Uncertain Times Call For A Member Focus

The past decade was bookended by two very different crises, but credit unions are ready for the challenge of a rapidly changing environment.

 
 

As we go to press on this edition of Credit Union Strategy & Performance, the world is taking unprecedented steps to respond to the coronavirus pandemic. The full impact to the United States is yet unclear, but the fallout will be widespread, starting with the effects on our national health and healthcare system and continuing into the larger economy. The transportation and hospitality industries are taking a hit as consumers cancel travel plans and practice social distancing. Thousands of small businesses that depend on office workers for revenue are in survival mode as telecommuting becomes the norm for many. And as cities, states, and countries further limit person-to-person contact, the economic dominoes will continue to fall.

Credit unions across the country are grappling with serious questions ranging from how to manage their staff to how to serve members. They are reducing branch hours, temporarily closing locations, limiting the number of individuals allowed in a branch at one time, and serving members on an appointment-only or drive-through-only basis. They are tracking call center volume and managing mortgage lending at a time when quickly falling interest rates are prompting consumers to rush to refinance. And, credit unions are evaluating options for staff members who might be impacted by branch or school closures.

To date, there are more questions than answers to this quickly evolving crisis. For its part, Callahan & Associates has created a Pandemic Response Repository on CreditUnions.com that allows credit unions to share practices and policies during this period. We believe that collaboration — including sharing learnings that can benefit all — is a major strategic advantage for credit unions. There are both human and financial issues to navigate during this period, and credit unions will better serve their members and staff if they can tap into one another’s experiences.

Lessons From The Great Recession

Many current credit union leaders remember well the Great Recession. This pandemic is a different situation, but there are applicable lessons for today. One of the most important is that listening to members’ needs has helped sustain credit unions through numerous economic cycles and shocks. Credit unions often emerge from crises with creative products and services created in response to member needs of the time.

In the current environment, it is essential that credit unions help members manage their cash flow. According to the 2018 Survey of Household Economics and Decisionmaking from the Federal Reserve board, 39% of adults cannot cover an unexpected expense of $400 or more without borrowing or selling something. The same survey found three in 10 adults have income that varies month to month, a number that is likely to rise with the expansion of the gig economy. Other surveys report three out of four U.S. households live paycheck to paycheck. Given this data, and with so many parts of the economy feeling the effects of the coronavirus, members will be turning to their credit union for help navigating this period.

True to form, credit unions already are launching efforts to take short-term financial concerns off of members’ minds. Across the country, credit unions are offering low-or zero-interest rate loans for members and employees to provide cash for living expenses. They are deferring loan payments, waiving late payment penalties, and offering loan modifications. And, as in the Great Recession, credit unions are refinancing loans to lower members’ monthly debt load.

As credit unions develop assistance programs, communication is key. In addition to informing members about the programs above, many credit unions are prioritizing messages about using digital banking channels or cards for payments. They’re also providing updates on branch operations. In short, they are assuring members the credit union is there for them. In that vein, messaging about financial coaching is also playing a role as it did during the Great Recession. That’s important because members concerned about market volatility are asking many questions, especially when a credit union provides investment services. Market fears combined with growing worries about household budgets means credit unions should be ramping up financial counseling by phone or video.

This decade is beginning in much the way as the previous one did — with consumers and businesses under financial stress.

Jay Johnson, Chief Collaboration Officer, Callahan & Associates

Operating In A Rapidly Changing Environment

The changing impact and dynamics of the pandemic are presenting new operational challenges every day. The number of employees working remotely is stressing technology, even as front-line staff must remain mindful of cash handling and member interaction procedures. Many credit unions are meeting daily in cross-functional teams to share questions and information, and some shops are splitting departments into teams to mitigate the risks of one person’s illness affecting a line of business. And through it all, credit unions are trying to make employees feel supported and protected. As for annual meetings, those are being postponed or moved online.

At an institutional level, historically low rates will again prove challenging for credit unions, but experts expect this cycle to be much shorter than what occurred after the Great Recession. Although mortgage refinance activity is spiking, auto lending volume is likely to drop significantly from an expected material fall in car sales over the next few months. Use of home equity lines and credit cards is likely to rise as members tap into credit sources. Given the volatility in the stock market, credit unions are likely to see a flight to quality as members move money into insured share accounts. Credit unions navigated similar circumstances well during the Great Recession and are even better positioned to do so now.

Looking Back As A New Decade Begins

This decade is beginning in much the way as the previous one did — with consumers and businesses under financial stress. In times of economic uncertainty, households review their financial profile and partners. They did it 10 years ago and will likely do it now. But, it is in times like these that the credit union difference shines through. Credit unions’ local presence — be it based on geography or employer — combined with their community insight gives them an advantage in terms of responding to changing circumstances and needs. This nimbleness creates new opportunities to develop deeper relationships with current members and start forging a path with new ones.

The 2010s were the most remarkable decade in credit union history. In a decade that began with tremendous uncertainty about the economic, competitive, and regulatory environment, credit unions thrived. More than 30 million consumers joined a credit union. Share balances rose by 75% across the industry. Loan originations in 2019 were more than double those in 2009. The average member relationship based on loan and share balances rose 35% as member product usage increased across the board. Market share rose in all key product lines. The incredible results are in large part the result of credit unions meeting member needs during uncertain times. The movement has that same opportunity now.

Credit unions begin 2020 with strong balance sheets. Assets are approaching $1.6 trillion. With a net worth ratio of 11.4% and more than $190 billion of total capital — nearly $100 billion more than reported at the end of 2009 — credit unions have the ability to weather member credit challenges. More importantly, they also have the ability to do what they do best — provide solutions for members.

Now is the time to double down on member engagement and support. As cooperatives, credit unions work for the common good. The opportunity to deliver on that critical differentiator is upon us again.

This article appeared originally in Credit Union Strategy & Performance. Read More Today.