Today’s economic environment is changing rapidly. Consumers are embracing fintech and new players are moving into the credit union space. At the same time, the cost of compliance is rising and non-interest income is dwindling. What does this mean for credit unions?
The days of going about business as usual are gone. In order to thrive, credit unions must take a proactive approach to growth by actively seeking out new opportunities rather than waiting for opportunities to come to them. Organizations that fail to take action today may face difficulties in the future.
One new opportunity that credit unions are embracing is external growth, where a credit union partners with another outside organization through various ways including strategic acquisitions, joint ventures, investments, and other partnerships.
Let’s explore four reasons why credit unions are using external growth today.
1. Members want more – Your members are the most important part of your credit union, and meeting their needs and providing value long-term is essential. Credit unions may build their own solutions, but often this takes a significant amount of time and expertise. The benefit of external growth is having a solution to offer members immediately and keep them satisfied so they don’t turn to competitors. External growth can be especially beneficial when dealing with an immediate pain point for members. For example, if you do not have online or mobile banking, you may find it difficult to attract new members or retain those you do have. Partnering with an existing, proven solution will help quickly meet the needs of your members.
2. Boost non-interest income – Adding more employees, building a new branch, and increasing advertising are all proven ways to grow, but what happens when these tactics are no longer sufficient to meet your growth goals? Especially in a world where non-interest income is dwindling, external growth can complement organic efforts and help accelerate your organization’s growth. A CUSO investment may bring additional non-interest income while hiring new loan officers may increase your loan portfolio.
3. Technology is moving quickly – Many traditional financial institutions, including credit unions, lack the expertise to build their own innovative tech solutions. At the same time, an influx of fintech is disrupting the market. Rather than spending time and money to build a competing technology, a win-win is to partner with these startups.
4. Access new markets – Entering into a new market on your own, whether it’s geographic or vertical, can be a challenge for many reasons such as regulatory issues, low brand awareness, or lack of expertise. By partnering with an organization already operating in that market, you can bypass many of these obstacles.
Although external growth may seem like a tactic meant to be used in the for-profit world, it is central to the credit union culture and mindset. External growth involves partnering with other organizations to create something beyond what either organization could do on its own. Credit unions were first formed with this principle in mind: people coming together to help each other out. In the same way, external growth brings organizations together to create value. Through partnerships, CUSO investments, strategic acquisitions, and other forms of collaboration, credit unions today are finding innovative ways to adapt to and flourish in today’s evolving marketplace.