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<p>The credit union industry is getting considerably larger, but the number of players spearheading that growth, with one exception, is getting smaller. Industry assets have gone over $500 billion. Membership will soon be flirting with a 100 million milestone. The number of high-tech delivery systems, products, services, ATMs, and branches has quadrupled in recent years. But not all categories are showing increases. The number of credit unions, leagues, and corporates has all shown a decrease during this same time frame. In the case of CUs, a considerable decrease. It’s no secret that the number of credit unions today, approximately 10,000, is less than half of what it was at its peak, over 24,000. One reason for these decreases is an increase in the number of mergers. Interestingly, about the only category showing an increase is national CU organizations. There are far more now than ever serving a dwindling number of CUs. Don’t look for any of them to merge anytime soon. The number of commercial banks has also dropped drastically as a result of mergers even though these same bankers adamantly oppose credit union mergers, especially between larger CUs. In many states, once separate banking trade groups serving thrifts, community banks, and commercial banks, have joined forces to form a single not-for-profit state-wide entity. Also, if current legislative initiatives are successful, there will also be fewer deposit insurance and regulatory agencies overseeing the banking industry. Credit union vendors are also consolidating. Some see credit union mergers as inevitable and a good thing for credit union members. The words, “economies of scale” are often used to explain why. To be competitive in today’s increasingly sophisticated financial services industry, and to meet increasing demands by members, requires enormous resources, both money and talent. The list of things that many credit unions can’t do because of their size is growing rapidly. By merging, those doing them claim members can be better served. There are also those who see mergers of credit unions as a bad thing, especially for small credit unions which frequently are gobbled up by larger CUs. They see this as unfortunate for the small credit union itself, its elected officials, its veteran staff, and most of all its membership. An executive of a medium-size Midwestern credit union recently put it this way: “With fewer credit unions, we limit our ability to provide the consumer a choice and we decrease our presence in the marketplace and reduce our exposure and marketing potential.” This is not an uncommon attitude by those decrying the reduction in CUs even though it makes little sense. The once 24,000 credit unions probably had less consumer exposure in the marketplace than the top 100 credit unions have today. Back then, credit unions were often hidden away in the back of a factory, military installation, or office building. They never heard of the word marketing. The number of members they represented was but a fraction of today’s estimated 85-plus million. By comparison, consider the top 100′s impressive and highly visible headquarters on main streets across the country. Their thousands of full-service branches. Their huge and growing network of surcharge-free ATMs. Online Internet access that spans the globe with member offerings. To say nothing of their aggressive advertising and marketing campaigns in mainstream media. Like it or not, within the next several years, the number of credit unions will probably number about 8,000. These credit unions will, however, not only have far more assets, but serve millions more members. Mergers will be one reason for this development. Many future mergers will be between healthy, large credit unions. Only recently, a number of mega mergers almost happened. The credit unions having such discussions are large, well capitalized, successful, well-known, and highly rated by their members. Eventually, they will find a way to marry for the benefit of members of both CUs. Count on it! Especially as the number of CU CEOs reaches retirement age and overlapping memberships continue to evolve. As for leagues, for political purposes they may choose to call their couplings with nearby states a management agreement, but they are still mergers. Which states will be involved next in mergers isn’t all that difficult to figure out. Unlike corporate mergers, geographical proximity plays a key role in deciding which leagues could benefit their member credit unions by combining resources. The number of corporates has dropped from 43 to 33. That number will continue to go down. Most remaining corporates have a nationwide field of membership. However, many of these basically only serve credit unions in their state or nearby backyard. Regardless, credit unions across the country have so many corporate choices that only those corporates that find ways to stay ahead of the pack will survive. Watch for the smaller corporates to disappear first. But corporate mergers won’t end when these more limited service corporates disappear. The larger corporates are already wooing each other. Their leadership is well aware that more and more credit unions have concluded that despite recent mergers, there are still more corporates than needed. Some observers expect the number of corporates within the next 10 years to number less than 20. It may be even fewer as corporates compete head on with each other with an increasingly sophisticated number of innovative and high-tech products and services. The common thread in all merger discussions is that the final decision to merge or not lies with members. It is presumed they cast their vote based on what is best for their credit union, league, or corporate. After all, it is members who own all three. Finally, another look at my simple definition of a credit union. It doesn’t change when credit unions merge. A credit union is a not-for-profit financial cooperative organized to serve the changing financial needs of all the members who own it. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]</p>

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Peter Westerman

Credit Union Times

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