocations and pains—as was the shift from 1950s-style credit unions with no share drafts into today’s full-service financial supermarkets.
But experts are on hand with tips for mapping a path to tomorrow.
At the starting gate, Birmingham, Ala.-based credit union consultant and onetime NCUA chairman Dennis Dollar threw out a chilling prediction about the number of credit unions left standing a generation from now. "The merger trend in credit unions will definitely continue and significantly accelerate over the next five years,” he said, “probably settling into the range of 5,000 credit unions by 2020. That will be followed by a period of assimilation and, from that point forward, a much more strategic approach to mergers. By 2030, there will likely be about 4,000 credit unions. However, I am convinced that they will be stronger financially and much better positioned to impact their communities with wider fields of membership, enhanced capital options and a reputation as the most influential community-owned financial institutions.”
Compare those figures with roughly 7,300 credit unions as of yearend 2011, which means Dollar projects a 40% drop in the number of institutions.
Other industry observers were even less optimistic. Olympia, Wash-based credit union consultant Marvin Umholtz said, “There will be fewer than 1,200 credit unions in 2030, and the vast majority of them will be over $1 billion in assets and a substantial number will be over $10 billion. Any credit union under $100 million in assets will be referred to as ‘tiny.’”
Ben Rogers, research director at the Filene Research Institute in Madison, Wis., split the difference. “I believe there will be around 3,000 credit unions in 2030,” he said. He agreed that the surviving credit unions would be significantly larger, too. “Right now the average size is $187 million,” he explained. “It will be $500 million then.”
Things get particularly interesting as experts offer futuristic views of what it will take to prosper. Big areas of anticipated change include outsourcing, branching, an emerging world of 24/7 contact, and the tax exemption.
Stan Hollen, CEO of COOP Financial Services in Rancho Cucamonga, Calif., said he sees a time ahead where credit unions do more for their members by doing less themselves. He specifically envisions a world where “credit unions act more like the Ace Hardware model.” He explained that Ace, a cooperative, provides group buying, back-office process and marketing with the result that smaller hardware stores are able to compete with extremely well run big box competitors.
Hollen also foresees dramatically more outsourcing of functions such as collections, lending and human resources as functions that would be easy for many credit unions to outsource to lower cost providers. “The shift to outsourcing will be sizable,” predicted Hollen, who indicated it would be unavoidable in an era when cost controls are crucial.
As for branches, Hollen is adamant that branching will remain integral to credit unions, but it will become very different, very soon. “Branches will look more like Apple Stores,” he said. Tellers will no longer be isolated behind protective barriers; they probably will approach customers with Apple iPad type devices in their hands.
There also will be a lot more self-service. “It will be similar to going into an airline terminal today versus 10 years ago,” said Hollen.
In that vein, Amanda Lowery, an executive vice president with Third Degree, an Oklahoma City marketing firm, predicted, “By 2030, if people are coming into the branch for a face-to-face interchange, it will be for something complex or deemed very important by the member—developing financial plans, debt counseling, etc. There will be shift from quick transactions to sitting down and advising. Fewer credit union employees with more skills and credentials will be the norm. The branch square footage will likely decrease.”
A paradox is that even as branches shrink, there actually could be more contact between credit unions and their members. At least that is the view of Michael Poulos, CEO of Michigan First Credit Union, a $600 million institution in Lathrup Village, Mich. “Our goal is around the clock connectivity. We need to be there for our members 24/7.”
Poulos said this is not just talk. Within a year, he elaborated, Michigan First will staff up call centers that will provide the ability for members to interact 24/7. In many cases, members will choose to seek answers online, and for them there will be online tools. Still others may use video calling. “We want to be there for our members how they want us to be,” said Poulos.
“Our goal,” he added, “is the reverse of the Golden Rule. We want to treat people as they want to be treated.” He suggested this is a path that may help many credit unions prosper in the coming decades.
One dark cloud, pointed to by numerous industry observers, is that probabilities are said to be increasing that credit unions will lose their tax-exempt status. “By 2030 many of the surviving credit unions will be very large institutions. They will look much like other large financial institutions, and they will be taxed as others are,” predicted Bill Conerly, a financial services consultant based in Portland, Ore.
Consultant Umholtz echoed that prediction. The trade off in his view is that credit unions “will have access to capital from sources other than retained earnings, including the option for hybrid ownership structures that authorize partial stock issuance with voting rights for investors. The currently heavy reliance in the loan portfolio on real estate loans will have been largely replaced by business-related lending.”
These changes will not come easily, and they won’t be painless. But, for the credit unions that transform themselves to suit changing times, there will be bright tomorrows, the experts stated. Hollen noted, “I have not worn a watch in four years. I see almost no young people wearing watches. Who will wear watches in 2030? We don’t want to wind up like watchmakers. To avoid that we have no choice: We need to be flexible, we need to adapt, and we need to deliver what people want.”