Can credit unions compete?

Credit unions are facing a bit of a cyclical awareness problem.

By design credit unions are hyper-local, and they’re used to operating and thriving as they did in the days when people routinely operated in an analog fashion. The expectations of the almighty consumer has undergone a paradigm shift, however, and credit unions have been left out of the mix. Without big marketing or technology budgets, they’re not branching out the way they could to reach a younger demographic that doesn’t identify with their traditional model.

“I think credit unions still do not understand the monumental technology wall that they’re going to be faced with here–if not already–to track accounts and products and get people to come and use them because the demographics are still primarily Baby Boomers and probably GenXers,” said Jerry Reed, president and CEO of Member First Mortgage. “They’re playing catch up and some of them are doing really well, but they’re doing it in auto lending, or they’re doing it in mobile banking, or they’re doing it in credit cards, but the more complex transactions like commercial lending, mortgage lending, they’re not there.”

It begs the question that, if credit unions are finding a way to thrive in other areas, such as auto loans, are only relevant to a certain fraction of the population, would they even want to increase their mortgage market share? Would they lose some of the benefits of their model that they currently enjoy?

Credit unions offer a limited range of mortgage products so aren’t going to be suitable for a lot of buyers who need more specialized loans. On the other hand, buyers who do qualify and fit more neatly inside the box can benefit from lower rates and fees, which credit unions pass onto their members. Credit unions are also known for taking a personal, long-term approach to the lives of their members and the lives of their members' loans, and they retain more loans than other types of lending institutions when it comes to being sold to the secondary market.

It’s only recently, Reed said, that credit unions have started to awaken to the fact that businesses need and consumer want a digital presence that’s at once easy to find, easy to access, and easy to navigate. Credit unions traditionally work from an asset and liability perspective in managing their balance sheets, analyzing deposit rates, loan-to-share ratios, and figuring out ways to achieve a maximum yield while still lowering fees and rates to their members and realize a profit at the end of the year. While most still manage from that perspective, some are beginning to look outside of traditional norms to balance yield, net interest spreads while meeting the needs of their members and looking for ways to increase profits, because “margins are becoming too competitive and commoditized, even in mortgages,” Reed said.

They’re starting to realize the need for a more robust product offering that balances all the needs of a member.

“On top of that, credit unions must make sure that their members understand the entire spectrum of products they can offer. For many, that’s still a roadblock for some of these folks.”

By missing out on the technology boat, they’re losing out in another area, which is big data. Commercial banks are continually refining their data mining processes in order to discover patterns in both consumer buying and spending patterns, and utilizing that information to develop new products and new ways to reach people. Everyone knows that they’re not in the game for the service to the consumer. Credit unions are known for the service to the customer, but could benefit from this technology as well.

“Credit unions themselves don’t understand that a mortgage application gives them a wealth of data to sell them all the other products, and part of the problem of that is, what is driving the credit union? Well, you still have a big majority of credit unions out there going, ‘look, we just want to offer a service; this isn’t all about the almighty buck.’ But you’ve got other credit unions that are starting to say, ‘you know what, it is about the buck, and want to squeeze more out of our members.’”

Whether it’s about more money, market share, or simply to prove that credit unions can draw business away from the banks is ultimately beside the point. Without technology, all those points are lost.

Even though credit unions aren't at the forefront of technology, they're finding other ways to use their local appeal to their advantage. They're connecting with a younger demographic by tapping into their community-minded ethos and engaging in local events and activities, which research has shown appeals to millennials.

“Millennials want different kinds of things, they’re not like their parents,” Reed said. “They want balance of life. They want convenience and technology but they still want those older, traditional values, which is, ‘I want to care about what’s going on in my community and I’m not going to go buy something from that industrial piece of junk over there because they’re contaminating the water,’" Reed said. "So I think some credit unions are falling back on that and using their very community-centric involvement to attract people that would not necessarily find them.”

Like originators, credit unions need to learn the balance of going with what they do best and going with what today’s consumer demands.