It's only fitting for CU Times' “Disruptive Innovation”issue that we underscore the importance of what we call “marketinvention.” That is, in order for credit unions to truly moveahead, they must move apart from their competition by defining new strategies and business models. Market inventionis not a radical new concept in the credit union industry, butrather it's how the credit union movement began.

In the mid-19th century, Herman Schulze-Delitzsch and FriedrichRaiffeisen saw a problem with the banking industry in Germany. Theywanted a more democratic structure that was member owned – not justprofit based. With this new model in mind, they invented acompletely new market for banking, which would eventually becomethe modern-day credit union. The credit union cooperative approachto banking was one of the biggest market inventions in its day.More than 150 years later, it is crucial for credit unions tocontinue to invent new markets to support their members, stayrelevant in the 21st century, and compete with community andnational banks.

In 2018, market invention continues for credit unions with thefollowing five related trends:

1. Cannabis

Twenty-nine states and counting have legalized marijuana formedical and/or recreational use and according to Forbes,the U.S. cannabis industry will surpass $24 billion dollars by2020. With that much cash and no place to store it because offederal laws, a colossal opportunity arises for credit unions. Manycredit unions are cautious because of the regulations and guidancefrom the NCUA and NAFCU. Member perception can also cause concern.However, a recent Oregon-based study by LT Public Relations (nowMerit) revealed that 87% of respondents would have a neutral orpositive perception of credit unions that work with the cannabis industry. Some creditunions in Washington, Colorado, Oregon and Maryland have weighedthe risk against the opportunity to serve members in the cannabisindustry and have already made the commitment to support thisnascent market. Currently, the leading credit unions are BulldogFederal Credit Union, Partner Colorado Credit Union, Salal CreditUnion, Maps Credit Union and Fourth Corner Credit Union.

2. Member-to-Member Lending

Person-to-person payments are growing and promptly becoming aservice consumers look for as a base-level perk of their bank orcredit union of choice. Member-to-member lending is the next stepin the evolution of our crowdfunded financial landscape. The member-to-member lendingopportunity for credit unions follows what leading peer-to-peerlending websites such as Lending Club are doing. Because creditunions are member-based, one could argue that credit unions werefounded on member-to-member lending and are naturally suited tosupport this movement. Digital technology has made it even easierfor members to lend to other members. The encouraging news is thatthere are no current market inventors in member-to-member lendingand whoever is able to capitalize first will be a true marketinventor.

3. The Evolution of Branchless Banking

Apple Pay, Samsung Pay, Visa Checkout and millennials are alldriving credit unions to reconsider branches. Will branches bevalued or relevant in this burgeoning digital generation? Althoughnot new, branchless banking offers two primary advantages forcredit unions in the coming years. First, it continues to reduceoperating costs associated with managing a brick-and-mortarlocation. Second, it allows credit unions to reinvest budget andfocus their attention on how the millennial generation wants towork with their financial institutions digitally. Arguably thebiggest risk for credit unions going all-in with branchless bankingis losing the personal connection with its members. Red RocksCredit Union in Littleton, Colo., is a relevant example of aninventor of the branchless banking market that is also stayingastute to its members' changing needs. 4.Philanthropic Unions

Connecting a group of people through a unified cause,organization and/or philosophy is something that can make creditunions very competitive and market innovators. Merit research showsthat 80% of millennials believe a brand's philanthropic efforts areimportant when making a purchase decision. Today there is a realopportunity for credit unions to bring together a group of membersaround a shared cause. As evidenced by CU Times in 2016, aconcerted effort continues in the state of Washington to form anequality credit union to support LGBTQ rights. Another example isthe Portland, Ore.-based PointWest Credit Union that proudly servesthe underserved, the undocumented and immigrants in its communityand emphatically claims, “Financial equity is not for a select few.We welcome all people, especially those who have been turned downelsewhere.”

5. Retail Integration

Credit unions are noticeably balancing mobile and online bankinggrowth with the decline in the number of members visitingbrick-and-mortar locations. One possible solution may be providingmore than a banking service at physical locations. Enter retailintegration, which combines a credit union and any of itsretail-based members under one roof to create a member experiencethat extends beyond banking. Similar to the college student union,a hip lounge like Virgin Money allows a member to bank, drink abeer, buy food, or host a business or community meeting in one ofthe free conference rooms. The building wouldn't be a credit union;it would be a member community hangout where banking occurs. AsHoward Schultz from Starbucks would say, it's the “third place”(with the first place being home and the second place beingwork).

Historically, and at their core, credit unions are marketinventors. With new business leaders like Airbnb, Uber or Venmopopping up every day, credit unions must take notice and evolvetheir way of doing business. The not-for-profit mantra, freechecking and lower rates are no longer enough for credit unions todistinguish themselves. New markets and categories must be exploredand invented. It will be fascinating to watch which credit unionsreshape the retail and credit union banking landscape. Those whoinvent new markets will surely survive and thrive.

Adam Vasquez is President/CEO of Merit. Hecan be contacted at 717-652-0100 or [email protected].