SAN DIEGO — Credit unions have a narrow window of unprecedented opportunity to capture market share.
However, State Employees' Credit Union President/CEO Jim Blaine and Sandler, O'Neill & Partners Associate Director Peter Duffy told their Credit Union Times Best Practices Conference audience, leaders of financial cooperatives need to make major changes to the way they do business if they want to succeed.
The separate speakers were billed as having different mindsets, and they lived up to the billing. Duffy's prescription was a combination of regulatory reform and balance sheet strategy. He said credit union restrictions on fields of membership, capital and business lending impede a credit union's ability to compete with banks.
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"Hate banks and fear taxation won't build market share," Duffy said. Some of the previously fastest growing credit unions in the country lost steam primarily because of capital constraints, he added.
A lack of risk-based share insurance fund assessments and exposure through the NCUSIF also hold credit unions back.
"The movement has a first lien on your capital," he said.
Blaine waxed philosophical, repeating the same message he delivered at the New Jersey League meeting a few weeks prior.
The Raleigh, N.C.-based chief executive took his colleagues to task for noninterest income and risk-based pricing, saying such practices "exploit one section of the membership for the organization's benefit," and he added that financial performance measures like return on assets aren't important for credit unions.
Credit unions and their members used to make product, service and pricing decisions as one unit. However, Blaine said credit unions now serve as little more than a middle man between members and the financial services they seek.
In a world of commoditized financial services, the one sustainable advantage credit unions have over banks isn't service or price, he said, but trust.
He also championed mobile banking, saying the user pays for the hardware, upgrades and connection costs. All the credit union has to provide is the application.
Blaine's advice didn't include any specific financial strategy credit unions could use to replace the unrighteous revenue. Instead, his plan hinged on a long-term cultural rejection of banks among consumers and their willingness to change spending and saving habits.
Nonetheless, his relentless dedication to members over movement did stick with audience members and speakers long after he departed San Diego. Those who followed his presentation and recommended fee increases to offset lost income all qualified that they admire Blaine and his $18.4 billion institution. However, speakers agreed that SECU has an exponential size and market share advantage compared to nearly all others.
Blaine admitted the back-to-the-basis culture change won't yield quick financial gains but said the benefits are long-term. What's more, credit unions that don't jump on the thrift bandwagon might not survive until the economy improves.
"We'll own the market going forward, because the banking industry has ruined its reputation," he said. "Let's not look to a disgraced model going forward. Clearly, these tactics don't work."
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