Credit Unions "Too Important to Disappear"

Imagine that all of your personal financial needs were deemed undesirable by your financial institution. Imagine that getting a loan for a car, home, or student loan was not something that the senior management of your financial institution was really interested in. What if they saw those things as drains on the balance sheet.


Sounds farfetched, right? I mean in this economy with people struggling who would not want to support lending that moved the auto industry forward, or helped people get into homes with rates that have been some of the lowest in many people’s adult lives? Yet, this farfetched approach is exactly what one of the largest BigBanks has done. Yawn…so what right? What does that have to do with us in the credit union universe?


Nothing except that I find it odd that some of the world’s most complex financial institutions have grown so large that Congress had to reform financial service regulation to contain a prevision on how to break these giants apart in a way that does not pull down the world economy. Now while those laws are still drying on the books other bank lobbyist have proposed that large credit unions be forced into a mutual savings bank charter. So let’s break apart the logic on this.


• BigBank has grown so big it wants to sell off distraction divisions that provide financial services for auto lending, mortgage lending, student lending.
• BigBanks have become so large that Congress had to create a provision for “Too Big To Fail” and make that a law to protect the world economy.
• Banks want larger credit unions to convert and become larger banks


….and the reason for this stunning conclusion on the part of the banks is what exactly?


In a world of BigBanks deemed “Too Big To Fail” we need to have more local financial intuitions under the banner of “Too Important to Disappear .” Don’t be fooled by all the double talk being presented by BigBank lobbyist. The bottom line for every person in the local community is that members and non member benefit by having local credit unions in the community.


It is a basic principle that can be seen on the corner of most intersections. Gas Station A is selling gas for 2.50 a gallon while across the street Gas Station B wants to sell the gas for 3.50 a gallon. What stop them from selling at 3.50? Gas Station A. Local competition is always a plus for consumers. The same principles hold true in financial services as credit union competition helps consumers by keeping bank rates and fees lower.


For example, if your local credit union is charging a fixed rate of 10 percent on a credit card then all other lenders in the community have to compete with that rate. I don’t want to imagine how expensive BigBank would make credit cards (anyone with a BigBank paying 20-30 percent on their card??) if they didn’t have to compete with credit union rates.


Practical Application:
Are your employees able to articulate the benefit local credit unions bring to the community by providing lending for auto, housing, or education at rates that keep everyone competitive?
Are your local civic leaders aware of the difference credit unions make to their constituents?
Do they understand in a world of Wall Street and “Too Big to Fail” that having local credit unions in their communities is a must have.


Today more than ever member owned credit unions are “Too Important to Disappear”

Are You Securing Your Membership ?

Music and Books…Banking?
Actually those of us in the financial services world could learn a great deal by taking a closer look at what is going on in the music and book publishing industries. Like many of you I listen to music on my IPod. It is small, barely the size of a usb drive, and it can hold hundreds of songs. The same with the electronic reader I recently bought from my online book retailer.

What do both of these gadgets do for me? Your answer might sound like mine when I say, “they provide me the means of listening or reading when and where I want.” While that is true they also have another side benefit. They lock me in by building virtual castle walls around me…brick by brick..one great service, product, or convenience at a time.

A goal of every company should be to create a virtual castle walls around your customers or in the case of credit unions members.  Consider the IPod. The content of the IPod only works on the IPod. This means if I want to continue to access my content I have to continue to buy that content from Apple. The same with my electronic reader. The books I have purchased only work on that specific reader. In effect the companies have build into their products a switching cost I have to be willing to pay in order to leave the devices they have chosen. In other words I have been tied to company by the very convenience and service the companies offer me.

One challenge for many credit unions is that there is no inherent switching cost in leaving them. In fact, many credit unions are hurt because many members use them for that great auto rate or a “hot” certificate special but retain primary relationships with the BigBanks.Why would a person do that? Why would someone stay with a bank they do not like? The reason is that members do not understand the value you are offering beyond that "hot money" rate. 

Till Death Do Us Part

In a recent survey conducted in the United Kingdom the average Brit stayed with their bank for 16 years. The average relationship was just 14 years…meaning people stayed with their banks longer than the people that they once proclaimed to love! Primary reason they stayed was simple apathy. Banks realize this. Trust me they are building their own virtual castle walls to keep their most profitable customers.

