Everyone I’ve ever ran into has stated that the larger credit unions have “economies of scale” and that’s why they are more efficient than smaller credit unions. The smaller shops then try to collaborate to obtain this “scale”. The goal is to drive down costs, have a stronger bottom line, and enjoy the benefits of the big dogs! We all buy into this. I’ve participated in many collaborative efforts, and they are all focused on driving down costs. It’s not like our favorite (or not so favorite) regulators have bought into this as well, right? What’s the first thing out of their mouths when they come visit? “Control your expenses!” It’s their answer to every problem… and proof that if your only tool is a hammer, all your problems look like nails.
We all need a change in perspective!
Ask yourself – What are the two components of the bottom line? Income and Expense. What is most effective in driving the bottom line?
Boy, am I glad you asked!!! Increasing income trumps reducing expenses!
I ran across an interesting chart by Callahan’s that looks at the advantage larger credit unions have over smaller shops when viewed from the member perspective.
The real advantage of the larger shops, is that they obtain more income per member than the smaller shops… and by a very large margin. The operating expenses are almost the same (with the smaller shops having an advantage). The real difference-maker is in the income generation. How about roughly two times the income per member!
Many small credit unions are struggling to turn a profit for many reasons (economy, FOM, limited staff, expertise in programs, the list goes on…). Calculate for yourself how much more income your credit union would have if you doubled the income you generated per member! Would you be profitable? I’m betting yes!
From the member point of view (AKA – the right point of view); do you think the members benefit more from the credit union cutting costs, or from finding ways they can do more business with your organization? Our regulator isn’t looking at closing healthy growing credit unions that are generating strong ROA’s… it’s the other kind that have their attention. And, as usual, they are focused on the wrong matrix.
1. Collaborate for increased income because it helps the bottom line more than cutting costs.
2. The member benefits more from income generation products and programs; from cost cutting, not so much!
The next time you enter into a “collaboration discussion” see if income generation or expense reduction is the main focus. I’ll be hanging around for the income generation type!