5 Things Small Credit Unions Need
I’m a small-credit-union guy and I’m proud of it. I spend a good portion of my consulting and volunteer time working with and supporting a very diverse group of smaller credit unions: rural, urban, single-sponsor, community, low-income, etc. It’s the most rewarding work of my credit-union career.
Dennis Fisher’s comments in the Jan. 27, 2015, CU Times article, “CEO Worries Industry Ignoring Loss of Small Credit Unions.” fairly represent a common theme that I frequently hear from smaller credit unions. Small credit unions, the majority of total credit union shops, are frustrated. They feel overlooked and undervalued. They frequently feel like they are “trotted out” to the spotlight whenever the taxation issue rears its ugly head; then, when the fear has passed, they overhear comments from credit union folks that smaller credit unions should just go away.
I agree with Dennis that healthy small credit unions are very important to our movement and deserve greater attention. Fighting the tax threat is important, but I believe their most important role is that they are most frequently the credit union located within a community that is still very actively involved in serving the underserved market. More than a tax argument, the impact these smaller credit unions have on people of modest means in their local areas is the true benefit.
Here are five things smaller credit unions need or need to do:
1. Affordable access to resources, services, and expertise
As a group, the net margin is very thin at smaller credit unions. Yet, they have the same regulatory requirements as larger credit unions and they have to keep up, the best they can, with new technology. It's simple: expenses that seem small to a larger credit union are large to a smaller credit union.
Technology, compliance, human resources, marketing, planning, you name it. An easy example is the required compliance audits for BSA/OFAC/ACH and the Safe Act. Trying to find an affordable provider for these services can be tough. There is no shortage of quality consultants in our movement, but, unfortunately, many small credit unions can’t afford them.
2. Seek out and utilize the resources that are already out there
The NCUA Office of Small Credit Union Initiatives is a huge resource to many small credit unions. The annual capacity-building grants for low-income designated credit unions and the Economic Development Specialist consultants provide valuable and affordable resources. However, access to these resources is limited when considering the large number of smaller credit unions.
CUNA and many leagues are focusing more on smaller credit unions with league products like free policy compliance and small credit union councils, both good resources for smaller-member credit unions. The National Federation of Community Development Credit Unions provides access for members to community development tools, expertise, and secondary capital.
Many smaller credit unions aren’t as well connected as their larger counterparts. I have seen many success stories where a larger credit union or an executive from a larger credit union took a smaller credit union under its wing. Their mentorship strengthened the credit union and increased member impact. Two great examples that inspire me are BECU and SECU.
I encourage smaller credit unions to seek out mentors at large credit unions, but many are afraid the larger credit union will just want to merge them – this is rarely the case. I have so much respect for the larger credit unions that provide support to smaller credit unions. These leaders humbly serve and are the best example of credit-union collaboration.
4. Do a better job of sharing their stories
It may be surprising to some, but small credit unions can be innovative too. For example, my small credit union clients could teach a thing or two on how to access and leverage secondary capital. There are untapped stories of serving the underserved that need to get to our legislative advocates, nationally and locally. It's inspiring stuff, and it keeps us connected to our roots.
5. Profitably grow if they are to survive
In spite of how they feel or the challenges they face, the reality is that small credit unions must figure out how to profitably grow or they will eventually die. The credit union movement will continue to lose a large number of smaller credit unions that cannot figure this out.
The good news is there are many small credit union rock stars out there that are among the most innovative, profitable, and fastest-growing. Check out the phenomenal results at Pacific Northwest Ironworkers Federal Credit Union and Greater Abbeville Federal Credit Union. They are small credit unions today, but will not remain that way forever. Struggling small and mid-sized credit unions that want great guidance should check out Filene’s “Thriving Mid-Sized and Small Credit Union” study.
The bottom line
I believe the heart of the matter is relevance. We’re going to eventually run out of small credit unions. There are not enough new charters formed to make up for the successful small credit unions that become mid-sized credit unions, and the small credit unions that don’t make it.
Our primary focus should be on impact and I believe the greatest impact is made in serving the underserved, overlooked, and lower-income target market. This is what the smaller credit unions do so well, and why they become so important for our collective brand, taxation, and CRA arguments. The more credit unions of all sizes reach out and serve these groups in our local communities, the stronger our collective brand and greater our relevancy as not-for-profit financial cooperatives.
Scott Butterfield is principal at the Seattle-based consulting firm Your Credit Union Partner. He can be reached at 253-507-2443 or firstname.lastname@example.org.