As Big Banks look to create alterative sources for non interest income they will also invest in the very technologies that enable them to build in switching costs to the customers they serve.  I remember when I left my relationship with a Big Bank having to convince my spouse that the online banking, national ATM network, and vast branch network were not the only things that mattered. I had to remind her of how tired we were of the new fees that seemed to come up month after month.  What we discovered was something very different. We discovered local community based financial services. Now this readiness to provide great service is only as good as the people and technology that enable it. Financial Services for many people is an emotional transaction. They know when something "felt right" and they also know when they felt nothing at all. 

As Big Banks continue to look for new fee revenue many people who were in a state of apathy will wonder what alternatives are out there. Credit Unions have to break through the clutter and engage those people that are looking for some other financial services alternative. This is the perfect time to leverage the membership growth many credit unions experienced as consumers fled Big Banks in their flight to safety. Credit union need to invest in people and convenience technology that builds the virtual castle walls needed to both attract and retain members.  

Practical Application:

• Are you just a simpler more vanilla version of what your new member already experienced or will they find your front line staff lacking in their readiness to serve?
• Have you looked into the "click and carry" mobile technology that will make leaving you too difficult?
• Can members send you a check via their phone? Do you even know if they want to ?
• Do your members have to sign paper loan documents or do you allow electronic signature for seasoned members with strong standing relationships with you?  

BigBank Stock Options: Hear No Evil, See No Evil, Tell No Evil

Years ago I recall walking into a new hire class and being told that as a new employee I was now the owner of a stock option for 400 shares of bank stock. Stock Option… the word just sounds cool. My mind danced around with endless possibilities. I was going to be wealthy beyond my imagination. I just had to help the stock get to the first trigger then it was all mine.

Two long years later the stock hit the trigger. I like everyone else was checking the stock price by the hour. People in the next cube over had just cashed in and were putting money down on a house. I called my wife told her to stop cooking we were going out for supper! Then the news hit. The “Oh Momma” of all words in this type of environment… Merger. I was so excited I pulled up another spreadsheet and redid all the math. Numbers and dollars signs danced before my eyes. There was talk of a stock split. The stock was close to 100 dollars up from 60 dollars the prior day. People cashed in left and right. Cars, vacations, homes, motorcycles, people were getting it all.

After running through the math I set my target I would cash out at 105 per share. I waited and watched all day. Work was ignored…each up or down movement brought cheers or groans. The stock got to 104. I held strong. Then it slid to 102…100…97. I wanted to panic but I knew it would bounce back. Others told me to cash out but I had latched onto my mental anchor it would bounce back.

So how does this end? Well, the next day the news broke that the other company had hid billion in losses in a bond deal with Russian bond traders. The stock plummeted. I watched with horror as the stock went below the 1st trigger. Two years later I sold my shares and took all the money I made and bought a two hundred dollar grill at Lowes.

Why do I mention that today? I remember everyone being so excited and so very distracted during that period. Everyone was going to make a ton of money and everyone was watching the stock. During that time no one was focused on the company mission, vision, or customers. It was all about everyone getting their share of the pie. This tunnel vision continues today in large banks.

In a world of stock options it is hard to not concentrate on the stock. Not only do you have a duty to make sure you provide a good return for stockholders you are also motivated because you potentially get to make out better than the stockholders. You have three groups of people who have a stake in the type of service, pricing, and products the company offers – stockholders, customers, employees. The problem is that two of the group members (employees and stockholders) profit if the 3rd group pays more and gets less.

The way to fix this is to allow everyone to own the company. How do you do that? Simple give ownership to anyone who wants to join. Sounds crazy. Sounds like the way credit unions have been doing business for the last 75 years. A better model that rewards everyone.

Practical Application:

The topic of ownership is something every credit union should be jumping up and down to articulate to its membership. In order to do that the membership has to understand the contrast between a member owned cooperative and a stock owned bank. 

Questions to Consider:

How have you educated your staff and your membership on the value they receive by not having to compete with a separate group of stockholders?

Are You Helping to Create Hollywood Moments With Your Members

So this week I had one of those just can’t win moments. You know one of those moments in which no matter how hard you try to explain your reaction you still end up looking lame. My wife and daughter had just left the house to go school supply shopping (apparently when your daughter is 15 this also includes new shoes). When suddenly my daughter came racing back into the house holding a letter in her hand.

