“We must all hang together or we will surely hang separately.” Benjamin Franklin uttered these words as he signed the Declaration of Independence and faced the wrath of King George. The colonies were at a crossroads. Despite divergent and competing interests, the colonies recognized that together they had a chance for survival and alone they were doomed. In case you missed the movie, their collaboration had a happy ending.
Credit unions should heed the collaborative example of our forefathers. The future of credit unions is at a cross roads today. A significant number of credit unions have a negative net interest margin. An average of one credit union a day is disappearing. The number of new credit unions being formed is statistically insignificant. We no longer have a net interest margin squeeze, we have a margin collapse. The margin collapse means that credit unions can no longer operate as usual and survive.
The survival of credit unions as we know them requires that credit unions establish collaborative networks with other credit unions. With collaborative networks, credit unions can obtain efficiencies and scale that will significantly reduce operating costs and increase non-interest income. By integrating back office operational services and collectively providing alternative financial services, credit unions will be able to achieve the scale to meet market pressures.
Most of us know this but we resist? Why? One reason is that we have incorrectly perceived the principle competitive threat as being other credit unions when in fact banks and other financial service providers are the real threat. Field of membership overlaps are a fact of life these days. It is not unusual for a person to qualify for membership in several credit unions. Many credit unions have elected to have community charters which overlap with other credit unions. The mindset of many credit unions is that they are competing against all the other credit unions for new members. That sense of competition is threatening the traditional credit union culture of collaboration. Credit unions tend not to want to help other credit unions that are competing for potential members.
We in the credit union industry have to avoid looking at other credit unions as a competitive threat. As an industry, we are such an inwardly focused group that we fail to grasp that the rest of the financial services world is about to devour us if we do not act as a group and act quickly to save the future of this industry. Sure other credit unions with the overlapping field of membership can be considered among your many competitors but collaboration works even when the collaborators are competitors.
We are all familiar with auto malls. Car dealers purposely cluster together to draw customers. Is it more convenient for a customer to look at a competitor’s cars if he is only across the street? Yes, but customers like this shopping convenience. Studies show that each dealer in an auto mall draws more customer traffic than similar stand- alone dealerships. This benefits each dealer in the auto mall but credit unions can do this analogy one better. If the auto dealers were in a collaborative network where a customer of any one of the dealerships provides a benefit to all other dealerships in the mall, there would be no need to concentrate on competing for the customer and the dealerships could focus on customer service. The ability of a credit union collaboration network to both attract new members and to jointly serve new members is powerful and unique to the credit union cooperative culture, a culture we are in danger of losing.
Remember George Orwell’s novel Animal Farm? The pigs represented the farm animals in negotiations with the humans. Over time, the pigs spent so much time with the humans that they began to identify with the humans to the degree that the other farm animals eventually could not distinguish between the pigs and the humans. The traditional credit union culture is in danger of morphing into a bank culture of cutthroat competition and non-cooperation. It will not be long until we cannot distinguish between banks and some credit unions. For credit unions that have adopted a bank culture, it is a natural step to actually become banks.
The goal of each and every credit union has to be to get as many people as possible into the credit union movement. The more people who use credit union, the more business all credit unions will have and the safer we will be politically. If new members come into a credit union that is part of a collaboration network, all credit unions in that network will benefit from the increased scale and service opportunities.
Let’s get people into the credit union system and not worry about which particular credit union a person is joining. While credit unions are bickering, the banks and other competitors are picking off potential new members left and right. If credit unions are to survive, credit unions must rededicate themselves to the cooperative and collaborative model and shake off the temptation to think of themselves as “we alone against the world”. If you are a credit union with that thought, your future will be a merger or a bank charter.
Repeat this mantra, “A new member of any credit union helps all credit unions.” Repeat it until you find yourself working collaboratively with other credit unions to bring new members to your network. Hanging together is a whole lot better than hanging separately.
I you want to learn more about credit union collaborations, I invite you to explore our website www.cusolaw.com and NACUSO’s website www.nacuso.org.