Credit Union Alliances

Value Proposition

How many times in our Credit Union careers have we heard “what is our value proposition?” Too many to recount. The point is – people are still asking this question today. I just returned from a conference of Credit Union executives and the question was the centre of a great dialogue. I asked the same question last year in preparing and completing a final MBA project. To that end, 74 gracious Credit Union executives from across Canada indulged me and answered a survey questionnaire about this very topic. The intention of the survey was to validate a belief that Credit Union differentiation was being merged away and that leaders really wanted to find an alternative to mergers as a sustainability solution. The results did not disappoint – here are some key highlights:

Competition, efficiency issues and resources, such as capital and talent, were cited as the key challenges driving mergers in the system today. A small percentage of respondents indicated retiring leadership was an issue but it was a distant choice to the top three mentioned. Most leaders indicated that the current pace of mergers will continue or increase and this was primarily due to the current economic cycle, however, increased regulatory burdens and retiring CEO’s would drive future merger activity.

When asked what did differentiate the system, leaders generally thought that connection to community, responsive local policies and service were the primary factors that set Credit Unions apart from the plethora of financial service providers. More than 80% felt these were sustainable and many indicated that the Credit Union business model may need to be revamped to maintain these elements in the future. Interestingly, almost 70% felt that mergers negatively impacted a Credit Union’s connection to community.

To this point in the survey, the trends seemed to indicate that times were tough and the challenges were many. The good news is that Credit Unions are differentiated through their value system of community connection and responsiveness to community. The bad news is that it seems that key differentiator gets diluted in a merger. So – what are the alternatives? Well, that is what the survey tried to determine next.. Let’s assume for a moment that instead of merging, Credit Unions could gain some of the financial advantages of a merger but maintain their own brand and governance. The respondents tackled the issue of system collaboration. Ranking the Credit Union system on a scale of 1 to 10 with 1 representing poor collaboration and 10 indicating great collaboration, most of the replies centered in the 5 to 7 range. Plus almost 60% of responding Credit Unions were engaged in some form of collaborative effort at the time of the survey. This table illustrates the most common functions cited by respondents as an area of collaboration.

Human Resource benefits	Wealth Management
Volume aggregation	Intellectual capital sharing and storing
Car dealer financing	Vendor management
Purchasing groups	Lobbying power
General insurance	Advertising
Information Technology – particularly with banking systems	Product development
Credit Union Central mergers	Credit Union inter-connectivity
Legal or contract development	Community support

A whopping 92% said they believed that alliances and collaboration could play a role in dealing with the challenges currently facing the industry. Supporting comments included:

So where should we concentrate our collaborative efforts?

Technology, administration, research and development and marketing were the top picks. Technology was the winner by a large lead and this is understandable at it is usually one of the highest expense categories on the operating statement.

Great, now that the challenges and solutions have been identified – let’s get started. Oh, wait a minute – over 85% of respondents see barriers to Credit Unions collaborating. Well, that’s ok, we can overcome anything – after all we built one of the strongest co-operative financial networks in the world. Hit us with your best shot – what are these barriers to collaboration? The top two reasons are fear of loss of control and leadership resistance. Many stated that leadership “egos” are the major challenge. Again, a good news, bad news story — people see egos as barriers but take full ownership for who should manage the problem going forward. Survey results indicate that most felt that Credit Union leadership was the best source to start the collaborative process, followed by Centrals and then Directors of the Credit Union. How would we start the process? Tied for first place was the provision of more education for Directors and leaders and illustrating examples of working alliance models. These choices were followed by developing conferences or forums on the subject so Credit Unions could attend and learn more.

In the end the system confirmed my own assumptions:

If you would like more information about the survey please feel free to contact Shelley at smcdade@sunshineccu.net .

Shelley McDade
Chief Operations Officer
Sunshine Coast Credit Union

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