It was a special invitation to be a student ambassador! To spend 20 days in Europe!! To visit historic old places in the Old World!!! 

Now blog readers you can see where this going. One of those perfect Hollywood moments you see on some lifestyle movie of the week in which I say all the right things. Now in my defense I really do think a great deal of my daughter so my initial reaction of seeing only the words, “TWENTY DAYS IN EUROPE” sort of created a tunnel vision moment for me. So while my daughter was looking for that Hollywood picture perfect daughter father moment of “ Oh daughter, this is amazing…of course you can go” Instead she got my eyes popping out of my head and a panicked shout of, “Twenty Days…are you crazy !!!”

All of which brings me to my point. When I woke up that morning I had no intention of sending my teenager to Europe for twenty days and as such had not really planned for it. The lack of planning created a sense of panic as I suddenly found myself financially not prepared to spend that kind of money. The same thing could happen to all of us if we do not do something about it.

All of us know the day will come when we are no longer going to want to work. Notice that I said “want to work” and not “have to work”. But what is the plan to actually get there? Too often we think planning is something for the rich and famous. Yet, that is simply not true. If you actually sit down and talk to someone about what you want to accomplish (retirement, vacation, kids to college) and then work with them on creating the action steps needed you are 250 percent more likely to achieve that goal.

Practical Application:

• Have you educated your members or customers that they don’t have to start big to start?
• Are they aware that the first step of sitting down and talking to your local branch manager can start them on the path of getting in front of the right person?
• For those who don’t live close to a branch do you have an alternative delivery channel solution to help them identify practical steps regarding goals? 
• Has your marketing department communicated that solution?
• What opportunities are you missing by not helping your consumers consider the perfect movie moments they could achieve by simply creating a plan?

Breakfast With World's Largest Bank and World's Coolest Credit Union

So a friend and I were sitting and enjoying breakfast together talking about kids, our wives, and work. What is interesting is that he works for one of the world’s largest banks and I work for one of the world’s coolest credit unions. Much of what we talked about was easily transferable between the two of us. We both had teenagers and both of us agreed it was so much simpler when they were just five years old. We talked the old days when we had worked at some other place together and how much fun we had (ah yes…the sense of nostalgia was deep.)

As things always do we talked about work but in a guarded manner (after all he is with the world’s largest bank and I am with the worlds coolest credit union.) But as we talked I could not help but notice how all of his points seemed to focus on the sheer scale of the operation and on the numerous levels of management in multiple cities needed to operate on that scale. On the other hand I had just spent my prior afternoon helping a call center agent who had a member who needed some help with a bill pay question. The agent had done all she could do to help the person and needed to see if there was more that she could do. So she took it to her manager and within two minutes I was involved and within five minutes the issue was resolved and the member was thrilled.

Now as I thought about the contrast of my friends workplace and my own my first thought was that our workplaces are simply the result of the type of financial institutions we work for. He worked for a company that has over 280,000 employees (more than the whole Marine Corps) while I worked for a company with less than 450 people. Yet, as a member owner I have never noticed the difference in the level of service provided to me. I realized it was because of the cooperative nature of credit unions as a whole. We share resources like ATM networks and branch networks. So imagine my surprise when I did some research and came across the following numbers: 10,000, 34%, 12.3 %, 7,200,000,000. 

I did some quick research and came across the following on the blog http://giraphcu.wordpress.com

• 10,000 equals the number of ATMs credit unions have over the world’s largest bank.
• 34% is how much higher typical CU savings accounts are over banks.
• 12.3% increase in business lending credit unions made in 2008 when many other financial institutions stopped lending to small businesses.
• $7,200,000,000 is the amount of money saved by members last year by simply using credit unions.

So what does this all mean ? To me it is being part of something that is closer to me while not having to give up the benefits of being part of something bigger. It's about being an owner of something that fits me and my needs and not the needs of some distant executive who doesn’t even know what the weather is like where I live.

Raising the Cap on Small Business Lending For Credit Unions -What's Not to Love ?

Have you ever had someone make a decision and as you watch it unfold you can’t help but wonder, “What are they thinking?” Well, I had that same thought as I was reading the paper about how 130,000 people lost their jobs in July and we are still arguing over wither credit unions should be allowed to lend more to small businesses. This seems like a no brainer as some experts believe that improved business lending potential for credit unions could create more than 100,000 new jobs, and inject $10 billion into the economy, and all at NO cost to taxpayers.


