By Utilizing Tech and Focusing on Membership Small Credit Unions Become Mighty
By W.B. King
With an estimated 88,000 credit unions worldwide (nearly 90% operating in Asia and Africa), Statista Research Department reports that overall the credit union movement is strong, but when looking at U.S. statistics, the picture changes. At the end of 2022, for example, there were 4,760 federally insured credit unions. Twenty-two years earlier that figure was 10,316. Mergers, acquisitions, conservatorships and liquidations are largely responsible for the whittling down of this all-important number.
For smaller credit unions, those under $500 million in assets, it seems logical to assume that these institutions would be the first on the firing line, but an April 2023 joint report between CUNA Mutual Group (now TruStage Financial Group, Inc.) and Filene Research Institute included surprising facts.
“At the end of 2021, there were 3,838 with $250 million or less, which is more than three-quarters of all credit unions,” the report, Solving the Puzzle of Thriving Small Credit Union: Anew Approach to Leadership & Strategic Success, noted. There are currently 404 $1 billion-plus credit unions.
“In 1979, there were 17,135 credit unions with less than $100 million in assets. That number dropped to 12,000 in 1990, 9,017 in 2000, 5,734 in 2010, and 3,169 in 2021,” the report continued. “Between 2005 and 2021, the $250 million credit unions with the fastest member growth outperformed the industry at large in asset, loan, and member growth. In 2021, these credit unions had effectively the same return on investment (ROI) as a peer group of $5 billion credit unions.”
To determine what these credit unions were doing differently, the report’s writers interviewed seven CEOs of thriving small credit unions over a six month period. The research yielded five leading traits:
1) Focus on a clear target market.
2) Define success in terms of relevance to and ability to serve members.
3) Dedicate resources to understanding members.
4) Evaluate offerings and operations against what members want and need.
5) Seek out a niche but don’t necessarily shy away from competition.
“Being small can be reframed with vision, intention and execution,” the report stated. “Thriving small credit unions proactively shape the expectations that members and other stakeholders have of the organization. They ‘flip the script’ and reframe the challenges and risks of being small as strengths and opportunities. They embrace, cultivate, and take pride in their ability to be agile and bootstrap, experiment and innovate.”
Smarter, Fairer Lending Practices with ML and AI
Longstanding credit union advocate and inductee in America’s Credit Union Museum, Denise Wymore currently serves as the marketing manager for small credit union initiatives at Zest AI. In August 2023, she penned an article for the company, “Embrace the future: empower your credit union for long-term success.”
“In today’s rapidly evolving financial landscape, it’s crucial for credit unions to look ahead at the strategies and innovations needed to future-proof their lending practices to continue to serve their communities for years to come,” Wymore noted.
With the goal of increasing revenue, reducing risk and automating compliance, the Burbank, Calif.-based Zest AI, a credit unions service organization (CUSO), develops software designed to help lenders make better decisions and better loans.
“It’s no longer a game of wait and see with the acceleration of digital expectations and the need to be agile in quickly changing economic conditions,” she noted. “As financial cooperatives, the core purpose of credit unions is to make loans and foster growth in the community.”
To better illustrate her point, Wymore explained that in 2020 she gave a virtual presentation to the New York Credit Union Association titled, Marketing in the New Normal. Noting that it was peak COVID-19 time, she said the credit union industry “was all a bit shell shocked.”
In one of her opening slides, she posed a question: How many of these things did your credit union already have in place prior to the shut down (there were five bullet points presented): electronic signatures, remote deposit capture, voice banking, artificial intelligence (AI) chatbots and a CRM system.
“Not a single credit union could answer yes to all five,” she stated. “Looking at that list now, it is table stakes. Today we find ourselves in yet another unfamiliar situation with anxiety around a looming recession while we watch rising inflation and interest rates.”
Part of Zest AI’s mission is educating smaller credit unions serving small communities on the importance of embracing machine learning and AI, she explained.
“It’s time to move beyond the traditional model of determining credit worthiness, and acknowledge it is inherently biased, and doesn’t serve the members or create a durable lending business,” she said. “Machine learning (ML) provides a path forward with its ability to provide deeper and more accurate insights, addressing the inadequacies of the old industry standards.”
The survival of the smallest of small credit unions, those operating with less than $100 million in assets, will depend on the ability for executives to adopt ML and AI solutions, while placing pressure on providers to ensure they are doing their due diligence when it comes to policy and compliance issues, Wymore explained.
“The hope is that small credit unions will embrace this change and lead the way in fairer and smarter lending to support their members and community now and in the future,” she noted.