Blunting Marches to Monopoly

In this issue of the Callahan Report we present a good deal of information on the Top 100 credit unions. Certainly these large credit unions have their virtues and they serve a good many people very well.


This Article first appeared in the March 2001 issue of the Callahan Report

In this issue of the Callahan Report we present a good deal of information on the Top 100 credit unions. Certainly these large credit unions have their virtues and they serve a good many people very well.

But in some areas of the country a good deal of detective work is not needed to discover credit unions that not only have near-monopoly territorial operations but also relish that notion and push even more to monopolistic environments.

Typically, monopolies or near-monopolies are achieved when a very large credit union dominates an area with branches and does not agree to use them cooperatively with other credit unions. The effect is not only to retain members because those members have no choice, but also to draw members away from rival credit unions because those members cannot find the service they need from their original credit unions in the territory of the dominant ones. Thus any quasi-monopolistic operation tends to become more monopolistic over time.

It may be futile harping on big uncooperative credit unions to drop their territorial defenses and open their facilities to others. You may hear lines of reasoning that sound almost acceptable: ''We have to recover our capital investments;'' ''If we don't watch out, we'll be subsidizing the smaller credit unions;'' ''We can't cooperate with you if it means that we'll be losing money;'' and so forth.

It's pretty hard for an outfit with a cushy setup to let it slip. Rather, the instinct is to defend the territory, to do even better the next year than the last.
So the answer may be to forget persuasion and forge ahead with practicality. Which means doing what it takes to run with the big guys. And that means cooperating with other like-sized credit unions to form networks that can compete with the networks of the larger players.

A Cooperative Model

This kind of model is not unknown in the economic world. In fact, it is rather common. Think back to the time of the dominance of A&P grocery stores. They were very nearly monopolistic. Independent grocers were threatened with extinction.
Instead they worked to cooperate and to form the Independent Grocers' Association. The little stores became IGA stores. They cooperated in their purchasing, shipping and whatever else it took to form a cooperative organization that could compete with A&P. They formed a cooperative structure that allowed them to survive and then thrive. Without doing so, each would have gone out of business. Yet each retained a good measure of its original independence.

From Bantamweight to Heavyweight

Dominating a region with branches is only one way a credit union can march toward monopoly. Another is dominating with ATMs. Smaller credit unions can get back in the game by cooperating with the branches and their ATMs to make comparable branching and ATM networks. But they need not stop there; indeed they should not. They can cooperate in combining their information technologies, back-office operations, call centers, accounting and more. The sky's the limit and by exercising imagination it is not difficult to see a cooperative system that is as big as or bigger than any regionally dominant credit union. But you have to have the right attitude; you have to trust that you can join with others and that as a result all will prosper.

Note that I am not talking about merging. I'm talking about cooperating. By cooperating, a bantamweight can deliver the punch of a heavyweight. By cooperating, competition can enter some markets otherwise deprived of it. With competition comes increased attention to serving members. Thus members, no matter to which credit union they belong, will benefit, and that is all to the good.




June 4, 2001



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