The Fosbury Flop: A Model for Credit Unions?

Can a new method, or business model, put the credit union system on a whole new plane?


When I was in high school there were two methods of competing in the high jump. One was the ''western roll'' where one ran to the bar and jumped over it face down. The second was the scissors kick in which the jumper ran at the bar at a shallow angle from the side and went over, butt side down, with a swift kick of each leg to scissor over the bar. Using these methods the maximum performance for high jumping was pretty stable.
Then a competitor at Oregon State ''invented'' a new method. In this style a jumper runs straight at the bar, jumps face first into the air, rotates and flips his feet over his head to clear the bar. The technique sounds impossible to someone who has not seen it.

Yet the Fosbury Flop, named after the first athlete to excel using it, has now become the ''traditional'' way to compete in the high jump. The new method allowed athletes to reach heights previously thought impossible. A new era of competition was born.

A Head-Turn Model for Credit Unions

Is an equivalent breakthrough possible for credit unions? Can a new method, or business model, put the credit union system on a whole new plane? Could this method cause the members to have a whole new level of credit union service - a ''head turning'' experience that could make credit unions central to consumers' lives once again?

The breakthrough is possible. Opportunities still abound and new money is pouring into financial services at record levels. Money market funds alone now hold over $2 trillion in assets and reported growing $110 billion in January alone. That one month's growth is more than 25% of total credit union savings. Member needs are expanding, not shrinking.

What would take credit unions to a new realm? The critical change needed lies in the core assumption: the network of credit unions- not the independent charter, stand-alone organization- must become the focus for the business.

Through a Glass Darkly

Until now virtually all measures of success and planning have been for the individual credit union. Each CEO and board sees his or her organization as a ship on a financial services sea. Now the metaphor must shift-it is the flotilla in which the ship is participating that makes the individual ship powerful, and not vice versa.

Over time credit unions have had some success at cooperative, networked efforts. These activities have included credit card programs, various shared branching efforts, ATM cooperatives and co-owned data processing efforts. In a number of situations today, credit unions would be unable to compete without these joint ventures. These situations are indeed helpful enough to provide a glimpse of what might be should the network become the business.

But these examples tend to be limited, not guiding strategy. Many credit unions have chosen not to participate in shared branching, first waiting to see if it will succeed. Few see the future of their credit union interlinked with other credit unions. Occasionally a threat, such as federal credit union charters faced with elimination of field of membership options, results in a collective effort. But once resolved, the combined campaign model is dissolved.

As a result credit unions in most instances are being positioned, not doing the positioning, when it comes to defining the future of financial services. Credit unions are playing ''catch-up'' in diversifying to broader service models, deploying the power of the Internet and gaining more of our members' financial activities.

If credit unions truly intend to compete with, not just imitate, the models of their competition, then some method must be found to realize the potential value of a linked credit union system. The reason is that the majority of financial services are likely to be provided by large national firms with wide ranging product and distribution options. No credit union will be ''large'' when viewed against the major players in this market.

Factors for Resistance

To expand member services, credit unions will need to add to their transaction relationships new kinds of advisory services and off balance sheet solutions. But even in the core business today, credit unions would not be major participants in the transaction model if they were not participants in networks: for ACH debits and credits, for ATM transactions, for direct pay at the member service level, and as part of the Corporate or Federal reserve systems for corporate settlements. But all financial providers have access to these networks; participation is the price of entry, not a strategic advantage.

A number of factors inhibit CEOs from converting these public network solutions to a force for credit union advantage. For many the stand-alone model is the only career path they see. To convert to a network model would require that the directors and staff understand the goal of the model and see the means to achieve the outcomes, and that management see a career in broader terms than their own credit union's success.

Many CEOs openly question the role of a network to their business. For them it is unclear how a network will increase member value. The requirements of power sharing and cooperation to make a network model successful seem too slow or bothersome-we'll just do it on our own. Certainly the recent failures of a number of companies trying to build portal solutions using various networking models and the Internet have also caused some to question whether technical breakthroughs for cooperative activity are feasible.

Beyond Networking to Creating a Networked Capability

I believe that the emerging technical capability to connect via the Internet and credit union willingness to cooperate socially can create a true business network with market power. From merely meeting and sharing ideas about strategies and occasionally pooling resources, credit unions would be able to jointly implement new business processes using a network base. What does this mean?

''Market power'' is the collective buying or distribution capability created by credit unions operating from a common network. If connected, credit unions can attract significant non-credit union partners, gain access to IT solutions and resources not feasible for one organization and gain access to a scale and expertise that could never be reached on a stand-alone model.

''Being connected'' is the operative term. There needs to be some means of establishing a network integration capability. Two kinds of exchanges are likely to occur in the network. The first will be transactions similar to those occurring now that need to be processed in a tightly coupled or secure environment. The second is data exchanges that can accommodate members' information requests in a more loosely linked mode.

Bits and pieces of this networked model are all over the credit union system. Not only do credit unions belong to the ''public'' networks listed earlier, but they also have limited areas where they have put the success of part of their business into a joint effort. For example, many credit unions rely on partners for mortgage processing, service bureau solutions for their back office processing and CUSOs for off balance sheet products. Finally credit unions have made partial efforts at creating networked solutions from the Corporate network settlement model to CUVillage's Internet content solution.

Who will be Fosbury?

Most innovative efforts require a leader. Someone has to take the concepts and the partial examples now in place and begin to show how the evolution can be accomplished. This will most likely occur for a small group of determined credit unions rather than as a flash of insight across the movement.

This effort will be at the boundary of many kinds of innovation. A new network will need to go beyond automating existing transactions to address the limitations in existing DP systems for sharing data and identify potential revenue opportunities for the network.

A person who does this is not likely to be seen as a leader, but more of a rabble-rouser. For not only would this leader be working to unleash the value of credit unions in a new way, the model would change the way most credit unions prefer to do business today.

Maybe that's the place for each credit union to start. When is the last time you were asked to be part of a network to do something important, but declined because you thought you could do it better yourself? One of these days, an effort like this will have lifted a group of credit unions to a new height. Then we'll all see the opportunity.




May 14, 2001



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