Guest Post: Credit Union Outsider

This is a guest by the not-so-anonymous Bill Grizack. Bill is Managing Director of BrightLeaf Financial Network, a CUSO whose mission is to bring technology-enabled financial planning and advice solutions to the average credit union member. Bill is responsible for developing BrightLeaf’s high-level strategic direction and managing the CUSO’s direct sales effort. He can be reached at bill.grizack@brightleaffinancial.com.

Credit Union Outsider

I have been working with credit unions for the last five years or so.  I don’t work at a credit union, nor have I ever worked at a credit union.  My job is to sell online financial planning services to credit unions.  That said, I have been keenly observing credit union behavior and rhetoric all along the way.

My frustration with credit unions in general, and leadership of credit unions specifically has been growing for five years, and is now at a boiling point.  Someone needs to snap these guys back to reality.  I guess this is my attempt to do so.

At heart, I believe in the credit union mission.  Every credit union I have spoken to or visited (over 500 or so in the past five years) has a mission something like this – “Our credit union’s mission is to improve the financial lives of our members.”  This is a mission I believe in.  Unfortunately, I have yet to experience this on any mass level.  For the few of you that live and breathe this mission, I applaud you.  For the rest, I say, quit deluding yourselves and get to work.

The behavior I have witnessed and been subjected to leads me to think that the real mission for credit union’s should read: “Our credit union’s mission is to improve the financial lives of our members, as long as it means we don’t have to take any risks, change our behavior whatsoever, spend any money or put out any additional effort.”  Harsh, I know.  I have a motto – “It’s not a value judgment, it’s just true.”

Let me defend my argument using the typical credit union rhetoric.

Credit Unions are better because we are about people not profits.

In the 2009 J.D. Power & Associates study in retail banking, they asked consumers to rate their current primary financial institution on their overall satisfaction.  To be specific, below is the JD Power definition of overall satisfaction:

Overall Satisfaction: This score is based on how customers rate their overall experience with their current primary financial institution.

By this measure, we can certainly declare the winner of who consumers think are the best financial institutions from a customer service perspective.  Below is a breakdown by region of the number of credit unions in the Top 10:

Region # of CU’s in Top 10 Region # of CU’s in Top 10
Mid-Atlantic 0 Southeast 0
Mid-West 0 Southwest 0
Mountain 0 West 0
New England 0 Nationwide 0

That’s right, not one credit union was ranked in the Top 10, in any region of the US.  If you say you are about people and not profits, yet consumers do not rank you first among financial institutions, what are you really doing or saying.  This point of rhetoric is a farce.  The statement “people not profits” implies that the banks (and all other for profit entities) are scumbags, yet, consumers find the banks tops in customer service.  Just because you are nice, does not mean that you are about people.  On top of that, are the folks that work in bank branches mean?

Credit unions are better because we offer the best rates.

There are a number of rate ranking systems out there, so I chose bankrate.com as an industry benchmark.  For the last six (6) months, below is a list of credit unions by product type that rank in the Top 10 for best (lowest for loans and highest for deposits), taking into account fees:

Product # of CU’s in Top 10
Mortgages: 0
CD’s: 0
MMA & Savings: 0
Auto Loans: 0
Credit Cards: 0
Checking Accounts: 0

Two for two credit unions.  Not one credit union ranked in the Top 10 for any product set.  So if you are returning your profits to members in the form of better rates, and yet you don’t rank in the Top 10 for rates for any product, how are you better again?  Oh yeah, you are nice.

Credit unions are better because we offer the best services.

In a Forrester Research study of Consumer Ranking of Financial Institutions performed in 2008, consumers were asked to rank financial institution services based on factors like convenience, usefulness, cost, etc.  Below is the a table that shows the number of credit unions in the Top 10 (again by region):

Region # of CU’s in Top 10 Region # of CU’s in Top 10
Mid-Atlantic 0 Southeast 0
Mid-West 0 Southwest 0
Mountain 0 West 0
New England 0 Nationwide 0

At this point dear reader, you should be noticing a pattern.  As you break it down further, the Forrester survey did not list one credit union in the Top 10 for best branches, most convenient ATMs, best online banking, lowest fees, closest branches, knowledge of staff or call center access.  Best service?  Yes, yes I forgot, you are nice.

The list of rhetoric points does go on, and as you dig in you find that credit unions do not perform.  Another example – looking at the same JD Power and Associates study I mentioned above, not one credit union is ranked in the Top 10 for having the lowest fees.  Credit union rhetoric says that credit unions are better because they have the lowest fees.  I don’t think so.

The counter argument to all of this data is that in aggregate, credit unions have the lowest average fees and the best average rates.  This is true on average, but what this argument neglects is access.  A consumer does not have access to the average rate, only access to the financial institutions in her area.  A better measure would be a weighted average of rates (or fees) based on access to those rates (or fees).  Of course no one in the credit union industry has done this analysis.

Now that the rhetoric is out of the way, and sufficiently debunked (at least in my opinion), what should credit unions be talking about that would be something we could all talk about?  I think the answer is staring credit unions right in the face, every time they walk into their own lobbies.  If credit unions were to actually try to live up to “Improving the financial lives of their members,” then that would something remarkable for us to all talk about.

