A few weeks ago, a colleague of mine was co-presenting a talk about emerging technologies in financial services for a large group of credit union executives and volunteers. At one point the discussion turned to PFMs; specifically, how giving members more information about their financial behavior could allow them to reduce spending, enjoy the fruits of thrift, minimize their dependence on high-priced credit, and prevent costly overdraft charges.
During the Q&A session afterward, a credit union CEO asked (paraphrasing), "why on earth would we want to make our members less profitable?"
My colleague's response (again paraphrasing): "if your credit union's success is tied to your members' failure, you may want to rethink your business model."
As much as I liked this response, the fact that this exchange took place is disheartening. How did we get to this place? How did our service organizations morph into disservice organizations?
Contrast that CEO's mindset with Jack Moser, an Ohio drunk driving defense attorney hellbent on putting himself out of business. Moser is one of the area's biggest supporters of initiatives to eliminate the senselessness of driving under the influence, and yearns for the day he has no more clients.
Credit unions seem to have forgotten one of Edward Filene's greatest teachings; that if you offer anything except the best possible products at the best possible prices, you are instituting an unsustainable (and inefficient) business model. In way too many cases we've overspent, overbuilt, and overgrown. We've prioritized our credit unions' net income concerns over those of our members. We are on record fighting against the consumer protections outlined in the CARD Act and the larger financial reform bill.
In many ways we've lost sight of what it is to be a credit union.
I can't help but relate the devolution of credit unions to that of labor unions. (I know this assertion will rub some of you the wrong way, but I'm not shy.) Certainly, there was a time in our nation's history at which labor unions served a very important, and productive, role. Labor conditions for railroad companies and steel mills a hundred years ago were atrocious, and needed to be remedied. Unions fixed those conditions and made sure that workers were safe, fairly compensated, and assured some semblance of work/life balance.
Today, labor unions are at least partially responsible for allowing bad teachers to litter our schools, professional athletes to price most families out of watching them play, the collapse of the U.S. automobile industry, and the shipment of millions of jobs overseas. This wasn't the goal, of course. It's simply a display of what happens when good intentions get pushed aside by greed. At some point, it would have been nice if unions would have decided, "We did it! Our mission has been accomplished. Let's have a beer and reconvene if and only if we're needed."
Credit unions should be working to put themselves out of business too. Our goal should be to make sure that consumers have access to affordable credit for provident and productive purposes, while understanding (and demonstrating that understanding) the importance of thrift. Instead, we're fascinated with growth, net income, power structures, competition with one another, and a childish "banks are evil, credit unions are saints" mentality. Competition is healthy. But our supply far exceeds the demand for our services. This, in many ways, is due to our success. In many ways we've succeeded.
In many more, we've failed.
If we truly are different as a movement, we should move mountains so that some day we can all call it quits.
13 comments:
agree with the sentiment that too many credit unions and banks rely on revenues from their customers bad financial decisions (overdraft fees, exorbitant debt levels) and this is unsustainable.
Don't agree with the premise that credit unions get marginalized if customers start improving their finances( less debt, no overdraft fees). The model, as well the offering, has to change.
People need help, and they would love to get it from a credit union, but the offering isn't strong enough. ~ The big value of going to a branch today is to either deposit a check or apply for a loan. What if people went to a branch for services/advice on:
1. life events:
getting married/having a baby/buying a house: stop by the credit union and talk about what is an appropriate budget for you, where you can expect to spend/save money, and even get discounts from local merchants
2. 'light' financial planning:
discuss your financial goals, kids college funds, retirement, advice on insurance and wills, etc
3. product demos and workshops - roth ira vs traditional ira, buy vs leasing cars, how-tos on using mobile banking or PFM/new online banking, etc
Offering PFM and better financial awareness is only the first step in a much bigger revolution: Engagement banking is coming...
You said:
"We're fascinated with growth, net income, power structures, competition with one another, and a childish 'banks are evil, credit unions are saints' mentality."
This is why credit unions will end up taxed some day, and when they do, they'll have no one to blame but themselves.
@Shawn You're so right. It's not enough just to give members account balances any more. I love what you all are doing at Geezeo to help credit unions take online banking and service to the next level.
@Jeffry That's true, which is even more reason for us to find ways to separate the good from the bad (or somehow make the bad good again). Years ago I suggested the creation of a multi-party credit union system. I still love that idea.
Okay Matt,
Now you have to fill us in on the "multi-party credit union system"
Do tell!
@Val Sorry...Should have linked it. Here you go: http://creditunionwarrior.blogspot.com/2009/08/multi-party-system.html
All I can say is that I'm damn glad I wasn't in the room when the CEO asked about "making members less profitable" because I might have gone ballistic on him (or her).
If I had been cool, calm, and collected I might have asked: Have you never given a better rate to one member than another? Have you never waived a fee for a good member?
Discounts, bundling, waiving fees are ALL examples of "making a member less profitable". But every CU (I feel pretty comfortable saying "every CU") does it. Why? Because they believe it will drive higher profitability in the future.
I'm having a hard time believing that the CEO who asked that question really can't see that.
Am going to agree with most of the original statement, and especially Shawn's comment that relying on revenues from bad financial decisions is, and should be, unsustainable. There is nothing negative about a CU, or bank, striving to earn a profit from their member relationships. It is how this profit is earned that is, in my opinion, the key part of this discussion. I can't say that I agree with "putting ourselves out of business". I would hope that most CUs would provide a service of value for a fair return. Earning a fair return enables additional benefits to all of the members (additional conveniences, better rates, etc.).
I entirely agree that credit unions have lost their vision.
For example, the interchange reforms passed this year have the potential to be positive for all involved. However, the industry opposed them because they threaten a very lucrative revenue source. The forest was lost for the trees.
My favorite local coffee shop doesn't accept debit cards because of the high swipe fees (of which the interchange fees are the dominant component). Ditto for my favorite breakfast diner.
This devalues my debit card, and pushes ATM use, which is expensive for my CU. Entirely counterproductive.
CUs argue that interchange fees offset the costs of running the service: this is true. However, some processors are more inexpensive than others, and a focus on interchange fees mask possible savings.
I can't stand the fact that CUs are trying to court MBLs on one hand, and fighting to maintain high fees for these same merchants on the other.
Matt,
Not sure I agree with your viewpoints in that you have to make margin if you are going to help any of the under served. Members want the same features of banks, call centers, mobile banking, ATM networks, e signature on loans, all of these features are becoming table stakes just to play the game. All of them cost. Now on the other hand I am not saying that everyone needs to start getting into sub prime lending (known in credit union land as High Yield Lending)or coming up with new fees. I think if you get the core relationship and are careful in growth and costs you can create a win win. I do agree with Shawn...the mistake too many credit unions make is not being proactive in offering members life stage advice.
Credit Union MBA,
No one said you need to operate at a loss. My point is that we need to decide if we're in the filling a need business or satisfying a want business. While you can be both, you must be picky with the latter. You can't afford to be all things to all people.
"In many ways we've lost sight of what it is to be a credit union."
I think this is key. We must define who we are and what we want to be with specificity. We (credit unions) have many strengths, and really haven't begun to leverage many of those to nearly the degree we could and should. Providing this clarity -- understanding and explaining who we are -- to those inside and outside the movement is a critical step.
Matt,
Enjoyed your presentation on the nature of credit union history and our roots in the cooperative movement. Thank you for speaking to the group. I learned a great deal. Honestly think that the dialog on cooperative principles is exactly what the industry needs right now
Great article. Please explain what the multi-party credit union system is.
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