Excerpted from Callahan's
Credit Union Report
"Are credit union CEOs worried about being in the wooden heel
business?" This was the kickoff question at a recent meeting
I hosted of entrepreneurs and credit union consultants who gathered
to discuss the future of the industry. The questioner - the founder
of the first Internet-based business for credit unions - told a
story about four members of his family who worked at the last wooden
heel shoe factory in New York City in the 1950s. The factory's owners
assumed heels would always be necessary for women's shoes. And so
they are today, but few are made of wood. Credit union members will
continue to use financial services, but in five years will they
receive them from a credit union?
raised a series of issues about how credit unions might compete
in the years ahead.
Is There a Core Competency?
to survival is to identify the critical skills that an organization
has and adapt them to new opportunities. We asked, "Is there
a common thread in credit unions strengths?" Several stated
that the answer was service in a defined context, or providing a
unique personal service experience for the member.
that some credit union values are contradictory to building necessary
competitive skills, such as marketing. The culture of credit unions
opposes the sales world of "making an offer" or "0%
financing." In some respects the industry is an opponent of
capitalism and of the business drivers in the for-profit sector.
Credit unions instead rely on their virtue, seeking to be bastions
of wholesomeness in a world of clever-sounding propositions.
of reliance on mission is that financial services have changed dramatically.
The virtues that were dominant in the founding years of credit unions
- personal access to credit, reliance on a person's reputation,
and a focus on individuals outside the financial mainstream - are
less critical today. These days, virtually anyone's credit information
is readily available to any lending business.
that the group at our meeting felt had promise for strategic advantage
was viewing credit unions as "efficient local proxies"
for financial services that are promoted nationwide. This approach
is based on the assumption that members will shop nationally but
prefer to buy locally. If credit unions can deliver, through alliances,
the services members read about or find on the Internet, then local
presence can be a point of advantage.
How Do You
was raised about how credit unions view success. For many widely
used products, credit unions will consider a member-penetration
rate of two to four percent a success. For example, credit unions
hold only three to five percent of members' mortgages. Over 50%
of credit union members own stocks or mutual funds, but finding
an off balance sheet program with more that two percent member participation
is rare. In the areas of auto and life insurance, only a minority
of credit unions offers these products. Member penetration is almost
always miniscule compared, for example, with their share of members'
according to one participant, is that credit unions want to generate
revenue without having cost centers. Many service extensions into
new markets are merely co-marketing arrangements with vendors in
which the credit union receives a nominal endorsement fee.
One way of presenting
this challenge is to ask how credit unions would spend $100,000
to grow their business. Few would spend it on sales because credit
unions do not use sales to validate their business ends. Most would
look at areas to improve member service, such as more ATMs or longer
covered the area of information management. An IM approach to credit
union strategy includes initiatives such as account aggregation
which would permit the credit union to become the member's financial
information portal, an "infomediary."
said the problem with this view is that information is in oversupply.
What is scarce is human knowledge, the ability to take data and
convert it to good choices. The key to serving members is not the
amount of data, but the ability to simplify, anticipate and propose
solutions appropriate for each person. That capability is not embedded
in early-stage aggregation models.
In many instances
what credit unions are doing is solving a problem with information
rather than developing an opportunity for the member. If account
aggregation is inevitable, the key will not be in the aggregation
but in the conversion of the data to provide better outcomes for
compared his view of credit unions to other industries, especially
technology-based businesses. He said that he did not see a lot of
innovation in credit unions. In many other firms one can see the
face of change five years out. In his view, credit unions focus
on incremental change only; there being no "gapping" or
radical way of envisioning future success.
One theory to
explain this conservative orientation had to do with the incentive
structure for management. Most CEOs are at the pinnacle of their
careers. They are more protective of their status than interested
in growing or nurturing a business. There is no incentive to take
risks and many disincentives to do so.
also seen as part of the problem because they neither micro- nor
macro-manage. Boards do not see a lot of macro opportunities and
therefore accept the current definitions of success. A corollary
to this idea was that there has not been enough time spent by the
industry trying to change the regulatory environment so that different
ways of shaping the future are possible.
One person summarized
credit unions as having lost a sense of mission. Members' needs
have evolved, but credit unions' business has not.
A Way Forward
critical tone, each participant at the meeting was committed to
finding ways to help credit unions move faster and build advantage.
The common theme was using the networking opportunities offered
by both the Internet and the cooperative model. "It's a connected
world," said one observer. "The network is growing at
a faster pace than the content."
For credit unions
to thrive, they will have to become "connected" faster
than their competitors and individually open their own resources
to the network. Not only will this provide scale and scope that
can match any national provider, but it also can preserve the local
points of contact and knowledge that individuals seek.
Four of the
meeting participants were founders of companies that were based
on the concepts of networking and scale. Two managed CUSOs with
majority credit union ownership. Both were literally reinventing
traditional business service models for credit unions. Two others
were privately funded but leaders in their areas of activity. In
all four, the use of network effects was essential to their success.
One case was a technology platform. Another used the Internet to
provide real time data exchanges. A third participant built a virtual
private network connecting over 100 credit unions with each other
and outside resources.
advantage is that they provide "repeated routines" (transactions
and settlements) that are all necessary in the networked world.
The faster credit unions can connect their members in a network
of opportunities, the sooner credit unions will solidify their heel-making
business even as shoe styles change.