What would “Improving the financial lives of their members” look like for the credit union industry?  I will take a run at that below:

  • Every single member of every single credit union gets a target goal plan and a target spending plan.
  • Each member gets access to not the best rates, but the best set of products to help them achieve their target goal plan and target spending plan.
  • Members get access to relationship pricing that gets them better rates the more business they do with their credit union.
  • Each member of a credit union gets access to best in class delivery channels that work for them – call center, branches, online, etc.
  • Members of credit unions get a refund check each year equal to their fair share (by product relationship) of the credit unions profits at the end of the year.
  • Every single member of every single credit union gets a review of their target goal plan and target spending plan every year.
  • Rinse and repeat – and be nice about it.

If credit unions don’t adjust, my belief is that they will be marginalized even further in the financial industry.  They have a noble mission.  It is time to live up to it.  At least that is what this credit union outsider thinks.

Hold please…

I had a big post about the receptionist all coming together nicely. It had grand storytelling, a few exaggerations*, and a great moral. It was nice and fun, but it missed the one question I kept coming back to:

What if tomorrow morning, the employer of our new found favorite CU receptionist announced that they were starting the process of becoming a bank?

Would that change your view on the receptionist’s comments? What if they had announced something like that the day before? What would the CU industry reaction have been then? What if they announced that they were merging with a much larger CU? What if they announced they were shutting down?

TO BE CLEAR. I KNOW NOTHING ABOUT THIS CU. I’M SPEAKING PURELY IN HYPOTHETICALS.

The deal is, you U.S. CUs are a spotty bunch. There are some good ones and there are some bad ones and there are a whole lot in the middle. The credit union movement is only as good as the CU that has the most influence on you. For many, that means the CU they are geographically closest to.

For you CU industry types, that means the CU movement is awesome because you yourself are rockin’ and have done your best to make the CU you work in or with a general realm of greatness. Others are not so lucky/blessed/self-motivated/driven/anything else you contribute your personal CU success to.

It’s really easy to say things like “Credit unions are great places to work” but seriously tomorrow the CU nearest me may be closed, or under a different name, or even be a bank. If that happened, would it have been a “great place to work” the day before? The month before? The year before?

This is the reality of the CU movement.

* I honestly still haven’t seen the original, so my original post probably had more than a few exaggerations.

The Most Important Issue…

currently being discussed at branches, barbershops, and dinner tables by CU Members is…

<your response below>

The Most Important Issue…

currently being discussed by the CU Blogosphere is…

<your response below>

Planes, Buggies, Letters, Email & Financial Services

The Credit Union Warrior (whom I am quite fond of) recently wrote “Unique Banking Needs? Hogwash.” and presents the theory that all this noise about Gen Y needing different and unique services is marketing mumbo jumbo.

We need loans, payment vehicles, investment vehicles, convenient access to our cash, and financial advice all at the best price possible…just like every other generation.

While I agree these are the basics, I cannot say they are the same as generations past. I believe that instant access to information has become a game changer and drastically effects how financial services are sought, delivered, and evaluated.

But isn’t it still just ‘loans’? Yeah…but isn’t flying ‘just’ transporting yourself from one location to another and yet the experience differs so much from driving (or horse and buggying…I’m guessing…might have to ask @rshevlin about that…) that they to hardly resemble each other.

And writing a personal email is ‘just’ communicating ideas in written form, but how different is that than sending a letter? (Both for better and worse.)

Given, flight and email are big time game changers, but so is this massive about of information we currently have at our fingertips. I’m not going to say that the use of this information breaks neatly down a generational line, but you can’t argue against it being here and being big.

If you think “We’re providing loans just like we have for the last 25/50 years” I’m afraid you’ll miss a large segment of your membership (and potential membership) that wouldn’t recognize a loan from 25 years ago if it were staring them in the face.

Pie in the Sky: The Self Sustained Credit Union

Principle #4 does point to the use of agreements with other organizations and external funding as options available to credit unions, but that doesn’t mean they are necessarily required.

What if , instead of relying on external agreements, your credit union always looked first to members to fill its needs. In this age of large memberships, don’t many of your members have the skills to do the things you are outsourcing? Even if you had to bring together many members to work towards a common design/development/marketing/community goals, isn’t that what a co-op is all about?

Principle #4: Autonomy and Independence (Part 2)

This article is part of the 7 Principle Series. The other articles in the series are located here

Now that everyone has had time to soak in the first half of Principle #4: Autonomy and Independence, it’s time to look at the second half:

If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.

External Funding and Agreements

Back in Principle #3 we highlighted the fact that Members of a credit union contribute to the capital of a credit union. Principle #4 gives another way to infuse capital into a credit union, through external funding. It also outlines the power to enter into agreements with other organizations.

It’s hard to imagine a 100% self sustained CU and thanks to Principle #4 we don’t have to.

I know that “agreements with other organizations” and “capital from external sources” are pretty broad terms. It easily covers everything from core provider agreements, to CUSOs, to yes, even accepting government funds.

