A Breakout Scenario, or “Tickling the Dragon”

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?


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.”

Approaching Criticality

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.




May 17, 2004


  • Excellent and timely. Great 'food for thought'!
  • Chip is right on target. My credit union has benefited from our participation in The CO-OP ATM network. My members have access to over 18,000 ATMs without surcharge throughout North America. SAFE alone could not afford a network to compete with Bank of America. Yet we have one with CO-OP. In the Sacramento area there are 117 credit union branches. Collectively credit unions in our area have more branches than any bank. We are building new branches--often across the street from another credit union. We all fret over the cost of these branches yet very few credit unions belong to the shared branch network. We could benefit so much in terms of convenience and lower cost from sharing these branches. There are nearly two million people who live in the Sacramento region. Credit Unions enjoy a healty market share of about 26% of the area's deposit base. But there are still large numbers of people who don't know the benefits of a credit union or that they can join a local credit union. Collectively the local credit unions spend $10.5 million in promotions expense in 2003. If some of that money went into a cooperative advertising campaign to educate non-members about credit unions it would probably generate an increase in new members for all of us. It makes no sense for us all to beam the same message individually to the same audience. It is ironic that our fear of other credit unions stand in the way of shared branching, cooperative advertising and a shared brand identity for credit unions. Our fear is that we will lose market share to other credit unions. It is more likely that our failure to share branches, cooperatively advertise and collectively build a brand identity will cause us to fail to gain market share from the banks. I think the future belongs to those who dare to be different. Credit Unions need to distinguish ourselves from the banks. What better way to distinguish ourselves than by practicing cooperation in everything we do? The benefit is lower member cost and greater member access and convenience. Henry Wirz
  • Could create a unique opportunity to provide service without major investments assuming widespread participation. Ron M.
  • It was billed as a look at the future but instead delivered a warmed-over case for community FOMs and shared branching.
  • I agree that credit unions are the best kept secret. I don't agree that it is a "network" of credit unions that will finally get the chain reaction going. I believe it is a matter of marketing and education. Credit unions individually and collectively simply don't allocate enough time and money towards educating consumers. They have to understand that "banks" really don't care about them! All they care about are the numbers. Sure, they will treat you great and call you when your CD is going to mature. But believe me, it's not because the representative or bank manager really wanted to take the time to say "hello!" It's because they don't want you to take your money out of their bank branch. Banks do what's right for them not for the consumer. People need to know the priceless value of a credit union membership. Shared branching won't work in my opinion because the larger credit unions that already have convenient locations to serve their member base won't participate and if they do their better interest rates will most certainly "steal" members. Try losing that $500,000 HELOC or CD to your friendly $1 billion+ credit union multiplied by 25% of your membership, ouch!! I think you would eventually be looking at a lot of consolidation(mergers, acquisitions) in the industry if that route is taken. You also have a problem with providing the excellent member service to somebody that doesn't even have an account with your credit union. Sounds easy to fix, but try telling that to a teller whos transaction volume(FTE) skyrockets when implementing a shared branch. If Credit Unions want recognition, its going to be through education, not convenient locations. We are entering into a new generation of delivery system savvy consumers. They want high tech sophisticated products and services and they want them yesterday. That is the convenience they want, not to "walk" over to their neighborhood WAMU to make a grandfathered passbook savings deposit. Who has time for a trip to the bank anymore? Credit Unions also need to invest more in their employees because they are the credit union image. Bank reps are educated in everything from business loans to investments to encoding a simple PIN on a debit card. I think credit union reps need to be brought up to speed regardless whether your credit union offers a particular service or not. Credit Union Branch Managers must get involved in their communities and educate, educate, educate. Internet education won't help. How many times do people google a search for "credit unions" And if they do they will find the info absolutely BORING! Nationwide collective advertising. From a collaborative effort to indivual. Bombard consumers with this wonderful principle of people helping people. Branch numbers should be posted,not stating how many of each products cross sold, but how many consumers we educated. There is a difference! People have to get out of the traditional thinking that CU's are unsophisticated ma and pa establishments that only serve the underserved. That they can insure the same amount of your money that the banks can. Credit Union's serve "people" and it doesn't matter how much money you have because they treat "everybody" with the dignity and respect they deserve. I hope that one day people will look at banks for what they are "for the numbers, not the members!"
  • Once again, Chip has pointed out the necessity of "thinking outside the box" or "Why Not". GREAT, THOUGHT PROVOKING ARTICLE.
  • We have tried to get support for a national marketing campaigns through CUNA who says it can't be done. How can we do it? How can we force/encourage all CUs to participate? You are right. It would be good for all, but all CU won't buy in. What is the answer to public awareness?
  • excellent analogy!