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September 06, 2012

The Crystal Ball: Will Fewer Credit Unions and More Technology Make a Better Industry?

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by Ron Daly 

If you don't spend a few coffee breaks each week reading The Financial Brand, you're doing yourself a disservice. Jeffry Pilcher, One-Man-Journalistic-Juggernaut, does a great job breaking down the industry from either side - banks, credit unions, and beyond. Best of all, there's really something for everybody. Finance folks? Check. Marketers? Check. Fortune tellers? 

...wait, fortune tellers

Jeffry Pilcher has spent this past week showing us a glimpse of the future...and it might be a little scary for some. 

One article that's turned a lot of heads is "Credit Union Industry Outlook: 5 Years Back, 20 Years Forward". In it, Pilcher predicts that, at the current rate of retraction/"asset shift", half of all credit unions around today will be gone by 2032. The smaller credit unions are dying, hemorrhaging members and losing assets year after year. The larger credit unions keep growing, grabbing up new members and more assets and swallowing smaller credit unions. The bright side? Credit unions will continue to add members AND assets, growing into a stronger, if much smaller, force. Branch growth is slowing for the big guys, and is actually negative for smaller credit unions. 

Now, anyone can tell you the future is tricky to pin down, especially on only five years of evidence. But the reasoning behind Pilcher's prediction is strong and it's not impossible to imagine the industry going this way. Not disappearing, mind you - this isn't any indication that credit unions are dying/are dead. But things aren't looking great for "the little guy". 

I'm not a biologist, but I'm reminded of one of the important parts of evolutionary theory - "only the strong survive". It stands to reason that credit unions with billions in assets will be well set for the next two decades, but what of those with "just enough"? How will credit unions with only a few hundred million (or much less) keep their edge? 

Pilcher's second hum-dinger article of the week, "Killer Online Services Can Level The Playing Field For Smaller Institutions", talks about the relationships people have with smaller institutions versus the "big banks". The trade-off used to be convenience for high-quality service. The game changer, according to this article, is great online banking. The study mentioned in the article shows that online banking penetration for the CUs studied is 73% and that 85%  members surveyed rate their OLB experience as "excellent". 

Recall the first article mentioned in this post. If branches aren't practical to build and members are willing to do most of their banking online, shouldn't you have a virtual branch that really screams? Yes, yes you should. I've been saying as much for years.  

It's nice to hear someone else singing the same tune. Tim Bunch of CapEd FCU wrote a great guest piece on the Financial Brand about turning your online branch (mobile, browser, et. al) into your flagship branch. It's a brilliant article, written by a person who knows what they're talking about in the realm of online development because, hey, he's doing it first hand. His take:

Sadly, online banking doesn’t get the same internal treatment as a physical branch. It’s often something that we like to “set and forget”. It tends to be viewed as an inanimate object. We think of it like a hammer. When our members want to use this hammer, they pick it up and hammer away. But in reality, online banking has so much more potential. We need to stop thinking of it as a tool, and start thinking of it as a branch. Then, add the tools needed to make it an effective branch.

Some of the things Bunch thinks are critical in making the best online branch possible:

  • Pre-filled loan applications
  • Targeted marketing
  • Easy account management/PFM

If I can add a few of my own?

  • Switch kits that actually handle all the action of switching 
  • Single sign-on to other services
  • Wealth management tools/secure document storage and management

The crystal ball always shows a murky picture. It might be that more credit unions survive than predicted, it might be fewer. But what will all the survivors have in common? I'm betting they'll all have a strong focus on mobile and online convenience, a few helpful branches and a commitment to helping their members for the long run. 

Got an insight? Leave it for us in the comment section. 

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