Thursday, September 4, 2014

Credit Union and Bank Premature Death Proclamation

Your credit union or bank may not be walking dead, but may be on life support with the need for immediate attention. This is the second part of a two part blog, providing a solution to a problem all credit unions and community banks face. So how does your credit union or bank compete in today’s fast evolving financial services market? 

A major challenge credit unions and community/regional banks must overcome is how to achieve economies of scale without being forced into a merger or sale. Economies of scale, including the ability to quickly introduce technology solutions that will drive member or customer engagement, reducing operational costs and technology expenses.

The financial services market has undergone tremendous change over the past 10 years, which is only accelerating with new non-traditional banking entrants and technology innovation. As innovation and demand for customer facing solutions increase, so will the budget necessary to offer those solutions. As credit unions and banks continue to introduce complex products and product variations the operational costs associated with running a credit union or bank increase.

Credit unions and banks operate in a tightening margin business, with expectations of their members and customers that they offer leading edge technology solutions and new products, which increase operational costs. Economies of scale that the mega banks and large regional banks enjoy are not available to credit unions and community banks.

Unless this scenario changes, long-term credit unions and community banks face a bleak future, or they will need to identify small unserved niches, or be willing to meet only parts of their member’s or customer’s financial service expectations. These are not great options, so how can credit unions and banks change the emerging scenario? By thinking WAY OUTSIDE THE BOX.          

Credit unions and banks that do not want to be merged or acquired by larger credit unions or banks must find ways to achieve economies of scale. How? Through cooperation.

Cooperation sounds like it should be uniquely credit union orientated, but it does not have to be. Technology and non-member/non-customer facing operations do not have to be owned, controlled and executed by every credit union or bank. Instead, a new cooperative entity can be created to handle all technology and non-member/non-customer facing operations. Through the use of shared resources true economies of scale can be achieved, but it must include both technology solutions and back-office operations in order to realize true cost savings.

Technology solutions and the cloud environment have progressed to the point that shared resources do not mean services, products, or user experience need to be the same. Data does not have to be shared and policies do not need to be uniform. The opportunity exists with the right technology solutions and true committed cooperation to allow multiple financial institutions to share resources while remaining and appearing completely independent from each other.

Radical??? Yes, but the consequences of not adjusting your credit union’s or bank’s business model have been well documented. Credit unions have wandered into this arena on a limited basis. Is it easy, ........ no but what is easy that is worth pursuing. Now is the time to make it happen.   

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