Welcome To The Mass-Market Era

A stronger economy, more reserved regulatory environment, and ever-growing public awareness are all good signs for credit union members and the nation in 2015.

 
 

Credit unions have been burdened by unfortunate events over the past few years, yet the industry has emerged stronger for the wear.

Now — on the cusp of a new year — a number of factors have aligned in the industry’s favor and are revealing new pathways to even greater success.

First, the U.S. economy continues to gain traction. Economic growth in the third quarter of 2014 as measured by GDP was revised upward to 3.9%. This comes on the heels of the 4.6% second quarter growth rate and marks four quarters out of the past five in which the United States has recorded growth of at least 3%.

Second, companies are bulking up their staff. The October unemployment rate of 5.8% was materially below the 6.2% year-end projection made by the most optimistic members of the Federal Reserve Board of Governors back in March. As a result of these economic dynamics, the Fed completed its quantitative easing program in November, setting the stage for a rate increase in the coming year.

Third, given the power shifts in the House and Senate following November’s midterm elections, it would be surprising not to see a pushback against the regulatory approach that has characterized much of the post-recession era. In fact, a review of the Dodd-Frank Act and the Consumer Financial Protection Bureau will likely be on the Republican majority’s agenda for 2015.

Finally, new NCUA board member Mark McWatters is bringing a different perspective and new set of questions to the regulatory status quo. In his first two meetings, he raised points that run counter to the assumptions the agency has operated under in recent years, including casting a “no” vote on the 2015 budget. His call for more transparency in the budgetary process is welcome news to a credit union system that has seen and funded an increase of more than 50% in NCUA’s budget over the past five years.

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A New Chapter For Credit Unions

Inside the industry, things are looking equally rosy. Credit union membership now exceeds 100 million — a significant mass-market milestone. The fact the growth rate is still accelerating is a signal that these institutions are no longer the best-kept secret in financial services.

Additionally, credit unions are on pace to achieve record volume in consumer lending. They’ve originated more than $165 billion in auto, credit card, student, and other personal loans through the first three quarters of 2014. On the balance sheet, an upward surge of 19.4% in new autos was a major contributor to the 10.1% growth across the entire loan portfolio. Similar upticks have occurred in credit unions’ respective share of the national auto and mortgage lending markets, with the industry capturing a record 8.1% of first mortgages through the first nine months of the year.

Last, but certainly not least, share balances reached a new high in 2014. More than 53.6 million members now hold a credit union checking account.

These growth rates are headline-worthy, but the real story is in the industry’s continued progress toward its primary goal: developing and deepening member relationships.

Staying The Course Through Fair And Stormy Seas

The environment in which credit unions operate is in constant flux. Although positive external conditions not seen in nearly a decade might soon boost the industry’s performance yet again, its institutions are maintaining a continual focus on their membership above all else.

Evidence of these efforts includes a checking account penetration rate — often seen as an indicator of a consumer’s primary financial institution — that is up more than seven percentage points over the past five years despite a strong corresponding membership growth rate.

Lending relationship metrics have been improving as well. For example, the percentage of members with an active credit union credit card was up to 16.3% in third quarter 2014 while those with a credit union car loan grew to a new high of 17.3%. The average loan balance at credit unions was more than $13,000 as of September; the average share balance was more than $9,500.

Finding new and better ways to serve these member-owners is the industry’s true differentiator and remains the only lasting method through which to guarantee its future success, no matter which way the wind blows. 

 

 

 

Jan. 22, 2015


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