At a recent credit union conference, Jim Collins, author of the best selling book Good to Great stated that the business model credit unions rely upon is broken.
No doubt some met this news with a strong pushback fueled by an intense loyalty to the system, by the belief the credit union members are loyal because they receive better rates and better service than they can at other financial services institutions, and by their personal behaviors regarding the way they use the credit union.
But Collins is right. The business model that built the industry is seriously broken, and this reality applies to both credit unions and banks.
Think about it.
The core business model that built the financial services industry was based on building visible presences where people would come to make deposits and withdrawals, and to apply for and receive loans. Over time various products and services were added to the mix, but the core of the business remained structured around the deposit and loan business.
Today that model is not working as well as it did in the past for a number of reasons, but only a few are related to the lingering recession. There are at least four key driving forces that demand a new business model for credit unions as they look to future:
1. Technology. Advances in technology will continue to make the traditional “branch-banking” model somewhat irrelevant to the consumer. Smart phones already allow people to manage their accounts on the go, soon they will serve the same function as debit cards, and they are already being integrated with imaging to handle remote deposits. Online banking continues to expand, as does the use of online bill payment tools. And who knows what lies ahead.
2. Convenience. The demand for convenience has never been stronger. Consumers want what they want when they want it and where they want it, and many are willing to pay for more convenient access. While inherently linked to technology which changes the game by adding access points wherever consumers want them, there are also implications for branch locations, staffing, and equipment. While we continue to hear that people want a branch where they can go to get support when they need it, it is becoming clear that it does not need to be a branch in the traditional sense. It is the access to support that is important, not the bricks and mortar that give a sense of security and soundness.
3. Competition. Times of economic turmoil always lead to innovation, particularly in industries where business models are broken. Though it’s seldom obvious where the innovator will come from, history shows us that the innovations that have the biggest impact often come from outside of the industry. While impossible to predict, leaders in the credit union industry who are willing to break the mold and go beyond traditional thinking, can create alliances, partnerships, and collaborations that will lead the way.
4. Collaboration. The next generation of credit union leaders has grown up in a world where collaboration is integral to their lives. As they select a supplier for their financial services, they expect to be listened to and they expect their ideas to be incorporated to improve the way you serve them. They also expect (and need) a seat at the table when the future is being discussed, since they will be the core of your membership moving forward. Finding effective ways to engage them, build relationships with them, and gain their insights must be a part of your plan for the future.
The Bottom Line: For the credit union industry to succeed moving forward, the business model will have to evolve. The key is acknowledging that as Einstein said: “We cannot solve the problems we face using the same thinking we used to create them.”
Adopting the mindset that change equals survival is step one. From there it will be a matter of leading in new directions and thinking in new ways…about technology, convenience, competition, and collaboration.
ACTION ADVICE: Put this topic high on the agenda of your upcoming planning session. Explore options for improving your business model and push your planning team to really think about options that are outside the usual realm, because that is where the real successes will come from in the future.
It’s Your Turn: What do you think? How would you change the credit union business model? What has to happen to create a sustainable, competitive model that will support long-term success while building upon the rich history and the foundation principles that created past credit union success?
This is right on target. The credit union industry must evolve with the times in order to remain relevant to current membership and to BECOME relevant to Gen Y – the future of the credit union movement. Insisting on holding onto outdated methodology will not help us as we move forward. Some steps to take immediately – (1) start using a more modern vernacular – nobody knows what the heck a “share draft” account is, (2) credit unions need to stop being so afraid of the “s-word” – face it, we’re in the SALES business. We need to start acting like it!
Thanks Sean…solid insights and critical reminders…changing the vocabulary and embracing things that have been avoided in the past are both great ideas.
I agree with this wholeheartedly; in fact, #4 is why I left my position as VP of Operations at a credit union. I found a company that embodies collaboration with credit unions, and fits the very definition you created for #4. (It’s a credit union-owned data processing CUSO) We offer the same value of ownership that credit unions offer their members, so that we are partners instead of the traditional client/vendor model.
I am also a strong proponent of CUNA Management School, as not only does it help develop credit union staff into leaders in the industry, but it provides phenomenal networking and collaborative opportunities that you might otherwise have never been exposed to in your own credit union’s back yard.
However, if we do not somehow manage to convince long-established board members of the importance of Gen X, Y, technology adaptation and the importance of change in the marketplace; I fear the system will remain broken.
Thanks again for the great article, going to blog about it myself.
Thanks for sharing your insights Mark. Well said and on point. Look forward to your post about the subject.
http://www.cusouth.com/2010/09/collaboration-is-the-new-business-model-for-credit-unions/
Thanks Mark…I appreciate your sharing a portion of my post with your audience, and I appreciate your perspective on the power of collaboration as a strategy moving forward. There is massive power created when like-minded people can come together to create a new future, and that is what the credit union industry needs today…new ideas, new partnerships and alliances, and collaborative efforts that lead the industry in new directions!
