Mike Kelly Challenges the “Merge or Die” Mantra at Corelation Conference

By John San Filippo  

Mike Kelly, founder and CEO of TeamOnUp and former president/CEO of PSCU, delivered a compelling presentation at the 14th Annual Corelation Hybrid Client Conference, which was held in San Diego from May 14-16. Kelly confronted the prevalent notion within the credit union industry that smaller institutions must “merge or die.” He further argued forcefully that this idea is a “lie” and that credit unions possess the necessary resources to thrive independently.

Mike Kelly sets the crowd straight.

Kelly asserted that the “merge or die” conversation has become “very heated” and has taken on an air of “orthodoxy” and “dogma,” discouraging alternative perspectives. He suggested that the most vocal proponents of this view often come from institutions with a “core from 1979, no succession plan and lots of capital.”

What Does Scale Really Mean?

A central point of the merge or die argument, Kelly contended, is the need to scale. However, he challenged attendees to consider what “scale” truly means. While some may associate it with needing “more branches, I need more staff, I need more members, I need more,” Kelly posited that true scale, as seen in companies like Amazon or Bank of America, means that “things just cost less and they’re solving for complicated systems.” He contended that most credit unions “don't have scale, you will never have scale. You don't need scale,” and furthermore, “scale isn't what made you special in the first place.” Instead, he suggested, credit unions have an opportunity for speed, but currently, “too many credit unions are small and slow, not a good combination.”

Kelly identified increasing disorder in a closed system as a major problem within the industry. He warned that credit unions pursuing mergers without first getting their “own house in order” risk “buying double the headaches that you were too often working hard to ignore.” Mergers, he noted, are fundamentally about “taking out cost,” which he feels is not the “heartbeat of this space.” Credit unions, he observed, “really struggle to fire people.” Merging without addressing internal inefficiencies will only “increase the disorder and take a really long time to have double the headaches.”

To combat the noted entropy, Kelly proposed creating epiphany environments that break the “closed system” by bringing the outside in and increasing order. He sees conferences like the Corelation as such environments, where attendees seek insights, outside-in perspectives, and “challenges to how you're thinking.”

Three Epiphanies

Kelly shared three personal epiphanies that have shaped his perspective. The first occurred during his time as CMO at a large credit union, where he observed the institution putting “$70 million worth of loans on our books” at a loss. This experience led him to question why there wasn't more attention paid to “the price of where we're buying and selling money.”

His second epiphany came from working with a smaller credit union where rapid loan growth of 31% was attributed to lax lending criteria – essentially, a heartbeat and a smile were enough to get a loan. This lack of a strong “governance model” resulted in significant financial losses.

The third epiphany involved a dinner conversation with an industry peer who had grown deposits by $600 million in four years simply by using price as the primary tool. This challenged Kelly's assumptions and highlighted the varied approaches within the industry.

One Product, One Problem, One Solution

Kelly argued that credit unions have “one product, you have one problem, and you have one solution.” The key, he added, is to “simplify in a complex world.” He also believes the product is money, and the problem for many executives is not knowing “the price of your product, where you buy it and the price of your product at which you're selling it.” The solution, he suggested, is to run the business more rigorously and understand unit economics.

He contended that credit unions are often incredible marketers when they have a desirable product, such as a great CD rate. He challenged the notion that credit unions have a “stinky brand and nobody knows what a credit union is,” suggesting that the issue is often a lack of a competitive product at the right price.

Keeping Score

Kelly introduced the concept of using a “scorecard” to understand the business, focusing on “members, deposits and loans.” He stressed the importance of putting “members at the top,” noting that some credit unions fail to track member numbers, indicating that it “doesn't actually matter to us.” He advocated for tracking key metrics like net interest margin (NIM) in real-time to understand the business's performance daily.

He emphasized the need for credit union leaders to focus on improving productivity, arguing that 10% in productivity improvement can have a significant financial impact. He also challenged the common phrase “hold my people accountable,” suggesting that leaders should instead “hand out the cash and prizes for a job well done.”

Kelly outlined three steps for credit unions to evolve:

1. The easy stuff can't be hard. This involves improving efficiency in daily work, such as conducting calendar audits to identify wasted time in meetings. He suggested structured team meetings with a focus on wins, reviewing scorecards, and addressing issues.

2. No one person is more important than the mission. Kelly addressed the issue of leaders in the wrong positions, often due to a lack of alternative career paths that don't involve managing people. He stated that CEOs are responsible for addressing this and that avoiding this conflict makes the CEO the problem.

3. Evolve epiphanies. This reinforces the importance of putting oneself in environments that spark new insights and challenge existing thinking. He stressed that feedback is only valuable if there are principles to ground it.

Kelly concluded by reiterating that “entropy is the enemy” and “togetherness is the antidote.” He encouraged credit unions to run their businesses with “honor and effort and dignity,” focusing on their mission of providing financial access to communities. He urged attendees to connect with colleagues and vendors to share ideas and solve problems together.