Planning for the Ordinary...or the Extraordinary?

While planning season is increasingly year-round, fall is the peak season. Many credit unions want a fresh look at their processes, but not many want radical change. Can planning for ordinary results sustain long term credit union success?


While planning is increasingly year-round, the fall is the peak season. The first question I ask potential clients is: “How much of a course change do you want to make?” While many credit unions want a fresh look at their process, my experience is that few are seeking radical change. For most, planning is an extension of current activities focusing on operationally driven improvements. Extraordinary outcomes are rarely contemplated.

Ordinary results are necessary, for these are the foundation that provides the potential for breakthrough kinds of efforts. The critical question is whether ordinary efforts will be sufficient to sustain credit union success. At midyear, approximately 725 credit unions account for 80% of all credit union growth. Since these are the larger ones, their performance raises the industry averages so that the overall totals still seem acceptable. But increasingly, data suggests that ordinary results will not suffice.

Credit Cards and MBNA’s Results
One of the events occurring regularly for the past two years is the decision by some credit unions to exit the credit card business. Each month brings another announcement that a credit union has decided to sell its portfolio because of the difficulty of competing in this product area. Several recent sales were by credit unions with assets over one billion dollars.

Credit unions hold a very tiny fraction of the credit card market, approximately 3%. The penetration rate, measured as the total number of cards divided by the total number of members has fallen from 18.4% in 1997 to 17.2% today. The growth rate of credit card loans for the past four years has been in single digits, versus double-digit growth for all loans.
For many credit unions this ordinary result is acceptable. They believe that the yield on the outstanding card balances, the interchange fees and the marketing impact every time the card is used make this an acceptable return.

Recently I was reading the 2000 Annual Report for MBNA bank. This monoline bank has no branches and emphasizes one business: credit cards. Some numbers from their Report are as follows. Since going public in 1991, the loans under management have grown at a compounded rate of 23% per year, earnings-after-tax have grown an annual compounded rate of 26% and over the past ten years the bank’s share of the combined VISA-Mastercard market has gone from 5% to 15%.

MBNA added 13.7 million new accounts in 2000. The typical new customer has $68,000 in average household income, has been employed 11 years, owns a home and has a 17-year history of paying bills promptly. Their total customer base uses their card 52% more than the average cardholder and has a typical purchase amount 30% higher than the card industry average. The average account balance for an MBNA card is $3,519, for the industry, $2,311 and for credit unions $1,622.

Only once since 1990 has MBNA’s ROA (after tax) been below 3.00% and in 2000, the ratio was 3.89%, the second highest for the same period. Contributing to this earnings record is the fact that loan losses are significantly below the industry average.

How does MBNA achieve these results? In the words of the Report: “In 1982 we began selling our credit card products to people with a strong common interest by marketing to members of endorsing groups-known as affinity marketing. The first organization that endorsed was the Georgetown University Alumni Association. Nineteen years later we have gone on to receive the endorsement of more than 4,700 other membership organizations.” Some of these include major league baseball, the NFL, 600 colleges and 1,400 professional groups including many states’ dental, bar, medical and nurse associations.

Surely these are extraordinary results, and it is this performance that ultimately will drive ordinary players from the playing field.

The Common Planning Drivers
Most credit unions face a common set of key drivers in the market place. Some of these are:

  • Convergence of financial services, breaking down traditional distinctions between insurance, brokerage and banking;
  • Consolidation of the banking industry to a point that in the next 5 years no more than 10 national organizations may control the vast majority of banking assets;
  • Consumers' embrace of market based long term investments and the consequent falloff of interest in insured deposit products;
  • Technology driven enhancements to customer service and convenience highlighted by the growing impact of the Internet;
  • Continued squeeze on credit union earnings caused by the slowly rising expense ratio and the erosion of margins on both loans and savings.

Many credit unions are reacting to these common trends by using very similar strategies. The primary elements are:

  1. Expanding geographic markets with many credit unions filling the local community financial institution role vacated by the bank and thrift industries;
  2. Enhancing products to bring both brokerage and insurance services via the credit union or a CUSO
  3. Focusing on marketing in terms of relationship pricing strategies and more public advertising efforts to expand image and name recognition.
  4. Employing technology to present a more personal, real time information profile and marketing message to each member at every contact point in the organization.

The essence of many credit unions' planning is to move from transaction-based relationships to relationship-based transactions.

Isn't Ordinary Planning Enough?
Certainly all of the above efforts are desirable and for many larger credit unions have been adequate to achieve performance outcomes in acceptable ranges. But as credit unions, especially larger ones, try to do everything well, will planning to maintain continuous improvement in both traditional and new services be feasible? Will that approach be sufficient to counter MBNA-like competitors in every key market from auto lending to real estate, insurance or even activities such as account aggregation?

The Key to Extraordinary Planning
Improving everything at once, even with gusto, generally doesn't work as a planning process. There needs to be some strategic emphasis. The point is even more critical for extraordinary results.

I believe the key to extraordinary outcomes is cooperation. New efforts, utilizing recent technology, to create organizations linked through value nets. These networked based solutions are more than cooperative pooling of resources for scale or diversifying risk. They are organizations to create expertise, focus and market power. They would both extend a credit union's reach and increase its expertise at the same time. In other words, credit unions must become more interdependent around common and not so common business efforts.

Today credit unions pool resources in traditional areas such as shared branching, ATMs, data processing, credit and debit card services and new efforts such as trust services and indirect lending. The change is that interdependence must go beyond sharing and enable the CUSO or third party to lead change.

Whether the number of active credit unions in five years is 10,000 or half that number, the primary constraint in strategy will be a lack of human capital. Thousands of credit unions cannot be good at everything and being ordinary will lead slowly to the decline of relevance. The challenge isn't to sell our businesses to superior competitors, like MBNA, but to create our own MBNA capabilities within the system.

For the planning process, the most important decision may not be what the credit union decides to do, but rather who do we want to become linked to in the future.

More information on Chip Filson and his consulting strategy.




Sept. 3, 2001


  • The human body is one of the most complex and most capable creations. Yet it is made up of individual cells that are relatively much simpler. Linked together they produce an unrivaled result. Credit unions can achieve the same result. You are what you network.
  • Very timely article. I personally facilitate 5-6 planning sessions each year. Many credit unions still don't get it that by doing OK operationally is not going to suffice for long.
  • I would like to hear more, I teach Econ@ the high school level.
  • I would like to hear more, I teach Econ@ the high school level.
  • Very little practical, all theory