Return to Credit Union International Operating Principles and the business model we are ignoring. For example, we would be at the bleeding edge of technology and convenience if we listened to member’s needs. Unfortunately, the majority of board members and credit unions have made it so that they do not need to face competition in or the expense of elections. As a result, the members do not realize the experience of ownership and have stopped communicating their needs.
Credit unions with elections have much higher membership growth rates and loan to share ratios.
The issue with the credit union business model and almost all of our challenges are symptoms of this issue is that we use reasons for not behaving as cooperatives. While other cooperatives like USAA and REI are thriving, we use our reasons to be claim our business model isn’t working.
It is working for those that use it. And the business model is not a not-for-profit-bank. It is a not-for-profit financial cooperative.
Ask your CEO, when is the last time we sent a ballot to our members? Who is on our nominating committee? Is it the board members that are currently on the board? When is the last time they nominated someone new for the board?
Excellent insights Jamie…thank you for sharing them.
The contrasts you point out between other cooperatives and credit unions are powerful and on point. I especially appreciate your point about being a not-for-profit financial cooperative. If more Boards and leadership teams saw themselves in this way, they would realize that there are many opportunities out there to be pursued in supporting the financial needs of their members…which extend far beyond the banking business model.
Thanks for the article! My contribution is focused on using collaboration as a means to sustainability for the industry. Tom Davis of NACUSO recently did a great job of expressing this – as an industry we’re lacking a unified vision going forward; We need to embrace collaboration as our competitive advantage, we need to look at the successes within the industry and apply those ideas to our operations…. we need to share subject matter experts, excess resources, create more CUSO’s…
Focusing on Gen X or Gen Y seems almost a waste of time to me, if as an industry we cannot embrace the bigger picture. Relevancy is only one proponent of sustainability – continuing to treat the symptoms are not going to cure the problem.
Good insights Rachel…thanks for sharing them.
The notion that the industry lacks a unified vision is spot on. Even more challenging is that many individual credit unions lack a clear vision of what role they want to play in the industry or of what they should do to best serve their members and grow their individual credit unions which is the most pressing short term issue facing the industry.
What the industry and individual credit unions really need is strong leadership…visionary leadership to look at the strengths and experiences of the past, assess the current situation, and define a compelling vision for the future. It sounds a bit idealistic and perhaps overly simplistic, but the short-term survival focus that is dominating many CUs today is getting in the way of creating a future where the collaborative, cooperative capacity of the industry is leveraged to build a future that is better than the past.
The purpose of this article is to create fear uncertainty and doubt for people using or thinking of using a credit union instead of a bank. As everyone who can read is aware, nearly every single bank is at best incompetent and at worst (most likely) criminal.
You are saying that the credit union business model is broken, but do not point out why that is the case in any way.To the contrary you correctly explain they offer higher interest rates and better service to members than banks. The 4 ‘examples’ you give how to improve are generic common sense things, but don’t actually point out any problems. They don’t even apply to modernized credit unions such as Alliant that have fantastic online banking and budgeting tools.
You are clearly a shill for some bank or another.
Thank you for sharing your thoughts.
Let me respond to a few of your points:
1. The purpose of the article is not, as you state “to create fear uncertainty and doubt for people using or thinking of using a credit union instead of a bank.” It is to encourage credit union leaders and board members to think strategically about how they can improve and evolve their business model to serve a changing world. The article is in fact not even targeted to or intended for consumers.
2. I do not agree with your assertion that “nearly every single bank is at best incompetent and at worst (most likely) criminal,” and would like to see the evidence upon which you are basing this accusation. All financial services focused on consumers use a similar business model and my comments are as relevant for community banks as they are for credit unions…the world we live in today demands a different way of doing business from all financial services institutions (and most other businesses).
3. The article does in fact identify four general characteristics that are reasons why the traditional business model for all financial institutions needs to evolve, as is noted in my post where I state “The business model that built the industry is seriously broken, and this reality applies to both credit unions and banks.” It should also be noted that I am not alone in making this claim, as the inspiration for this post was a speech by best-selling author Jim Collins.
4. You are certainly correct that there are examples of credit unions out there who have in fact adjusted their business model by embracing technology and finding new ways to meet the needs of their members. But there are also credit unions that have not done this, and they are the ones who need to think more strategically and evaluate their business model moving forward.
5. As a lifelong credit union member (since I was a toddler) and one how has served the industry as a speaker and planning consultant for over a decade, I take offense to the accusation of my being “clearly a shill for some bank or another.” I have only one goal–to help leaders of businesses in the industries that I serve, one of which is the credit union industry, discover and implement strategies that help their businesses thrive. Sometimes doing that means raising uncomfortable issues, asking tough questions, and challenging conventional wisdom–that was the purpose of this post. And I appreciate your taking the time to share the reaction that you had to it.
Here are some additional resources on the subject of the credit union business model for those who are interested:
http://www-rohan.sdsu.edu/~cba/news/story/SDDT-Ely7-14-09.pdf
http://www.cusouth.com/2010/09/collaboration-is-the-new-business-model-for-credit-unions/
http://www.creditunionmagazine.com/articles/is-the-cu-business-model-sustainable