A look ahead to 2017: What’s next for credit unions?

As 2016 draws to a close, credit unions are facing a range of concerns, from the impact of a new presidential administration to the fate of the Dodd-Frank Act. With so many surprises over the past 12 months, is it even possible to predict what 2017 will bring?

Many credit union experts and stakeholders say, “yes” — and have highlighted a number of areas where credit unions can look for opportunities to enhance their member services. While no one has a crystal ball that can magically foresee the future, the credit union outlook for 2017 will surely bring significant changes and challenges — perhaps including some important opportunities.

Laws & Leadership

Chief among credit union concerns is how the new Trump administration and leadership changes will shake up life for credit unions, and influence everything from the Dodd-Frank Act to NCUA’s FOM Rules.

“The year 2017 will, no doubt, be a big year for credit unions,” notes Michael Barrio, a managing partner at Leverage Point, Inc., and credit union consultant. “While the world continues to watch and assess the political and regulatory landscape in the Trump-Pence administration, and newly cemented Republican control of both the Senate and the House, credit unions are especially looking for resolution on FOM, payday lending, the future of the CFPB, exam cycle changes — all of which can and will significantly alter the playing field in the financial services industry. If state and national leagues can come together, along with their credit union members to activate targeted stakeholder communities in a grassroots effort to gain traction on these issues – despite the perceived disruption that member choice has created – I think we’ll see a huge shift in how credit unions currently operate and how they are perceived in financial services and the publics they strive to serve.”

George Hofheimer, chief knowledge officer for Filene Research Institute, a credit union think-tank, says that a ‘change in the guard’ could translate into longer-term anxiety among credit unions, lasting throughout 2017.

“We live in a time of tremendous change and progress which sometimes make the old ways of doing things not so effective going forward,” Hofheimer said. “We are at a moment of reset in our political relationships which can have cascading impacts in strange and unpredictable ways. The best way forward for the future-weary credit union is to take stock of what is important in your context and prioritize these items with your unique point of view.”

To quell any anxiety, Hofheimer says credit unions should focus on issues that have high impact and high importance to their organization.

The Economy

Perhaps the second most important area of concern is how the economy will fare in 2017 — and what that may mean for credit unions.

Dwight Johnston, chief economist for the California & Nevada Credit Union League, says he expects little substantive change in the near term — so credit unions can breathe a sigh of relief.

“The way the markets are acting now, the biggest challenge for credit unions will be keeping up with all the growth next year,” says Johnston. “Of course this is tongue-in-cheek, but there are some things that have changed with the Trump election. Consumers have been carrying the economy for the past two years. Businesses have been a drag on growth as big businesses worried about China imploding for two years, Brexit, the election, the dollar, and other worries promoted by Wall Street soothsayers. Financial institutions and small businesses were more concerned about regulations. For big business, the major worries have faded, and almost certain corporate tax changes will boost corporate willingness to spend. Regulation relief, almost a certainty, will certainly boost the psychology and therefore attitudes of institutions and smaller businesses. It’s not really the immediate impact of dollars but the impact on the psychology of business leaders that will make a difference.”

However, there are a couple of “wild cards” that could shift the economy.

“Despite the recent rise in rates, rates are still historically very low,” Johnston says. “Funds rate increases of 125 to 150 would not be problematic, nor would longer-term rate increases of a similar magnitude. But there is a risk that some massive and disorderly selling by huge global bond trading concerns that have built leveraged positions could cause more significant rate increases in the long-end of the market. A fairly rapid rise in mortgage rates to well over 5% will cause slowing in housing. A stronger economy can offset some of the impact of rising rates, but higher-priced home areas will be impacted. A sharp rise in rates could also cause interest rate risk concerns on the balance sheets of some credit unions. A rise to 4% on the 10-year by the end of next year would be okay; a rise to 5% or more would not.”

The other big wild card next year is the possible “beginning of the end for the European Union,” he adds.

“There are several critical elections in Europe next year that determine the long-term viability of the EU and the euro,” Johnston adds. While I don’t believe this is a big risk next year because I think a better European economy next year will cool the fire, it is not a risk that can be dismissed. If the EU does blow up, the U.S. economy would not be crushed, but much of the good would be undone as worries of another financial crisis escalate. In that case, rates will tumble back to the historic lows, businesses would retreat in their shells again, and the consumer would tire.”

Membership Growth

Credit Union National Association’s (CUNA) revised, September 2016 projection called for, “savings and loan balances, assets, and membership to grow a bit faster than previously forecasted.”

However, one of the looming concerns for credit unions on the brink of 2017 is the extent to which this will translate into membership growth among younger generations.

“During the coming year, credit unions can expect to face an even more dramatic focus on capturing the attention and dollars of young adults,” says Vera Fischer, president of 97 Degrees West, an Austin-based brand marketing agency that works on campaigns for credit unions. “As the payments industry incorporates more technology extending from card issuers all the way through retail channels, a credit union’s name will be present through a wider variety and volume of transactions.”

As the competition among all financial institutions for young adults heats up, credit unions must look for ways to set themselves apart by offering more innovative products and solutions.

One example, for credit unions that already offer retirement-savings vehicles, is Health Savings Accounts (HSAs), says Steve Christenson, a retirement specialist with Ascensus, who focus on partnering with credit unions to help them implement IRA and HSAs in their service offerings. Currently only one out of five credit unions offer these, although medical bills among younger consumers are higher than those of their predecessors (in part because patients have a greater responsibility for healthcare costs).

But just as important as the services offered by your credit union is the contribution a credit union makes to the community it serves.

As Filene’s Trending: Credit Unions in 2025 report noted, young adults need a business to provide more than cutting edge technology and cool services.

“Business[es] … particularly in developed markets, will need to make significant changes to attract and retain the future workforce,” the report’s authors noted, highlighting a Deloitte survey of 7,8000 individuals from 29 countries. According to the survey, 78% of millennials recommend a company to their peers based on the company’s involvement with society, 83% expect businesses to do more than they are already doing to help the world, and 82% believe they are capable of it.”

Technology

While technology isn’t always front and center, it’s always in the minds of credit union CEOs.

Experts expect the trend toward more highly sophisticated, secure technology to continue in 2017, with an emphasis on EMV and mobile commerce platforms.

“The impact EMV makes to fraud liability, even though considered an inconvenience to many young adults, offers the opportunity to create new member service experiences that demonstrate a credit union’s commitment to and understanding of evolving financial needs,” says Fischer.

When investing in new technology, credit unions should also be mindful that millennials are expected to spend nearly $200 billion in 2017, adds Elizabeth Mills, a consultant for Abe.ai, a financial technology company that produces artificially intelligent chat software for community banks and credit unions.

“Financial institutions that win the trust and loyalty of this market will align themselves for the future and ensure continued profitability,” says Mills. “In 2017, credit unions can expect to see the continued development and implementation of conversational banking technologies throughout the financial industry. If credit unions adopt this technology early, they’ll gain a competitive edge against larger financial institutions.”

The bottom line, for those who want the closest thing to a crystal ball?

Moving into 2017, keeping up on regulatory news, leadership shifts, and expanding needs of their members has never been more important to credit unions. Those that can adapt to an increasingly technological and regulatory marketplace — for example, by getting up to date on EMV, or looking for new ways to leverage mobile technology to attract younger members — are in a better position to weather any unexpected storm that may pass through the coming year.