CUBG Conference Highlights Growing Opportunity in Small Business Banking

By Tylor Tourville

The CU Business Group (CUBG) held its semi-annual National Conference June 1-3 in Boston. Founded in 2002 by Northwest Corporate Credit Union, CUBG has grown into the largest business services provider in the credit union industry, working with more than 700 credit unions across 49 states. CUBG hosted its first conference in 2007 as a way to bring their credit unions together to collaborate, network, share best practices, and connect in person with CUBG staff.

CUBG’s CEO Justin Conrey.

After sitting in on CUBG’s CEO Justin Conrey’s opening keynote session, he and EVP/COO Rachel Snyder sat down for an exclusive interview with Finopotamus to discuss the conference’s significance in fostering a culture of collaboration and innovation among its membership.

For Snyder, who has been with CUBG since its inception, the conference’s original goal was to give commercial lending professionals within their member credit union community a place to collaborate, network, share best practices, and support one another. Snyder said that while today that mission remains intact, the conversations have broadened considerably as these credit unions evaluate new technologies, business banking capabilities and growth opportunities.

CUBG EVP/COO Rachel Snyder.

Commercial Real Estate Lending Remains Robust, But Diversification Is on the Mind

Conrey led off Day 2 of the conference with a keynote that reviewed the state of the commercial lending market for credit unions. There were few surprises in the data presented. For example, commercial real estate (CRE) remains comfortably dominant within credit union commercial lending portfolios, and that is poised to continue. The CRE market appears to be healthy across sectors, despite some competitive pressures from the likes of private lenders.

However, there are signs that non-CRE lending is on the rise, even if slowly, representing an opportunity for credit unions to further diversify their commercial portfolios. One of the areas of note was the small business segment, because the relationship between a small business owner and a financial institution is one where credit unions should naturally excel.

The Small Business Opportunity Is Real, But Requires the Right Tools to Capture It

The diversification efforts underway extend beyond loan portfolios themselves and reflect a broader shift in how credit unions are approaching business banking relationships.

Conceptually, credit unions are well suited to serve small businesses given their member-focused missions. And small business owners want and need those types of relationships to help them thrive. According to Conrey, “it's a no-brainer for a small business owner, because that relationship piece is what they're drawn to.”

And yet, so many credit unions have struggled to build and grow their small business member bases. So why might this be changing now?

Digging into the small business opportunity, there are a few converging trends that are opening a window of opportunities for the credit unions to grow in this market.

First, we are approaching an interesting phase of the fintech lending boom in the small business space. One factor is the way the fintech lenders have disrupted the space. Many small business owners chose to apply for loans with these lenders because the applications were online and easy to fill out, and they were often underwritten and funded quickly.

However, the high interest rates that come with these lending products have started to wear on these business owners. These rates and lack of human-based customer support represented a trade-off that that business owner had to live with at the time, creating transactional relationships versus the trusted partnerships many business owners prefer. This means there are many small business owners out there who are dissatisfied, presenting an opening for credit unions to step in and differentiate themselves.

Additionally, consolidation in the banking space, particularly among regional and community banks, is opening a window of opportunity for credit unions to lean into their relationship-driven missions to attract more small business members.

Lastly, credit unions are becoming better equipped to identify opportunities from within to seek out those potential small business members “hiding” within existing member relationships via personal accounts.

One of the statistics cited in a keynote session given by Chris McNulty from Jack Henry brought the significance of this opportunity to light. A recent account-level analysis conducted by Jack Henry revealed that 35% of retail DDAs are “camouflaging” sole proprietorships and SMBs.

These trends point to a meaningful opportunity for credit unions to capitalize on when they set their strategic agendas.

Partnerships Are Becoming a Strategic Necessity

It’s no secret that the majority of credit unions need partners such as CUSOs, fintechs, and other technology providers to help them achieve their goals and serve their members better.

The resource constraints are not a new challenge credit unions contend with today, but on the other hand, the technology that’s available to them has vastly improved and is more integration-friendly. A big reason for this is the core platforms opening up their own architecture and integrations in ways they haven’t historically, paving the way for more third-party technology partnerships.

"The outsourced staff support, the ability and accessibility of fintechs today, and the evolution of the core systems that credit unions have, that you can finally seize that opportunity," said Conrey.

Business Banking Is No Longer Just About Loans

As business owners increasingly want more integrated experiences, the future of business banking at credit unions will be built on complete relationships rather than individual lending products.

Beyond the lending opportunities for these potential small business members, both Conrey and Snyder were adamant that this represents just one piece of how credit unions can serve their small business members.

"Every loan needs a deposit account, and every deposit account may need a loan. It's not just about lending, but it's about deposits, it's about treasury management, it's about building the relationship,” said Snyder.