Twenty-five years ago, credit unions were in many ways still inthe dark ages, taking their first wobbly steps up from their cigarbox-and-file drawer roots toward becoming full-service financialinstitutions.

That was just four years after Ed Callahan left the NCUA board,having led a fundamental transformation of our industry. At aboutthe same time, I entered the banking business, drafting commentletters to the FDIC and Office of the Comptroller of the Currencyon behalf of my employer as the banking industry itself wascontinuing to re-shape in the wake of deregulation and theresulting thrift crisis. Things haven't slowed down any. Quite thecontrary, as the rate of change and challenge in financial servicesonly continues to increase.

As part of that, there has been a shakeout in our movement, withthousands of credit unions vanishing. Either they couldn't orwouldn't move away from those days of primitive delivery, theysuccumbed to the financial misalignment between small size and thescope and cost of post-crisis regulatory burden, or they wereoverwhelmed by the revolution of technology and competition. But inthe years to come, that same revolution can play directly into thestrengths of today's credit unions … if we choose to let it.

Let's view ourselves as a movement. Our major drivers goingforward are 1) responding to competitive threats, 2) capitalizingon the opportunity for service expansion created by newtechnologies and the concomitant expansion of consumerexpectations, and 3) overcoming the difficulty that regulatedfinancial services have in fully leveraging thoseopportunities.

To my mind, credit unions, as a movement, are exceptionallywell-positioned to deal with this broad array of difficult,disruptive challenges. As cooperatives, credit unions cancommunicate and collaborate in ways that for-profit companiestypically cannot and would not.

Bear With Me

At a recent credit union conference on big data, I heard an oldstory … with a new twist. Some hikers are being stalked by a bear.“Run!” one says. “We can't outrun a bear!” someone replies. “Don'thave to,” the first hiker says. “I only have to outrunyou.” It's about knowing who your competition really is.For credit unions today, it's the bear … the power of data andtechnology to transform every little element of peoples' lives –and our business – in the coming years. 

For the most part, banks and other for-profits are running a lotfaster than credit unions. Megabanks are investing hundreds ofmillions of dollars a year, each, in emerging technologies tostreamline operations, delivery and every other part of theirbusiness model, and hundreds of millions more in the data analyticsthat are critical to employing those technologies effectively.

If credit unions are to survive as a dynamic movement capable ofchanging the lives of their member-owners, they, too, will have tofind a way to respond to the raft of new competitors usinginnovative technology, innovative processes, and even innovativebusiness models to disrupt the traditional financial servicesspace. Big banks aren't going to help us. We must solve thisproblem as a movement. If we don't, we risk being collateraldamage, trampled by the bear as it chases Chase, Wells and the restof its lunch.

This is going to require scale, not just because of theeconomics and risk-sharing, but because the ability to pool –knowledge, experience, data and insight – is the secret tomaximizing returns over time on this kind of investment. So theoperative question really is, “How can credit unions quicklyachieve the scale they need?”

Credit unions and CUSOs talk a good game about the other hikersbeing banks. Often though, at least some of them seem to behave asif other credit unions or CUSOs are the ones to beoutrun. Either way, the bear is thefuture. Collaboration is the only option and CUSOs shouldbe a good place to start, but I'm routinely struck by how parochialand myopic many CUSOs and credit union partnerships are. 

At Callahan, we listen to credit unions every day. Theyunderstand these are tough questions and that resources arelimited. Choices have to be made and the long-term interests ofmember-owners should be driving them. Regulators may define thespace credit unions operate in, but it is consumers, with theirconstantly evolving needs and expectations, who define the space inwhich we compete.

That puts a premium on thinking strategically, for the longhaul, leveraging the unique advantages credit unions enjoy over thenext five to 20 years. This, too, creates challenges that creditunions must overcome if they even hope to keep competingeffectively.

Credit union leaders who put all their energy into gainingmarginal, short-term advantage – whether in their own shop or whileworking with other credit unions – are not just missing the forestbecause of the trees. They're not even seeing the trees.

Chris Howard is vice president of research at Callahan &Associates. He can be reached at 202-223-3920or [email protected].