The Smaller the Better? (Maybe size does matter)

At the age of twelve I was a towering 5’7”. As one of the first boys in my class to have my growth spurt, I was able to experience what no one in my family could. I was tall. I was in the back row of my basketball team photo. I was bigger and stronger and hairier and had a deeper voice than most of my classmates. It was good to be big.

Seventeen years later, I’m still 5’7”. With the passing of every year I was able to see my contemporaries grow taller and taller, while I became (seemingly) smaller and smaller. I went from being one of the tallest people I knew my age, to being one of the shortest. Tough? You betcha! I’ve heard every short joke ever created, and have been the unwilling recipient of countless comments on my height, or in this case, lack thereof. It’s been tough to be small.

Or has it?

Yesterday I flew from Charlotte to Houston to speak at the Texas Credit Union League’s Mid-Asset Summit. My seat was in the exit row. While nearly everyone else on the plane over the age of 7 looked cramped, uncomfortable, and displeased with their seating arrangement, I was nearly able to stretch my legs straight ahead of me. Sure, I felt cramped shoulder to shoulder (such is life on airplanes), but in terms of legroom I thought the plane was quite spacious.

And today I talked to amazingly passionate credit union CEOs from mid-sized credit unions in Texas. After conversations with these executives, I have never felt better about being a part of this industry. We discussed why it has never been a better time to be small, the mainstream media’s general distaste for all things big and profitable, and the subsequent public distrust of large firms. Small, not-for-profit financial institutions have what most large financial institutions do not: the genuine ability to craft solutions to their field of membership’s unique needs, a transparent and trustworthy “we are here to help our members, not to profit off of them” public persona, and the ability to honestly prove innocence from the recent meltdowns in the financial services sector.

Do small credit unions have a lot of work to do? Sure, some do. Mostly, though, I think it’s a great time to be a small or mid-sized credit union. It’s just a matter of communicating our unique stories, serving our members in powerful, personalized ways, and continuing to be what we have been: transparent, honest, and a cost-saving solution to regular Americans’ financial service needs.

Don't ask me to reach the top shelf in a cupboard. Don't make me the center on your basketball team. But please don't expect me to be ashamed of my credit union's size.

What Credit Unions Can Learn from Costco

Credit Unions could learn a ton from Costco. A 2007 story by Barron’s attributed the company’s success (they are currently the world’s fourth largest retailer) to four things: keeping expenses and prices low, treating employees well, making discount shopping fashionable, and keeping shareholders happy. These are outstanding “big picture” ideas—general in focus, huge in their implications. However, let’s look at two specific details of Costco operations that the credit union movement would be wise to consider for implementation.

Controversial Topic 1: Membership Fees
In credit unions’ quest to gain market share in the financial services market we have sought easier loans via indirect lending, easier ways to join via community charters, and nearly non-existent barriers to joining (membership fees, maintenance fees, etc.). While we have not achieved “open membership,” I would argue that it has never been easier for an American to join a credit union. In many cases, citizens of certain states or municipalities have multiple choices of fine credit unions to join. Some companies even offer their workers membership into multiple credit unions as part of their employee benefits packages. It’s exciting to know that if someone wants to join a credit union, chances are quite good that there is one out there for which he/she is eligible.

In many ways, though, this has cheapened the relationship. It has simultaneously become just as simple to leave a credit union as it has to join one. With some credit union members, there’s a diminished sense of belonging with their financial institution. With others, they have no obvious vested interest in remaining a member of their specific credit union.

Costco charges an annual standard membership fee of $50. For a marginally higher investment, you can get an executive membership that gives you cash back on your annual purchases at Costco stores. What does this fee cause shoppers to do? Shop. Shop A LOT! Costco members realize that to get their $50 out of their membership, they need to make enough annual purchases to offset their annual fee. How cool, huh? Costco gets $50/member/year AND members who want to do as much business with them as possible.

I think there’s a market out there for consumers who want to feel some exclusivity with their financial institution. People who want to feel special. People who want to save money. People who are impressed by a financial institution that is so confident in their services and ability to save members money that they can charge an annual membership fee. Show them your value. Keep track of members’ annual savings, and communicate that with every transaction.

“Thank you for stopping by today, Mrs. Jenkins! You have now saved $455.34 this year by being a member.”

As an added bonus, return 5% of that calculated total to members at the end of the year. With luck, that total will be at least the $50 membership fee required for renewal. The purpose of the fee would not be income, after all, it would be for loyalty. Even more than that, it’s to prove the value of your financial institution. You’re saying “it’s well worth your $50 to be a member at our credit union.”

Controversial Topic 2: Gas
Gas prices are sucking the life out of American families. The purpose of credit unions is to promote thrift among our members. Isn’t there something we can do, within that purpose, to ease the burden of fuel costs?

Costco sold 1.7 billion gallons of gasoline in 2007. Typically saving Costco members three to ten cents per gallon compared to competitor gas stations, the idea to offer discount gas as a membership perk has proven to be a tremendous business decision. Members help justify their membership fee with the cost savings they receive with this discounted gas. Costco in turn is able to become more attractive to potential members.

How about forming “Credit Union Gas Stations”? Credit unions could form a gas cooperative that would require member credit unions to invest .1% of total assets in year one to fund its start (eg. $500 million credit union invests $500,000). Credit Union Gas Stations would be built in high traffic, high visibility locations across the nation to provide this membership perk. Gas would be sold at the per gallon cost plus two pennies to offset operation costs. The effect would be around six cents per gallon savings for participating credit union members. To pump gas at these stations, you must be a credit union member of a member credit union. You will be able to join a credit union at the station’s information center. Credit unions would issue a card to their members that authorizes the pumping of up to 40 gallons/month at these stations, making sure that no member or member credit union gets an unfairly high proportion of the fuel supply.

We’re cooperatives. Let’s take advantage of our collective economies of scale to make something like this happen. Costco has proven that it can be successful.

Story also published at the Filene Research Institute's CU Tomorrow Blog.