Now, I understand that if someone works for a bank they might object. I mean I get that…they are thinking about their piece of the “turf” but that type of thinking is short sighted and they are missing the big picture on this. Each dollar that is spent in helping small businesses has a multiplier effect.


For example, we give 50,000 to a small landscaping company. They hire two workers who then take their next paycheck and start to do the things we all do. They take their families to the movies (movie theater owner is happier) then go get hot dogs (hot dog stand owner is happy) and money flows into our local community. As businesses bring back workers it enables others to benefit from the dollars that are spent in the community. Even banks themselves would benefit as new workers look to refinance existing debt or make new purchases which the banks could compete for. Everyone wins.


This has to be a new concept that bankers are not aware of, right? Actually this is old news. Credit Uunions were authorized under federal law more than 75 years ago in the crucible of the Great Depression. Back then the solution was to get people back to work. Get businesses growing? The same solution holds true today. If you look at the big picture there is no public policy reason not to permit credit unions to do more lending to their members who own or want to start small-businesses.


In fact, credit unions have proven for years they are capable of making these types of loans safely and soundly. During this latest "Great Recession," while BigBanks took millions of dollars in TARP money they also contracted their business lending. Meanwhile, credit unions have continued to serve their member owners (those that work for small businesses and those who own small businesses). The value of being a member owner and in having a choice between some large bank and your locally credit union should not come down to the fact that small business owners are left to the mercy of some large national bank.


Practical Application:


If you own a small business, or if you want to start one, and you agree that credit unions should have more capacity to help you, call your senator and urge him or her to support Sen. Mark Udall's amendment to H.R. 5297, the Small Business Job and Credit Act of 2010.

Providing Direction to Members To Avoid Financial Tombstones

I Take the Silver Miner Pancakes ...Please


After eight days, one airplane ride, and a 915 mile trek through the desert my family and I sat somewhat comatose in a breakfast grill a block from the OK Corral in Tombstone AZ. We had seen the natural arches of Moab, sailed down the Colorado River, walked the rim of the Grand Canyon, driven down the mountain pass in Sedona and now just wanted the “Silver Miner” pancakes for breakfast.


Our waitress could probably sense our weariness and spent the majority of her time talking to the table next to us. As my family and I sat and waited for our order I could not help but listen in on the conversation she was engaged in with the next table. This was not as easy as you think as I had a ten year old asking me who I would rather have a gunfight with-Wyatt Earp or Doc Holiday.


The waitress explained to the other table that she had been in the town for a year and had moved with her family from another state. Now after a year they were stuck in the town. They had used what money they had to move here and employment was not what she thought. So they were trying to save money to get enough to move to someplace cooler and more populated like Flagstaff.


For those of you who have never been to Tombstone the town is about 1500 people. Other than one or two city blocks there that looks like an old time western town from the 1890’s there isn’t much to see or do. The name kind of says it all.


When our food came I still could not help but think about the plight our waitress had found herself in. While the city name and the individual circumstances varied a little the core issue she faced was one that many people face. A well intentioned decision leads to an unintended consequence. Like the waitress many of us find ourselves stuck in places and we are unsure how to exit. Money is tight, options are limited, and the horizon seems to move further and further away.


That feeling of not knowing your next step can be paralyzing. It can create a sort of tunnel vision that can blind us to those around us who are willing to help us back on our way. I have listened to numerous phone calls in which a member calls in for one option and by the end of the conversation we have helped them see other options available to them. This is especially true with debt and credit.


I truly can’t count the number of times when one of our loan officers or branch managers has helped someone restructure their debt, freed up equity, and lowered the amount of interest the member is paying. Typically this results in more cash flow into the home.


Practical Application:


For those of us who work in financial services this is the opportunity to make an incredible impact in the lives of those who do business with us each day. This is the chance to execute a strategy that moves beyond selling product. Now don’t get me wrong there will always, one can assume, be need for some selling of products or services. 


When the strategy moves from the "selling of product" to the "matching of needs" then the aim of the organization is to make selling superfluous. The new aim of the organization is to know and understand the member so well that the product or service fits him or her and sells itself. Sometimes people just need a direction to move in with their financial lives. Shouldn't that be us with the compass in our hand point out a direction for our members ?