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We are experiencing an economic malaise unmatched since the Great Depression, with Wall Street turmoil, real estate woes, rising unemployment, bailouts for bankers, insurance companies, and automakers. In addition to these adverse economic factors, credit unions are faced with a corporate bailout plan that will call for a significant insurance premium assessment. All of these issues are compounding the already-intense industry woes of the past several years, including with slow growth, rapid consolidation, and minimal market differentiation.
When we consider the aggregate impact of these challenges, the most critical issue facing us today is the sustainability of credit unions and the credit union industry. In order for credit unions to sustain themselves, they must execute three drivers of business strategy: 1) identifying their markets, 2) determining how to create value and competitive advantage in the market segments they are going to serve, and 3) capitalizing on optimal timing. The timing in our marketplace could not be better. Now is the time for credit unions to seize the day and capitalize on all of the dysfunction occurring in the financial services marketplace. It’s time to create a sense of urgency and go after market share in all types of deposit and lending services, including auto loans, mortgages, business services and retail investments.
Another key factor essential to achieving both industry and credit union sustainability is collaboration, and getting credit unions to work together in business networks to create scalable platforms and meet shared needs. Now is the time for credit unions to transform themselves and the industry by embracing innovation and the unique advantages of collaboration and networked business models. Credit unions have only 5.6% market share of the total financial services industry and they need to create scale to: 1) develop lower-cost operations, and 2) develop higher-value products and services – the two fundamentals of profitability that ultimately translate into increased value for members. Credit union collaboration also provides pooled resources and expertise, spreads the risk, and allocates the capital investment in business ventures across many credit unions.
There are many excellent examples of successful multi-owned CUSOs in the areas of shared branching, ATM networks, credit card services, indirect lending, mortgage/title/real estate services, business services, call centers, investments and insurance services, trust services, data processing and technology services, disaster recovery services, and compliance services. While interest and participation in multi-owned CUSOs and business networks is growing, it is still not the dominant theme. As of 12/31/08, 2,122 credit unions participated in a multi-owned CUSO, while 5,846 did not. We need to create a higher level of industry awareness of the benefits of participating in a multi-owned CUSO.
Another demonstration of the value of collaboration is found in a comparison of the 5-year average annual performance of credit unions having an investment in a multi-owned CUSO with those having no investment in a multi-owned CUSO:
Source: Callahan & Associates' Peer-to-Peer Software
Although it cannot be implied from this data that having an investment in a multi-owned CUSO will result in higher credit union performance, a unique mindset and way of operating definitely pervades a credit union that embraces collaboration; e.g, their business model, competitive advantage, and market differentiation. And certainly, participating in a multi-owned CUSO can directly enhance credit union performance; e.g., loan volume through indirect and mortgage lending.
To help the industry embrace collaboration in 2009, NACUSO will offer a new Program through its National Center for Collaboration and Innovation: Planning at the Speed of Change: Designing and Implementing Collaborations and Business Networks. This education and certification Program, offered in partnership with Pepperdine University in Malibu, California, will provide an environment where your ideas combine with those of your peers in the credit union community, as well as those of thought leaders from different academic backgrounds. The Program curriculum will include courses ranging from Principles of Networked Businesses and Networked Business Design to Establishing and Maintaining Trust in Collaborations to Funding Strategies for Networked Businesses. The applied Program is about learning new ways of thinking, understanding how to build businesses, operating them in new ways, and creating scalable platforms.
When the going gets tough, the tough collaborate. Economic downturns provide an opportunity to create a positive gap between credit unions and their competitors. While others cower, credit unions must take advantage of their ability to think critically, collaborate, and innovate together. Collaboration is a learned skill and must, along with implementation, become the new currency of our industry.
Now is the time to make history. You alone can do it, but you can’t do it alone. Successful collaboration is an essential element to credit union industry sustainability
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
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March 23, 2009
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