OVERLAND PARK, Kan. — As credit unions continue to navigate the murky waters of industry consolidation, an increase in regulatory compliance mandates and an aging membership, some may wonder if the traditional credit union business model is still working.
That's the focus of a new white paper titled "The Interdependent Credit Union–A Rationale and Blueprint for the Design and Development of a Collaborative Business Model for the Reduction of Common Operating Expenses" from the Rochdale Group, a consultation services CUSO. In it, the factors that have developed since the birth of the country's first credit union in 1909 that have led to the changing credit union model are explored.
"Today, we face urgent and compelling reasons to return to the tenets of 'people helping people' and helping each other," said Michael Hales, a partner with Rochdale Group. "A new business model is developing in which those credit unions that survive and grow will have become less independent and more interdependent."
Hales said some of those reasons include a troubled economy, expanding compliance regulations and increased external competitions. When these factors are coupled with "historically high operating costs, low revenues and increased internal competition due to performance divergence, the validity of the traditional credit union business model must be questioned," he offered.
Once upon a time, credit unions knew and could see their competitors–the commercial bank across the street, for example, Hales said. Now, with indirect players and Internet banks, the view is fuzzy. As community charter approvals grew, the industry veered even further along.
"I'm a proponent of community charters," Hales emphasized. "[But] the minute we moved in that direction, we became more like banks. And by that, I mean as we tried to be more competitive, we've gotten away from who we really are."
Holding on to those roots and surviving in a tight financial services market has now shifted from independence to interdependence. Credit unions that dismiss collaboration with "we're not on the same core processors" are clinging to "decades-old thinking," Hales said. In his white paper, he outlined 10 steps demonstrating the common need to reduce operating expenses and the trend toward finding collaborative solutions.
Identifying potential opportunities for the reduction of common operating expenses such as ranking back-office functions in order of interest to each potential credit union partner is a start. Determining the data needed by each credit union to operate efficiently without maintaining the selected back-office function in-house will define the IT requirements for the transfer of data among credit union partners so that data can be communicated with each institution's core system, Hales said.
Another important piece is agreement on the structure of the new collaborative model among the credit union partners. Hales said too often, the approach is "form over function." The successful collaborative model first identifies the issues relative to the collaborative function, then determines the most appropriate structure. Identifying participating institutions also means checking the egos at the door.
"There must be a commonality of mutual respect and trust among the partnering credit unions. A level playing field should be established among and between all 'partners.'"
Probably the most difficult part of the entire collaborative model process is committing to reducing staff, Hales said. The cost of hiring, maintaining and developing human resources is clearly the most expensive line item.
The two most common reasons for entering into a collaborative initiative are expense reduction or revenue growth. Hales said both are valid reasons and both can be accomplished. However, it is recommended that the initial model be created for one of these purposes and then for only one or two initial functions.
"The sharing of ideas and resources, the historic unselfish and extraordinary response to momentous calls to action and the heroic role of thousands of Davids taking up arms against thousands of Goliaths, have defined the very mettle of credit unions," Hales said.
–msamaad@cutimes.com
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