A Machiavellian credit union strategy

The long-term survival of credit unions, both as individual charters and as a cooperative movement, depends on our ability to identify, pursue, and execute the right strategies. This reality is not new; in fact, it has shaped philosophical and political study for the past 500 years.

Machiavellian… really?

Niccolò Machiavelli (Florentian historian, politician, diplomat, philosopher, humanist, and writer during the Renaissance) is regarded as the “father of modern political theory.” His work, The Prince, is widely thought to be one of the first works of modern philosophy – especially modern political philosophy – in which the effective truth is taken to be more important than any abstract ideal. Machiavelli emphasized the need for realism, as opposed to idealism.

He taught that it is the appropriate goal of a leader to maintain their “State.” Isn’t that what we are each trying to do: identify the best, most realistic strategies to ensure the continuation of our State (credit union charters)?

It’s about keeping people happy, not pillaging and salting the ground of your opponent

Machiavelli strategized that if a Prince (credit union leader) desires to protect a State (an individual credit union and/or the overall movement) from an advancing threat (diverse competition), it is imperative to keep people happy and on the Sovereign’s side (leader, credit union, movement). He argued that Kingdoms could not be kept without the support of the people. Machiavelli believed that the greatest strength in protecting the Kingdom was to keep the people happy. In his own words, “For it is the nature of men to be bound by the benefits they confer as much as by those they receive. Therefor if everything is well considered, it will not be difficult for a wise prince to keep the minds of his citizens steadfast from first to last, when he does not fail to support and defend them.”

Now the key to this strategic concept is this: measuring the value the Prince and/or credit union “confers” to its membership, and, most importantly, the members’ “perception” of how much value they receive. To get the results Machiavelli promoted involved a level of loyalty where the subjects would risk life and limb to protect the Kingdom and the Sovereign. Without this level of loyalty, subjects bolt at the first sign of discomfort or better opportunity.

I believe that far too many of us overestimate the value that we confer to members, and this is why membership growth is lethargic. For example, indirect lending. I am not opposed to indirect lending, but it would be interesting to see how strong our national membership growth would be if all the indirect members were not included. Would we still have net growth? Why wouldn’t I include them, you ask? I have experience managing successful indirect loan portfolios and trying (unsuccessfully) to cross-sell additional products and services. For the most part, I consider indirect loans to non-members to be low-yield investments that usually end when the loan is paid off and the share account escheated. I would hate to have to rely on that level of loyalty for my kingdom’s defense.

Another example is the rate and fee difference we enthusiastically promote. Don’t get me wrong, I am proud of our great rates and fees. However, I think it only gets us so far in earning meaningful loyalty. I believe that members will leave the credit union for the same reason they were attracted to it. This level of loyalty is fickle. They will tell you in satisfaction surveys that they are satisfied with your rates and fees – and yet they will still move their deposit and loan for as little as 10-25 BP rate difference.

To find the highest level of loyalty possible, one only has to look to our credit union roots. A past where credit unions began as a grassroots movement to serve the underserved, proudly providing access to credit and serving people the banks would not serve. This level of loyalty lead to dramatic growth that reached more than 20,000 credit unions in 1969. If I have heard it once, I have heard it a thousand times: “I stayed with the credit union all these years because they helped me when nobody else would.” Now that sounds like the level of loyalty that can be counted on for our defense (think taxation), and won’t be lured away by a better rate or a free toaster.

When we materially impact people’s (or a community’s) quality of life, it is remembered, and generates real action and advocacy. However, the key is in how one defines material! You will know when your impact is material enough when member referrals are your top growth strategy.

A few ideas to support a Machiavellian Loyalty Strategy

• Say “yes” more often: look at your new account and loan turndowns. Are there any that you could have made work? Actively find ways to say “yes.” This may sound like a radical concept, but it works. Just ask Rex Johnson – he has successfully taught this for years. Don’t accept the answer, “There is nothing we can do.” Do some fact-finding: what are others doing to say “yes” to the type of loans you don’t think you can approve? This is so much more than about rate. Most people will remember when you went out on a limb for them.
• Identify underserved market segments in your community. If you are looking for the greatest loyalty, profitability, and impact on quality of life, seek out lower-income and minority communities. Like our ancestral members, these consumers are either not served or underserved by the traditional banks (and credit unions). In my experience, having an underserved market in your area is a clear strategic advantage! The irony is that there is so much concern over potential risk, yet the loan charge-offs and fraud when serving these groups are usually lower than their traditional lending peers. These folks will pay you back, go figure.
• Leaders, don’t forget the people defending and advancing your borders. Regardless of the strategy, no successful credit union leader can go it alone. What is the quality of life like for the people advancing your strategies and standing guard? Do they really have your full support? What is their perceived value of your relationship? Will your best and brightest be loyal when competition comes knocking? Is their alliance worth more than fame and money? Make a meaningful impact in the lives of the [right] people and they will support you with their blood, sweat, and tears.

Why it matters

Our future success depends on our individual and collective ability to defend and advance our borders in the face of fierce competition. I believe that credit unions’ greatest strength and strategic advantage is when we make a meaningful impact in consumers’ lives and the communities we serve.

Our world is in flux and changing daily. Strong, actionable loyalty from our members and communities has never been more important to our survival.

“Where the willingness is great, the difficulties cannot be great.”