The New Credit Union Mantra: Stop Breathing !

A Bad Memory
Ever had one of those childhood memories you haven’t thought about in years come flashing into your mind and you wonder “where did that come from?”  No...well that makes this intro a slight bit awkward then doesn't it?  For me the memory was from 1st grade and I was sitting next to the meanest kid in the class. As we were working on some worksheet he whispered to me, “Stop It.” I looked at him like he had burst into Opera. “Stop what?” I asked. Glaring at me he replied, “Breathing…Stop Breathing.” So there I was sitting next to a future serial killer and thinking to myself, “how do I stop breathing.” The answer was I couldn't and so I did what any six year old from the Gulf Coast of Texas would do, I punched him as hard as I could and made a break for my friends across the classroom.


In Your Own Words

Today in credit union land we have a similar scene happening between credit unions where some credit unions seem intent on sending the same message of “stop breathing” to other credit unions within their markets.  When the article, “Credit Union Culture: Cooperative or Cut Throat” was posted I honestly expected to have people bash the article and come rushing to the defense of the credit union movement. I was sure people would talk about attending local chapter meetings and expound on the 7 Cooperative Principles. Sadly, it seems our industry is changing and many of us are unsure of the behaviors we see around us.

In reviewing the various discussion boards we posted the article, “Credit Union Culture: Cooperative or Cut Throat” on the level of responses was incredible. The following responses are a sample of the types of responses the article generated from you, the experts, on the state of credit union culture:

• “Unfortunately credit unions have changed a lot over the years in their philosophy when it comes to helping other credit union. With many CUs having expanded their FOM to community the competition and unwillingness to share has majorly increased. At least that has been my experience. There are still some that remember that we, as credit unions, are all in this together.”

• “Over the last few years I have spoken with many credit union CEO's who agreed that a majority of volunteers and CEOs alike have lost sight of their cooperative roots. The Seven Cooperative principles supposedly define our business model and the value proposition forming the heart of every credit union's brand.”

• “It's my belief that any trends displaying cut-throat, suspicious and unwilling to cooperate with one another behavior are all symptoms of losing sight of our common heritage--our cooperative roots.  Any initiatives to reverse this trend will one day be viewed in my opinion as saving the movement.”

• “…CUthroat. It's an everyday occurrence to see larger credit unions in my area push their way into our founding company - a university. You wouldn't see me walking on the site of their founding companies & current plants to sell my credit union.”

• “ As a CUDE, I am a believer that credit union philosophy is good business as anyone. That said, the world has changed; the economy tanked; the examiners have gone nuts; and successful credit unions rightly believe they need mass to survive. Healthy CU's are leveraging their capital by making merger overtures where it makes sense. Unhealthy, and small, credit unions may perceive that as cutthroat. It's survival.”

• “Community charters killed credit union cooperation. It seems that the 7 Principles guiding the industry today are growth, growth, growth, growth, growth, growth and more growth.”

• “CUs that feel that they are being taken advantage of should react. How? Grow profitably! Scale to a point where the competition - be it another CU or a Bank - can no longer abuse based on scale.”

• “Nonprofit status does not mean that the competitive forces in your industry have ceased. CUs must recognize that US does not need 15,000 Financial Institutions. Not all will survive. Many will be acquired; many will fail. The question that each CU executive and Board member should ask themselves is, 'Which category do I want to be in'?”

Reading the comments above you have to wonder if credit unions have crossed a tipping point in which we slowly do to ourselves what the banks could never do to us…make us disappear. Much like the school grade bully who threatened every time someone around him took a breath many large credit unions have sought to grow no matter the cost to themselves or to the movement as a whole. They have pulled back resources from smaller credit unions and have circled the wagons around themselves.

In the past I would have shaken my head and pointed my finger at all the talented bankers who have sought refuge and employment in the credit unions.  As much as I would like to blame the newly recruited the truth is we can’t blame converted bankers. We have to own our industry culture ourselves. Those of us who really care about the culture of credit unions have to own our own willingness to stand up for the principles that attracted us to cooperatives to begin with.

Given our current course once the dust settles we end up with a few hundred mega credit unions as small credit unions are swallowed by larger counterparts. While some might view this as inevitable the end result of thinning the credit union herd is less credit unions to compete with banks. It means fewer voices trying to make a difference.

In a world of fewer credit unions the question becomes, “Quis custodiet ipsos custodes”or “Who will guard the guards?." We all know it is the presence of community based financial institutions that keeps rates and fees in check for consumers within our communities.

The Solution Is Us

The irony of this trend is that the cooperative nature of credit unions is exactly what is needed to save credit unions. As we emerge after the economic recession we face a landscape in which the largest banks have come out with more capital and expanded market share. Credit union leaders now find themselves trying to survive with diminishing profit margins, increasing regulatory expenses, and stronger lending competition from captives.  In the face of these new realities credit unions need to turn back to their foundations and relearn to trust each other and collaborate to survive.

One way for this to happen is another recent trend of a few progressive credit unions to seek out strategic collaborations for core processing and other large budgetary expenses with other like minded credit unions.  These collaborations are founded on a common desire to gain operational efficiencies that creates economies of scale that return value to the membership of each of the credit union partners.

This model allows an alternative to the “hunt and skin” model of credit union mergers that have happened over the last three years.  As credit unions begin to research this alternative they need to start with core system alignment. The largest players in core data processing are aware of this movement and have begun to build the tools to enable this.  Jack Henry with its “PowerOn” forums or Open Solutions with its newly released “DNAppStore” have both invested in the tools to allow credit unions to collaborate directly with one another.

An example of this type of collaboration can be seen with *Open Technology Solutions (OTS) based out of Denver Colorado.  Together the individual credit unions form a combined collaboration that has over 7.6 billion in assets. This size allows for it to negotiate deeper price concessions from key vendors and then pass those cost savings back to their respective bottom lines.

As Big Banks emerge stronger and largely unrepentant from the recession it is foolish for credit unions to fight over islands of sand as banks are focused on driving profits. As banks push members into our arms with new fees we need to form the alliances that will allow us to grow in a way that complements one another.

Collaboration takes true vision and heroic leadership as management teams learn to trust one another and take hold of core corporative principles. For those leaders who have the courage and skill to navigate these new waters they will find that building large scale operations is where the real opportunity is for their members as they are able to roll out more expansive services with less cost.

To learn more about an example of an operating credit union collaboration check out Open Technology Solutions