There’s a Catch

While “agreements” and “external sources” are very broad brushes they do not come without limits. The litmus test by which these agreements and external funding sources must be judged is two pronged. They must maintain member control AND maintain the autonomy of the credit union. (Many times these two go hand in hand.)

We’ve previously established that the way member control plays out in modern day CUs is through boards and it’s evident here as well. Boards approve agreements entered into by a credit union, thereby maintaining member control. While board approval is one level of member control, it’s important that these agreements don’t lock down a CU in such a way that even the board’s influence is limited. (I’m thinking about things like very long term deals with core processors and other vendors.)

What’s Your Take?

  • How have external funding sources or agreements helped your membership?
  • Have any of them ever limited member control?
  • What kind of checks and balance do you use to ensure these things don’t end up limiting member control?

Pie in the Sky: Financial Self Improvement at Your Local Credit Union

In regards to my thoughts on Principle #4 and Credit Unions as self-help organizations:

With Americans apparent obsessed with all things self-help, how is this not a focal point of American CUs?

If there is a National Brand that could weave CUs together, I’d make a strong case for this as “the one”.

Principle #4: Autonomy and Independence (Part 1)

It’s time to jump back into our ongoing discussion about the 7 cooperative principles. If you need a refresh, the other articles in the series are located here.

Autonomy and Independence
Cooperatives are autonomous, self-help organizations controlled by their members. If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.

There’s so much jammed into Principle #4 that it looks to be a 2 parter for me. Let’s start by looking at “Cooperatives are autonomous, self-help organizations controlled by their members”

Credit Unions are autonomous.

Each Credit Union is self-governing. Each has it’s own set of rules. Your CU can’t tell my CU what to do. (I do what I want!) But not really.

CUs do have levels of governance above them. No CU is an island. They are subject to local and federal laws and in most cases some kind of regulatory body. (I would say all cases but don’t really have the time to research the credit union practices of every country.)

This isn’t necessarily a bad thing. We certainly can’t have credit unions making up rules that supersede federal law. But, have you seen the 428 page beast of a document that is the NCUA Regulations? That’s a lot of regulating for entities that are supposed to be self governed.

In addition, the recent incident with TDECU and the FDIC clearly shows that Credit Unions can and are influenced by forces beyond their member controller.

Credit Unions are self-help organizations.*

For me this could be one of the most powerful and differentiating ways to look at Credit Unions. Instead of seeing CUs as Financial Institutions that are member controlled, it very much within the CU DNA to be seen as places for financial self improvement.

This means more than just good auto loan rates. (Though it’s probably under the self improvement umbrella.) This means helping members with things like budgeting and retirement planning and making that feel like the norm instead of the exception. It means educating members of their financial options in ways that are engaging, maybe even fun.

Credit Unions are member controlled.

This is the 3rd principle that mentions member control. It’s kind of big deal. (See Principle #2 and #3 for more thoughts on that.)

What’s your take?

My big questions for members of the Credit Union community in regards to part 1 of Principle #4 are:

  1. Do you feel like your CU is really autonomous? Is there too much regulation? Is there not enough regulation? What are the areas where you feel free to self-govern and write your own rules?
  2. Do you view your CU as a self-help organization? Do your members view it that way? What would you need to do internally and externally to act more like a self-help organization

* I’m not 100% sure about the original intentions of “self-help organization.” Self-Help could be an adjective to describe the organization or part of the noun. It could make a difference in one’s interpretation of a credit union as a self-help organization. Is a credit union an organization that provides for itself and solves its own problems (an organization that is “self-help”) or is it a place where people go to help better themselves? I prefer the later.

Stop Saying Structure

Last week over on the CU Warrior Blog, Matt wrote an interesting piece about a more perfect union, domestic tranquility, and promoting the Credit Union Way (my paraphrase not his) in which he draws some parallels between the way the great US of A is structured and the way that credit unions are set up. He claims (of credit unions) that “It’s our structure that attracts members by the millions.”

I really like a lot of what the CU Warrior has to say, but I think he’s really missed the mark here. People do not care about how your organization is structured. They just don’t. They don’t care about your org chart or the size of your marketing team or who the shareholders are. They don’t care.

If you were asked the difference between your CU and the one down the street, can you imagine responding with “Well our IT department has 6 people, including a C level position, while they only have 3 in IT with no representation at the C level? I didn’t think so.

People care about the products, services, and experiences you offer them. Now your org chart and marketing team and yes, even who your shareholders are can influence these things, but make no mistake about it, people care about the WHAT not the HOW.

Instead of touting “structure” as the “difference”, I believe credit unions need to tout WHAT that structure allows them to do. For Member’s CU in North Carolina (home of the CU Warrior), their structure allowed them to create the “Holiday Skip-a-Pay“. Now that IS a difference.

Our “CU Difference statements” need to evolve from “We are owned by our members.” to “Our member ownership allows us to (fill in what a local/awesome cu is doing)”

If we can’t fill in that blank, well then we’ve got bigger problems than just our verbage. :/

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After thought: If people cared about the HOW, then why do credit union memberships vote for mergers and conversions that ultimately take away or lessen the impact of the structure on their financial institution. I’m just sayin…