The bankers talk out of both sides of their mouths. As they endeavor to keep credit unions from expanding their business lending powers and reforming their 1930s capital structure, they also want to embody credit unions. Copying is the sincerest form of flattery.
A recent editor’s column in American Banker stated that reputation was the No. 1 problem for banks currently. Following the financial crisis, that is a difficult declaration to dispute.
She pointed to several industries that have recently had to think differently and work extremely hard to right their bad raps, such as the plastics industry throwing its weight behind recycling and pharmaceuticals giving medicines away to people who can’t afford them. However the Banker column said too many bankers are in denial or playing defense.
The piece advocates for a massive, industry-wide cooperative campaign to try to clean up the mess they’ve made like the other industries mentioned accomplished.
I find this unlikely. The big guys that would have to get behind it financially have proven they’re too big to fail and they don’t care much. Just look at the latest JP Morgan $2 billion trading loss that the regulator said was due to weak risk oversight.
Also HuffingtonPost.com recently reported that SunTrust Bank confirmed it would hike some of its fees and minimum balances, which doesn’t sound very credit union-like. But according to a related Banker article based on a KPMG survey of bankers, some banks are rethinking their business models. The biggest threats they reported were national banks and emerging, nontraditional competitors, leading them to strengthen IT investment.
Certain customer segments are particularly important to these bankers, KPMG found, including the mass affluent (37%), young rising professionals (23%), and the underserved market (20%). It’s not surprising that they’re going after much of the same segments that credit unions are targeting. The bankers see these groups as having the greatest growth potential.
Credit unions by their very nature have a leg up on the banks. The survey said that to be successful with these focal points, the banks would need to hone their relationship building skills. Credit unions already are closer to their member-owners and should be able to take advantage of this relationship. The bankers are studying ways to bolster their cross selling and credit unions must, too. Selling keeps the lights on so you can serve your members.
Due to their slimmer wallets, credit unions have also had to be more innovative, which could help them in the race to various IT developments to better serve their members.
The $674 million Bay Federal Credit Union in Capitola, Calif., for example recently agreed to sell its in-house document management solution to Thuridion of Scotts Valley, Calif. The project saved the credit union “seven figures” in software and maintenance costs over 10 years. It also provided a tool to help credit union employees better serve their members.
According to the KPMG study, 38% of bankers were concentrating capital investments in mobile banking and payments but 24% were investing in branches. While some have argued the branch is dead, others see its role as merely evolving. Technology isn’t necessarily killing the branch but modernizing it. Just last week, NAFCU asked the NCUA to update its FOM regulation to consider video teller machines as a viable service delivery option; a few years back the agency removed ATMs from the permissible options.
Several credit unions now use the personal teller machines, including the $2.4 billion Tower FCU, $756 million Mid-Hudson Valley FCU in Kingston, N.Y., and the $2.1 billion Coastal FCU in Raleigh, N.C. Like never before the agency will have to keep a close eye on its regulations to ensure they keep pace with technological developments.
Credit unions are also innovating in whom they’re trying to serve. Last week the NCUA approved a field of membership for the proposed new Green Energy Federal Credit Union. The credit union plans to serve businesses and organizations involved in residential and commercial energy renewal and efficiency improvements, said AFC First Financial, which provides energy lending and rebate programs and manages a network of more than 3,000 approved contractors who work in selling, installing and servicing high-efficiency HVAC, weatherization and other improvements.
In addition the sponsor is looking to add a low-income community of 100,000 people around its hometown of Allentown, Pa. Going green and serving the underserved are two of the characteristics that define credit unions as financial service providers that care about local communities without the threat of CRA.
In the aftermath of the financial crisis, another defining characteristic is credit unions’ conservative nature that allowed them live to fight another day for their members. This philosophy though has not been lost on U.S. Bancorp’s Richard Davis as a key business strategy since he took the helm just prior to the crisis. He calls it running a classic bank, boring even, in a recent BusinessWeek article.
Classic banking is the business philosophy credit unions have always followed, and if the above mentioned innovations that remain true to that philosophy can be called boring, so be it.