While the national economic outlook continues to trend up after the great recession, organic growth in the credit union industry has also reached all-time highs, bringing with it new opportunities for investment and improvement.
Maintaining relevance in a changing world does require an attitude of continual adaptation and improvement and credit unions are not blind to this necessity, nor are they reluctant to embrace the right kinds of change.
However, they are navigating these important decisions using a different frame of reference than most, one that puts the needs of their members first and foremost, followed closely by a desire to support their fellow co-operatives and local communities where possible.
Whether it’s through new products, services, technologies, or areas of operation, many credit unions are asking the same question: “How do we leverage today’s environment of opportunity to better both our organization and the lives of our members?”
There’s No Time Like The Present For Exploration
Credit unions grew many different areas of the balance sheet in 2014, leaving them well positioned to explore some new territories this year.
Throughout 2014, the industry originated $354.3 billion in loans, a record that exceeded 2013 originations by approximately 0.9%. Outstanding loan growth outpaced share growth in 2014 as well, resulting in a loan-to-share ratio much closer to pre-recession norms.
This positive shift is also mirrored in external indicators — such as a 4.3% increase in the U.S. personal consumption expenditure in the fourth quarter of 2014 — showing that Americans are indeed becoming more comfortable saving less and spending more.
With 14.2% annual growth in consumer loan originations and a less precipitous slowdown in real estate lending than was experienced by the mortgage industry as a whole, the consensus around the stability of credit union’s most traditional business lines is growing.
That stability is important because it is granting many organizations the wiggle room needed to start testing the waters of some less-pursued business lines that are in high demand. Common examples include mobile payments, student lending, or member business lending, the latter of which grew 14.2% annually as of year-end.
A Solo Venture Of Self-Improvement
When the opportunity arises for a credit union to invest in itself, it must do so with the goal of creating deeper and stronger member relationships.
One example is an investment that either helps fund or directly provides an enhancement to the member experience, such as an improvement in technology, a diversification in products or services, or a geographical extension of the credit union’s field of membership.
In 2013, a $700 million credit union was granted an extended field of membership and expanded into a new city one hour outside its headquarters. The city had a population roughly 20% smaller than the credit union’s main market, but indicators of the potential for growth were obvious. These included the presence of a university with nearly 14,000 undergraduates, a median resident age nearly eight years younger than the credit union’s membership average, and a population growth rate fives times higher than that of its main market.
Today, the organization has two branches and a 4% deposit market share in the city, making it the seventh largest financial institution and the largest credit union there in that regard.
The same expansion also helped the credit union grow total shares and loans year-over-year, at 11% and 16% respectively, and has driven more value to membership with a 25% increase in return on average assets to more than 1.20% as of year-end 2014.
Several years ago, another credit union — this one $550 million in assets — sold its credit card portfolio to an agent-issuing bank. At the time, the credit union’s capital ratio had fallen from a high of around 12% in mid-2007 to approximately 8% at the time of the sale. Its capital ratio continued to decline to a low of about 7% in 2013 while the ratio of its asset-based peers remained consistent at around 11%.
However, since that 2013 low, the credit union’s capital ratio has climbed over the past several quarters to reach a five-year high of approximately 8.30%. Given this positive trend, the credit union decided that holding the assets and retaining the card servicing would provide more value to its 40,000 members than hosting with a third-party and it is currently in the process of bringing that card portfolio back onto its balance sheet.
Investment As A Shared Enterprise
One can also see examples of strategic boldness in the Credit Union Service Organization (CUSO) space. Rather than simply leveraging market opportunities for their own gain, CUSOs all across the country have made it a priority to provide new services based around member relationships rather than the bottom line.
One example is CU Wallet, a California-based, credit union-driven mobile payment solution launched in 2013 and currently boasting 87 credit union members. What differentiates this platform in a now-crowded mobile payments space is that CU Wallet is branded and controlled by individual credit unions.
As mobile payments grow in popularity and adoption, having access to a solution branded and offered by a trusted cooperative partner both provides a necessary service and alleviates the worry that credit union values may be interfered with or even superseded as a cost of doing business.
Another CUSO, the Minnesota-based OnApproach, is focusing on helping credit unions cooperatively share and analyze industry data. By creating a deeper pool of on-tap industry information than any single organization would be able to collect alone, the CUSO’s credit union partners are now able to make more informed operational decisions and create new campaigns and products that more positively affect their membership.
With all these internal and external indicators positively aligned and the support of more than one hundred million members to act as its guiding star, there is simply no better time than now for the credit union industry to take some smart risks and strategically reinvest in its own future.