Recently I was asked to provide thoughts about the future of credit unions, in fact, to the year 2010. The goal was to identify a range of scenarios. Specific questions ranged from the current: What are the most important recent changes in the financial services industry? to the more speculative: What is the most optimistic scenario for the industry seven years from now?
Most people envision the future as an extension of the past. Indeed, in many respects the past is a good indicator of trends. Credit unions have had a steady run for over 20 years avoiding the financial services industry failures of both banks and thrifts. The growth rate of assets of almost 10% per year of the past two decades is a pretty solid bet for the future.
But is this outcome what consumers need and is it really the most ambitious effect credit unions might have? In an article published on CreditUnions.com earlier this year, Eldon Arnold, CEO of CEFCU ($2.5B, Peoria, Illinois), provided commentary describing the positive he describes the positive impact credit unions have on their members’ lives and in their communities. Since CEFCU has a significant market share in central Illinois, Eldon’s observations are well founded—for CEFCU’s market.
But in the all of the United States, credit unions — according to the latest date from year-end -- have only a 6.4% share of financial institution assets. In other markets such as credit cards, mortgage lending and most sub-prime lending areas, credit unions’ role is less than half of their asset share.
So the critical question isn’t whether credit unions can continue to grow, but whether they could create a national strategy that would duplicate CEFCU’s impact in the central Illinois market.
Tickling the Dragon’s Tail
At the Corcoran Art Gallery in Washington, D.C., is an exhibit that is a unique combination of art and history. The artist, Jim Sanborn, has arranged a series of “sculptures” using actual desks, instruments and lab experiments from the Los Alamos Manhattan atomic bomb project. The exhibit’s purpose is to provide an aesthetic experience that suggests the moment in time when the human race learned to tame the atom.
With the exhibit is an excerpt from a book, The Secret that Exploded, by Howard Morland which describes how the scientists worked using the equipment on display.
“They were called ‘criticality experiments.’ They were performed by hand without any radiation shielding. Their purpose was to discover just how large a chunk of bomb material — plutonium or uranium 235 — would have to be in order to sustain a chain reaction, in other words to blow up. With this known, it was easy to design a bomb by making a piece of material just a little smaller than the critical mass and compressing it, or adding a little more to it, in order to trigger an explosion. . .
“The difference between an inert mass and an explosive one was very small; the narrow transition zone was characterized by spontaneous heating of the mass of metal and a sharp rise in radioactive emissions which could be detected by a Geiger counter. The experimental process was called “tickling the dragon’s tail;” and it was an impatient, obsessive relationship with the dragon. . .
“All we did was make subcritical masses of plutonium approach criticality by adding reflector material. It’s like warming your body. Your body has a certain amount of warmth by itself. If you want to get warmer, you can turn up the heat in the room, or you can wrap yourself in a blanket to reflect the heat back on yourself. What we did was like using blankets. We would build little walls around the plutonium to reflect the neutrons back in. The walls did what the tamper did in the actual bomb. If you made a big enough wall, you got a chain reaction. Of course, the point was to stop before you got there.”
How might credit unions approach the future so that 2010 results are more than an extension of current trends? Can there be a breakout strategy? What are the “criticality” concepts that could create a powerful chain reaction? If credit unions are indeed one of America’s best kept secrets, how can we become the secret that exploded?
One concept that I believe can be a “criticality” driver is Access. And one aspect of Access is the opportunity for all Americans to join a credit union. Historically the regulatory structure and therefore the practice of all financial institutions was to serve only selected markets—limits were set by geography, product or eligibility.
Unfortunately this heritage of limited access still affects consumers’ perception of their choices as well as credit union’s own self-image. Many Americans don’t know they can join a credit union or what difference this might make in their lives.
Moreover, some credit unions are uncomfortable with the concept of full access. For example, the term “my members” is still used by some CEOs and volunteers when referring to other credit union marketing or membership drives. The notion that consumers should have a choice of credit union causes uneasiness in some circles.
Overcoming this emotional concern will be vital. This nostalgic “FOM mentality” creates self-imposed constraints and difficulties in uniting to tell the credit union story to the majority of consumers who still have no credit union tie.
Credit unions until recently have been “out of sight.” Now they must create the mechanisms that make it feasible for any person to easily sign up and participate. Shared networks and branching make this a possibility if credit union leaders can affirm system benefits as well as local opportunity when adding ATMs and branches. For example, a credit union CEO recently related how important the credit union’s new branch in a major airport would be for the credit union members. I asked if it would be open to members of other credit unions who would be using the airport — the answer was No. This branch will be a great location for the one credit union—yet it would be a spectacular one for all credit unions, if only they had access.
Access as a Differentiator
But if every person could join a credit union and that fact became widely accepted, would credit unions become just another financial choice? How would we differentiate the industry? Could access also make a difference in how credit unions create a competitive advantage?
I believe the answer is yes. One piece of logic that drove dot.com startup business models was the belief that the reach and range of the Internet would burst into traditional markets where competitors had relied on an advantage such as physical convenience, local market dominance or proprietary knowledge. In one fell swoop these competitive barriers could be overcome through the Internet’s power to create new value propositions.
Many new efforts at online businesses — from bookstores to hotel and airplane ticket sales to self-service stock trades — were created by bringing new options to consumers.
Firms that relied on limited access — whether this was information about markets, a convenience factor or pricing awareness — for their advantage were now facing, if not new competitors, than at least increased competition through this new channel.
Combining public awareness, physical convenience and Internet information about credit unions’ value advantage on a national scale could be a truly explosive combination. The Internet especially provides uncharted opportunities for knowledge collaboration among credit unions that could make the industry unique in financial services.
Removing self-imposed constraints about credit unions’ role in the market of consumers and becoming increasingly networked in physical contact points could lead to a critical mass opportunity.
Reconfiguring all the dimensions of access could position credit unions as an option in all markets in all circumstances. Now, that could start a real consumer chain reaction.