SAN DIEGO ― Stiff competition in the financial services sector has put credit unions at a crossroads ― they must adapt or risk extinction.
“One thing is clear: Simply staying with the old model of branch dynamics will eat you alive,” said John Lass, SVP of strategy for CUNA Mutual Group, during a session at America’s Credit Union Conference held here yesterday.
Lass talked about the uphill battle credit unions face these days to keep up with technology changes and to remain relevant to members. For starters, credit unions must work to digitize offerings. “Here’s something to think about: What does your credit union do that cannot be digitized?” he asked a room full of CU execs. “If there’s a lot, you need to be cautious.”
He cited examples of consortiums created to define mobile standards in the U.S. “Credit unions don’t have anyone at that table,” he said.
On some level, credit unions have fallen behind in educating consumers about their value proposition. For one thing, CUs are cooperatives, which means that members are also owners. Adherence to the Cooperative Principles ― the “one member, one vote” theory ― is what separates credit unions from banks, he said.
“How many of your members appreciate these principles?” he asked. “Most members don’t even know about these principles. It’s our fault. We haven’t educated them.”
Even with their cooperative structures, credit unions must evolve on one of three strategic fronts to succeed. Specifically, they must become leaders in product innovation, operational efficiency, or customer solutions. The latter is the most obvious fit, but many CUs have yet to reach that goal, he said.
Speaker Josh Allison, relationship development manager at Horizon Credit Union, offered a similar sentiment in a presentation about attracting Gen Y members.
“We’re in this market with banks, Walmart, , payday lenders, credit card companies, rental centers, and dealerships,” Allison said. “In reality, we’re just one of the bags of chips in the financial services vending machine.”
Allison urged credit unions to focus more on their relevance to consumers ― and less on their products. “Stop talking about your auto loan rates as if that’s the value proposition that you have,” he said. “Talk about what is relevant to you and why it’s relevant to you. The product is the extension of that.”
Credit unions have lots of opportunity but they lack innovative leadership. Innovation does not have to include technology only. They must define the value proposition with the advantages that they have. Number one is that they do not have Wall Street analysts looking over their shoulder and pressing them to do “bad things” for the customer such as predatory lending or provide Caveat Emptor financial advice.
There is a long list of opportunity but not much leadership. One credit union to which I belong has tellers just sitting and waiting for someone to enter the lobby. Sitting and waiting! Anyone with a brain can see that is a recipe for disaster. And with all that time on their hands, not once has anyone asked me a question that could lead to a potential sale. It was the same approach in the 1970’s!
Yes, credit unions need to be at the technology table – but to learn and not expect to change the direction of the technology. Only the very biggest of those companies can hope to influence a change of direction. Take the opportunity for a payday advance. A CU needs the technology (not much special here) and because they should know the customers better than a bank, it should be easy to facilitate the transaction at a fair interest rate (perhaps 18-24% and not the 90-300% vigorish being charged by Wells Fargo, US Bank, Regions, 5th third, etc) AND to realize that the customer needs some financial education and help to get them off the treadmill of payday loans. That is service!