This interview is one of five interviews with former bankers who are now credit union executives that were published in the Voices of the Industry section in the 3Q07 issue of CUSP.
Alliant began as the credit union for United Airlines employees. It is now the eighth largest credit union in the country with $4.8 billion in assets and 210,000 members. It has a multi-SEG state charter in Illinois. David Mooney joined as CEO in 2003.
What was your banking career like?
DM: Before joining Alliant in 2003, I had worked for JPMorganChase and its predecessor banks on the Chase side. With each merger, naturally the organization became larger. Accordingly, the roles in jobs became more fragmented and it was increasingly difficult to serve in a significant leadership capacity. After Chase merged with JPMorgan these trends were accelerated; so I left.
What were you hoping for in a new job?
DM: I wanted a position in which I would have more impact, say, being a CEO or COO at a community bank. I was not thinking of credit unions at all.
How did you land at Alliant?
DM: Their Board approached me. At first I was not enthusiastic; I lived in the Northeast, so this was going to be a major move.
What did you know of credit unions at the time?
DM: Not much. I had competed against some in Texas and in New York, but I did not really give them much mind. Over the next five to six months, though, when I was considering the credit union offer I learned more. I was impressed with the credit union’s operating model and organization. I felt there was a strong foundation there as well as an opportunity for the credit union to grow, and I learned that credit unions had more capabilities and sophistication than I had thought.
What made you want to make the shift to a credit union?
DM: I began to like the job offer; the position would have the leadership role I wanted, and, of course, this was a sizeable institution. United Airlines as a company was having problems at the time, but in a way I saw that fact as offering opportunities for new directions with the credit union.
In addition, I could see that in a credit union there was an alignment of interests, that you could serve the “customers” and the owners at the same time. In a bank, you try to serve two masters, the customers and the stockholders. Invariably, there are conflicts. Although the rhetoric in a bank is that “we’re here for the customers,” the practice cannot always be consistent with this. There are mixed signals; the employees detect the confusion and are conflicted, impairing service.
I could see that in credit unions, from a manager’s perspective serving only members makes the alignment through the organization easier and more effective.
What could you bring from your banking experience to your new role as credit union CEO?
DM: In a way, I arrived at a good time. There were changes underway and I could have a large impact. For one, I think I brought a broader perspective of the financial services marketplace and its competitive dynamics. With United Airlines, the credit union was a single-sponsor organization and so the broader view was certainly needed.
I also think I brought in more sophisticated management practices, mainly a less intuitive and more systematic approach.
Was that your specialty at JPMorganChase?
DM: Not really, but somewhat owing to the size of JPMorganChase, there was an emphasis on sound management practice and on optimizing performance. Consequently, when I came to the credit union, I could bring in some ideas about planning, performance management, human capital development, management information systems, decision support, process management, and capacity management.
How did the credit union feel about your ideas?
DM: They were pretty welcoming of a more systematic and deliberative approach, but as I said, I arrived at a time when they were changing from a single sponsor to a more expansive charter. The credit union had to become more sophisticated, and there was already a climate of change.
Did you bring with you as well a greater sophistication of product?
DM: Actually, it was almost the opposite. At JPMorganChase there were so many products, consumers became confused. At one point there were 39 different rates on savings accounts. When consumers asked employees what products would be best for them, the answer was generally, “It depends.” Even the employees were confused, and I think the consumers were losing trust in the organization as a result. It seemed as if customers took the lowest common denominator because it was the one they could understand. But that made them suspicious. It seemed as if they were saying, “If the bank really wanted to take care of me they’d make products I could understand, but because they are not perhaps they are trying to fool me.” Having a great deal of choice was not working.
Consequently, when I came to the credit union, I had the sense that a simple array of products was better than a confused jumble of them. So from a product point of view, I think I was very comfortable with a notion of simplification. But in terms of channel and management, I think I brought notions of greater sophistication.
How do you see the future of financial services industry? How do you assess credit unions’ ability to compete?
DM: Most of what credit unions face, the banks face also. When you adjust for mergers, you can see that the big banks are not growing that much, in fact are losing market share. Bank organic growth is slow. Traditional retail banks are vulnerable because they lack a compelling value proposition. They risk being marginalized by the high-rate online companies such as ING Direct, and consumers are increasingly mistrustful of banks because of their pricing practices, bad press, lawsuits and so forth.
You don’t see such bad press about credit unions, but they are vulnerable in this marketplace as well. Some are growing adequately, but some are not; scale seems to matter. In an increasingly complex world, small credit unions are hard pressed to stay up with the regulations, channels, pressure for high returns and sophisticated balance-sheet management.
Fortunately for credit unions, we do not have to divide our benefits between owners and customers, so we can operate at a lower ROA or ROE. In addition, we can collaborate. Banks tend not to collaborate at all; it seems each is even determined to do things that don’t produce competitive advantage, such as its own check processing, for example. But because credit unions can cooperate, they can achieve economies of scale. More of this will help credit unions compete with larger banks, and put a squeeze on community banks.
Five Thoughts from Former Banker David Mooney
1. A vast array of products can confuse and irritate consumers and thus be counterproductive.
2. Banks tend not to collaborate, but credit unions do and this is a major competitive advantage.
3. Both banks and credit unions face the same kinds of pressures. Banks are not growing well, in part because of companies like ING Direct.
4. Large credit unions can benefit from the sophisticated management practices of large banks.
5. Consumers seem increasingly mistrustful of banks owing to pricing and other policies and bad press.