As crowdfunding becomes a mainstream alternative to traditional lending channels, credit unions should take note of the lessons they can learn from the practice of aggregating dollars in support of a shared goal.
Ontario's Northern Credit Union — which has roughly $1 billion in assets and approximately 55,000 members — uses crowdfunding to serve needs that exist beyond what the financial cooperative can accomplish through its own direct business lending.
"One of the big elements of our brand is about challenging the status quo, carving out niche markets that other financial institutions don't want to be in, and finding new ways to keep communities stable," says Tony Dunham, Northern's senior vice president of sales, marketing, and channel management.
As part of its $2.8 million infrastructure and brand reinvention, the Canadian credit union created a website — TrueNorthStrong.ca — that funnels community donations directly to local organizations and businesses. In many cases, the credit union also matches the funds collected.
CU Soup For The Soul
There are many ways to collect funds from members in support of local businesses.
For example, Christian Financial Credit Union ($324M, Roseville, MI) hosted an entrepreneurial pitch dinner called CU@Soup. There, diners listened to three startup ideas, then cast their vote for their favorite. The winner walked away with the money collected from the dinner’s entrance fee, a $1,000 grant from the credit union, and a shot at a business loan for additional startup capital.
The website required an investment of roughly $50,000 and around 600 employee hours, Dunham says. To help facilitate a great user experience, Northern sought coding and other digital infrastructure assistance from Crowdfunding HQ. And by also partnering with a third-party online payments processor, the credit union avoids the liability that stems from collecting the cash.
None of the funds raised are going back into our own coffers," Dunham says. But we can still guarantee that when we cut a check to these companies, the money is going to be there."
Although building and maintaining a crowdsourcing website seems like a significant investment, Dunham says this option has streamlined much of the credit union's philanthropic outreach and brought it in synch with the priorities of the community.
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The credit union uses a delegate system governance model, which gives branches a certain number of voting delegates based on assets, Dunham explains. The delegates — about 190 total — attend annual meetings, pass bylaws, and vote for the cooperative's board of directors. The role also carries significant community engagement and brand ambassadorship responsibilities.
For example, each delegate receives a set percentage of the institution's marketing budget to generate funding for community initiatives they feel are important.
Northern has invested more than $1 million in its communities over the past 10 years, but it struggled to choose projects or use the funds in a consistent manner.
"We had some communities who got ambitious and used that money to start growing more money to support their cause," Dunham says. But we had others that were just writing checks, going through the formalities, and picking projects that weren't always the most relevant to the community."
Now, TrueNorthStrong.ca allows members and the community to leverage their social connections and centers of influence to drive funds to the pain points they most want Northern to help solve.
To date, the site has helped raise $5,000 to take underprivileged kids to summer camp and more than $150,000 to purchase an MRI unit for a local hospital. Northern is also currently raising funds for a North Bay Paralympics organization and has already hit $400,000.
The renown of being a leader in this space has opened opportunities for member business lending, made the credit union a more attractive potential merger partner, and stoked a number of new third-party alliances. For example, the credit union is considering partnering with a local university to create a microfinancing and startup lending competition based off of the U.K. show Dragon's Den — a concept later adapted for U.S. television as ABC's Shark Tank.
Crowdfunding isn't new, but it is new to the financial sector.
Crowdfunding isn't new, but it is new to the financial sector," Dunham says. We might eventually pursue additional arteries such as venture capital or a separate not-for-profit organization, but we've got to crawl before we walk before we run."