Is acquisition really an effective growth strategy?

Growth within the credit union industry in recent years has been extraordinary. At the end of 2021, combined credit union assets were estimated at just under $2 trillion.  Along with this growth in assets has come an increased focus by credit union executives (and their boards) of expansion through acquisition.

Is acquisition as a growth tactic an effective (and sustainable) strategy for credit unions? The answer to that question comes down to the age-old tactic of weighing pros versus cons.

Concurrent with this rise in assets has been a substantial increase in a scenario once viewed as impossible; credit unions buying banks. According to S&P Global, 13 banks were acquired by credit unions in 2021, and there is no reason at this point not to assume that number will be surpassed in 2022.

Acquisition of banks is helping credit unions gain market share. A recent Credit Union National Association (CUNA) report stated that from August 2020 to August 2021, credit unions added 4.4 million new members, an increase of 7% over the previous year. Credit Unions appear to be filling the vacuum created when small community banks are swept up in large bank mega deals and helping provide a partial solution to the issue of small companies with aging ownership and lack of succession planning.

Yet acquiring banks is just one of the growth strategies being utilized by credit unions. Nationwide, credit unions are utilizing an array of different tactics in order to expand.

Credit union partnerships with point-of-sale lending organizations is proving an effective way to park capital in well performing assets. For example, the sustainability company GoodLeap, LLC uses its proprietary POS platform in conjunction with credit unions to provide loans to homeowners to install solar panels, more efficient HVAC systems, and reduce their carbon footprint. To date more than $11 billion in loans have been provided.

The ability to stand out from the crowd and increase memberships is fueling a desire by many credit unions to offer new and/or niche products. Newly enhanced digital banking platforms, educational resources, specialized youth accounts for increasing financial literacy, and commercial banking featuring commercial loans and small business services are just a few of the many offerings credit unions are rolling out as part of their growth plans.

Rather than butting heads, putting them together is the new trend between credit unions and FinTechs. What once could be viewed as an adversarial relationship now seems one of mutual benefit. Working with FinTechs is a great way for credit unions to shore up their digital shortcomings and address the digitization desires of millennial and Gen Z members. FinTechs in turn benefit from the CU’s scale. The idea being that both industries will grow their customer bases.

Another symbiotic relationship that may spur growth is that of credit unions and financial advisors. Many financial advisors are viewing credit unions as an opportunity build and expand client bases, while credit unions often want to offer more financial planning and wealth management services. In a recent interview, Rob Comfort, President of CUNA Brokerage Services Inc., stated that only about one-sixth of the 5,200 credit unions in the US offered any sort of wealth management services, but more than 50% of credit union members have said they would like their credit union to offer expanded financial planning options.

In considering acquisition as a growth tactic, and the numerous potential ways to achieve that growth, each credit union must consider their best interests and the best interests of their members and the communities they serve. Costs, the time needed to bring deals to fruition, regulatory obstacles, and potential board pushback are just a few of the pitfalls to be considered and discussed. By weighing all options, credit unions can better position themselves for a future where they can reduce costs, enhance customer experience, build deposits, and adjust to rapidly changing business models.

John Dearing

John Dearing

John Dearing is a managing director at Capstone, a leading advisory firm focused on helping credit unions and CUSOs grow through proactive strategic growth programs and mergers and acquisitions. He ... Web: Details