Networking is an excellent way for credit union executives to find out what's going on around them in the community and get tips on how to do things better or trends coming down the pike. Networking also lets your competition in on your strategies and could provide greater competitive pressures when another credit union decides that your foray into some new product or service or geographic area is a good idea for them as well.
Herein lies the problem for credit unions created 100 years ago in the United States to work cooperatively yet operating in the financial services marketplace of the 21st Century. I attended two events this week: one economic forum with a session on enterprise risk management and one celebration of credit unions' 100 years. So, what of the risks of cooperating and competing, and which credit unions will still be around to celebrate their bicentennial?
Credit unions were formed as cooperatives with members pooling their assets to provide financial services for the greater good. Credit unions themselves have worked in this same fashion, generally speaking, for the good of the movement. But, in the current era of rabid competition in the financial services market and narrow net interest margins, credit unions should ask themselves whether cooperating is what is best for the survival of the movement as a whole.
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Of course there are the old adages: "two heads are better than one" and "strength in numbers" that credit unions have going for them. But I've heard increasing reports of credit unions being less cooperative than in years gone by. One hundred years ago, credit unions only had each other to help them grow, then by the 1970s there were so many credit unions they began vanishing in large numbers to about one-third today of what there was then. Credit unions are merging either because they can't continue to serve their members with all the services they demand, or they want to continue to serve them better by expanding their services, economies of scale or geographic/field of membership footprint.
The decline in the number of credit unions will likely be around 300 this year, lower than in recent years. The merger craze is slowing, in part, because there aren't as many left. Also, the credit unions that are left are the larger, healthier ones that have the diversity and net worth to weather the tough economic times, like now. It seems we also have seen a rise lately in mergers of equals, with credit unions merging into billion-dollar entities. Taken to the extreme, that is all that will be left of the credit union community.
There is also no question that consumers are demanding more and more of the financial services providers, whether it's longer-term car loans or mobile banking. Credit unions need to investigate how and if they should provide these services in the future for their memberships.
Part of mitigating risk is diversification in products, investments, field of membership or other areas. This too is a factor in the merger trend.
But the smaller credit unions also see these increased pressures to boost return on assets and net income margin, which can make them skittish of networking when they are the one who can quite possibly benefit most from the sharing of ideas and resources. It just makes better business sense for a larger credit union to make a merger offer to a struggling credit union rather than offer them assistance with no tangible return.
Fortunately–or hopefully, credit unions possess common sense in addition to business sense. Not that size determines the value of a credit union but the very diversity of credit union sizes provides enterprise risk management to the credit union community as a whole. Large credit unions must balance the help they offer with sound business judgment for survival. Smaller credit unions, the thresholds for which are rising rapidly, need to decide whether they have a strong enough hold on the individual niches they are serving or should they expand or even merge for the god of the membership. I would imagine the toughest spot is the mid-size credit unions that aren't quite the big boys to achieve economies of scale but may be too large to necessarily serve a tight-knit target market.
It was disturbing to hear recently from one of our readers that a particular credit union CEO considered credit union conferences a waste of time. Not only is that not the case, it's a danger to the movement. Credit unions of all sizes have things to learn from credit unions of all other sizes, but don't give away the shop. Balance duty to the cooperative movement with the viability of your own institution. While credit unions often work together for the good of the entire community, they are bound to do what's in the best interest of their own members.
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