Three Credit Union Killers
Attacks on the credit union tax status are forefront on our minds, however there are several other impending threats to the future of our industry that are on the horizon. Namely cybersecurity and consolidation. Both of these issues could be game-changers for our industry as they can undermine our safety and soundness and affect our social profile. Last week I saw a video the ABA circulated of Ken Kies, former Chief of Staff on the Congressional Joint Committee on Taxation. In the video Ken is arguing that eliminating credit union’s tax exempt status would actually be good for business.
Hearing his words cut-through my hard “bottom-line” thinking and reminded me of the importance of our member-focused, not just business-focused mission. This video highlights just how out of the loop of consumer service and care many financial services institutions are. Paying due attention to cybersecurity and being responsible with consolidations is, after all, critical to protecting our mission and members.
When it comes to technology and cybersecurity there is certainly a tipping point in safety and soundness where the regulators and public will not allow a credit union to continue to operate if security is a continual problem. It is critical that smaller credit unions stay vigilant both for the safety of their members and also to ensure that breaches are not allowed to spill out through an open portal into the system at-large. Cybersecurity experts are quick to note how a system wide breach could originate from many potential sources.
In terms of general technology, this is also an area that is becoming increasingly competitive as multitudes of new competitors are being born every day. Non-traditional lenders and service providers such as big “box-stores” and even phone companies are developing technology based consumer financial services products. Focusing attention on catering-to and attracting young members can help drive competitive innovation in this area. Looking for ways to bring technology savvy members onto a board is not a bad place to start.
When it comes to consolidation within our industry, the numbers speak for themselves. 273 mergers were completed in 2012 and projections for 2013 could be as high as 300. Almost one a day. Even though industry membership numbers and assets are growing, there are only 6753 credit unions operating. When I took the reins at CUNA in 1996 there were approximately 15,000 credit unions in operation.
Consolidation itself is not inherently a negative. It helps bring support to the members of struggling credit unions and provides economies of scale in other instances. However, continued consolidation combined with growth could change the positive public profile and political position that credit unions have enjoyed for so long. Over the years studies have confirmed that small credit unions are more personal and larger credit unions are more institutional. These differences are noticed by the public and the more personal approach is often more effective for lobbying efforts.
In addition, although there are fewer credit unions, there are more credit unions with size and position in the industry that could potentially be considered a more widespread threat to safety and soundness or stability in the market. This could bring greater regulatory burden, the cost of which makes it tougher to maintain workable margins while remaining competitive. The way to avoid this from becoming an industry threatening issue is to stay smart about mergers and acquisitions. Maintaining a strategic vision that is true to our cooperative principles and member-focus, along with an eye toward the bottom line will help us keep our positive position in the financial services market.
Of course, the major threat facing our industry at large are attacks on our tax exempt status. Comprehensive tax reform is on the table here in Washington and there has been a great deal of back and forth about what will happen, what won’t happen, who will get hurt, who will benefit. The important thing to remember is that whatever does or does not happen on tax reform this year may very well be the jumping-off point for future reform efforts. Being left out in the cold for lack of proper attention this year could be extremely detrimental in the future.
Current figures suggest that only 25% of credit unions have actively rallied their membership for lobbying efforts. Tax reform is not an insulated process. There are individuals and groups on the Hill and in the banking industry that are actively working to put credit unions out of business. Just last month that ABA was circulating communications to lawmakers attacking our tax-exempt status. Activating membership on this issue is critical and looking to the trades for coordination and support can be very helpful. Lobbying is most effective on the ground, at the grassroots level. Do not think it is someone else’s responsibility. If you don’t do it, it won’t get done.
The landscape for our industry is changing in many ways. While the banks have been beating the taxation drum for many years, the financial situation in Washington is critical. Congress and the Obama administration are looking for revenues at every turn. This is an important time to be proactive in defense of our tax status and mission. As for the other threats facing our industry, we have the ability to not just keep up with technology and cybersecurity but to be financial service industry leaders if we choose to do so. By staying true to our mission and values we can become a more consolidated and streamlined industry and still carry the torch on safety and soundness and consumer satisfaction.
