What small credit unions can teach the big dogs

In the financial services space, bigger is often perceived as better.

Bigger can mean more resources and branches, more economies of scale and financial stability, and more products and digital tools—critical in an era when 78% of American adults say they prefer to bank via mobile app or website vs. in branch.

And research from Filene shows that small credit unions often suffer from a perception problem, being seen as financially vulnerable, poorly run, resource constrained, and understaffed.

But we’d argue that small credit unions, which the NCUA defines as federally insured credit unions with less than $100 million in assets, actually stack up quite well.

For instance, according to the 2021 State of Small Credit Unions white paper from America’s Credit Unions (formerly CUNA), in 2019 the average small credit union had an operating expense ratio of 3.58% vs. a 3.63% average for credit unions with more than $100 million in assets. In that same year, 25% of small credit unions reported loan growth that was at least 50% higher than that of the average large credit union.

Recent history also teaches us that size doesn’t always mean stability. The banks that went under in 2023 had $548.7 billion in combined assets, and during The Great Recession, it was the megabanks, like Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, that received the largest federal bailouts. According to research from Chicago Booth Review, there’s evidence to suggest that more assets benefit bankers more than consumers.

Small credit unions play a big role in the health and well-being of the credit union system—and the financial health and well-being of consumers too. Here’s why.

1. They’re more connected to the heart, soul, and roots of the credit union movement

As credit unions merge, grow, and begin to look and feel more like banks, small credit unions play a valuable role in keeping the system connected to its original purpose and helping ensure its long-term strength.

The State of Small Credit Unions Today whitepaper uncovered three key reasons small credit unions impact the movement’s success:

• They’re critical to preserving the credit union tax status. More small credit unions means more credit union CEOs to share their stories and connect with elected officials. These connections are essential to ensuring political leaders understand how credit unions’ tax-exempt status benefits American consumers.
• They’re vital to their members and communities. More than 15 million Americans rely on small credit unions for their financial services, and many of these are in financial services deserts—typically rural and vulnerable urban areas that larger institutions have fled. According to S&P Global, credit unions saw a net increase of 46 branches in 2021, during a year when U.S. banks closed a record 2,927 branches. Credit unions were created to meet the needs of the underserved, and small credit unions, especially those that operate in challenging areas, are a great example of that commitment at work.
• They help ensure vital diversity and a more robust credit union movement. The financial needs of different communities, SEGs, and demographic groups can vary widely. When the system includes credit unions from a range of sizes, we’re more likely to better meet the financial needs of a broader cross section of the population.

Seattle-based Express Credit Union, which has about $22 million in assets, is a CDFI (Community Development Financial Institution) that focuses on meeting the needs of underserved members, especially those from the Hispanic community. In episode 97 of The Remarkable Credit Union podcast, Chief Business Officer Elizabeth Escobar discussed Express Credit Union’s partnership with $30 billion BECU. When BECU has members who don’t meet its underwriting criteria, they can send them to Express in search of a better fit loan, which ensures that BECU can serve more of its members and brings more right-fit members to Express. That’s a win-win!

Another credit union that plays a similarly vital role is the $4.5 million Toledo-based Nueva Esperanza Community Credit Union, also a CDFI. As CEO Sue Cuevas shared in episode 90 of The Remarkable Credit Union podcast, she originally ran the credit union out of the back of her car, traveling with a portable copy machine and hitting every church, festival, and community event in the greater Toledo area to connect with the local Hispanic community and uncover needs. Thanks to Cuevas’ hard work and determination, Nueva Esperanza has improved the financial stability of nearly 600 of the area’s most financially vulnerable consumers.

2. They can be more agile and innovative

When it comes to agility in the face of the unexpected, small organizations are often seen as being able to pivot more rapidly and effectively than big players. Small organizations typically have less bureaucracy and red tape—which makes it easier to develop and test everything from new products and processes to new marketing tools—better communication and access between leadership and employees and fewer entrenched processes and procedures to navigate.

But small credit unions as innovators? Although that’s likely more of a stretch for most people, a recent research report from Filene found that thriving small credit unions “Embrace, cultivate, and take pride in their ability to be agile and bootstrap, experiment and innovate.”

Here are two great examples of the power of small credit union innovation.

The first is Linda Bodie, CEO + Innovator at $52 million Element Federal Credit Union. She took on the role with no previous credit union experience in 1998. Since then, Bodie and team have grown the credit union’s assets by nearly 2,000 percent and gained a reputation for bold innovation. For instance, Element was the country’s first financial institution (yes, financial institution, not just credit union) to offer remote check deposits, and under Bodie’s leadership the credit union beat out Chase Bank to win a medical cannabis banking contract—in largely conservative West Virginia.

These bold examples have cemented Element’s reputation for innovation and established the credit union as a place where those in need are likely to find the help they need—a laudable goal for credit unions of every size.

The second example comes from Santa Cruz Community Credit Union (SCCCU). With $195 million in assets, it may not qualify as “small,” but it is the smallest credit union in its area and was the first in the region to provide ITIN lending. Its guiding philosophies of humility, courage, and a willingness to take a leap helped it uncover and deliver innovation that aligned with its mission of economic justice and financial freedom for all.

ITIN lending—which allows those without a Social Security number to access loans—is often seen as too big of a lift for other financial institutions. In episode 79 of The Remarkable Credit Union podcast, Kerry Fulton, a marketing consultant who works closely with SCCCU, shared many other credit unions’ reaction to providing this service: “Oh no, no, no, no.” But SCCCU believes it’s imperative to make these loans available. Said Fulton, “That’s the market we’re in. So we want to reach out and … help them improve their life.”

In just one year, SCCCU grew the program from $3 million in loans to $13 million—clear evidence the product was vital to local members.

3. They’re more likely to truly connect with their members

Throughout their history, credit unions have been known for delivering highly personal, “everyone knows your name” financial services. But is that level of connection still possible—or even desirable—in today’s digitally focused, data- and algorithm-driven world? Small credit unions are living proof the approach still has value.

In their report, Filene found that true connections were critical to the success of thriving small credit unions. Their research found that the best small credit unions:

• Focus on a clear target market. Successful small credit unions leverage this focus to identify market gaps and build a strong and differentiating value proposition. They also actively strategize how to communicate to different groups.
• Define success in terms of relevance to and ability to serve members—and claim a place in their community to make sure the people who need them can find them.
• Dedicate resources to understanding their members.
• Evaluate their offerings and operations against what members want and need—and while they focus on products that produce high performance … they also invest in infrastructure, service, and marketing to activate and accelerate product performance.
• Seek out a niche but don’t necessarily shy away from competition.

How are small credit unions living these differences?

At Express every phone call is answered by a person. Escobar stressed that while this isn’t the most cost-effective way to do business, it’s a difference that matters to its members—especially given that many of the credit union’s members face financial challenges that can’t easily be addressed with an FAQ or a chatbot.

“We find that people still value being able to get through and talk to a real person,” said Escobar. “We still know our members’ names, we know their stories, we know their voices.”

At Nueva Esperanza, CEO Cuevas spent the credit union’s early days going out into the community, looking for ways to connect and be seen as a true friend. Having earned members’ trust, Nueva Esperanza is now able to uncover and serve members’ financial needs. She can communicate with members directly and honestly when there’s an issue like a late payment.

“Now there’s a trust factor, people feel like, ‘I can go to Sue,’” said Cuevas.

If you’re a small credit union, take heart in the reality that you matter — to the system and to the members and communities you serve. And if you’re a mid-size or big credit union? Consider learning from or collaborating with your smaller asset brethren. It’s a relationship that could benefit you both.

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