Credit Union Movement
The financial sector hasn’t traditionally been known for being at the forefront of innovation. Healthy margins, customer inertia and security concerns have all held back the industry from leading the way with new technology, but that’s all changing.
Big banks have realised that giving their customers easy access to their money and products is good for business, while FinTech start ups have been busy disrupting segments of the industry, offering services from foreign exchange to loans using mobile technology, peer to peer and anything else they can find at a fraction of the cost.
Against this backdrop, the World Council of Credit Unions (WOCCU) held their annual conference in Belfast in July, bringing together over 1700 delegates from 55 countries at the Waterfront Hall. It’s easy to see the Credit Union (CU) movement as the ugly sister in this brave new world: how can small local CUs, operating in towns and villages around the world survive against the fast rushing technological tide?
— Co-operative News (@coopnews) July 18, 2016
Small and mighty
Well, first of all, not every CU is small. The Arizona State Credit Union were in Belfast and they have over 133,000 members with almost US $1.9 billion of assets under management. That’s big in anyone’s money.
However, there are many, many smaller CUs, clustered around geographies or companies which offers a competitive advantage that is hard for commercial banks and FinTech companies to match. The cost of running a branch network in a small village or town prohibits tech companies from getting involved, while banks have changed their view of these from essential tools to unnecessary costs – this is the fertile ground that CUs traditionally operate in.
A key issue in the financial industry is trust and the CU movement has managed to keep that throughout the financial crisis of the last decade by playing to its small and local strengths. CUs are member-owned, not-for-profit financial cooperatives that provide savings, credit and other financial services.
Typically based on a common bond, CUs pool their members’ savings deposits and shares to finance their own loan portfolios rather than rely on outside capital. And the boards of local CUs are made up of members who live in that area or share a common interest, a stark contrast to a commercial bank.
Investments and recruitment
With a higher cost base than an online FinTech firm, making a good return on the assets under management is crucial for all CUs. But with interest rates at historic lows across many western nations, generating a return from their investments is proving increasing difficult for many.
Peadar O’hlci, President Chairman of St Anthony’s and Claddagh Credit Union said, “the returns from our investments are very, very poor now, compared to previous years. And with regulations we are restricted as to where we can put our money and invest our money.”
These low returns have pushed many CUs into becoming more aggressive in growing their loan book, so they can generate a better return on their assets. This hasn’t been easy. With many CUs, especially in Ireland, having an ageing membership, promoting loans has been tricky, which has made recruiting new, younger customers a key business objective.
Recruiting Millennials – those born between 1981 and 1995 – was probably the hottest topic of the entire conference. Keynote speakers highlighted the changes CUs need to make to be relevant to this market, ad hoc discussions between board members from different countries took place over coffee and the exhibition area was full of providers with software solutions to appeal that generation.
In Ireland, a leading country in the CU movement, offering a seamless member experience that is equal or better than the competition continues to be a challenge. Wellington IT is a key software provider for Irish Credit Unions and is working in partnership with CUs to solve these challenges.
Kevin Bradley, MD of Wellington IT, said, “by working in partnership with our Credit Union customers, we are committed to understand the challenges that they have and work together to solve them. We continue to provide solutions that support their need to merge physical and digital channels using technology.”
And that gets to the heart of the problem. Millennials are more mobile than their parents’ generation and might not spend their whole life living or working in the same parish – but they still want access to their money and to be part of their home community. By providing online banking, mobile apps and new ways to apply for credit, the CU movement, in Ireland at least, is staying relevant to a new audience.
— NYLC Canada (@NationalYoung) July 18, 2016
An additional benefit of local people running the CU is the trust it can bring. With such a wide and diverse movement, trust means different things in different places. Ranjith Hettiarachchi, the Association of Asian Confederation of Credit Unions’ Project Manager for Myanmar, said, “the most difficult part is the rural area, to build the trust where people believe their savings are safe. People were working in co-operatives never, ever saved their money in cash in their lifetime. Now we have to build the trust because [under the] previous regime people lost their money”.
Clearly the trust issues faced by a country experiencing its first taste of real democracy since the end of a military junta are different to those faced in western nations. But trust is still a central issue for CUs around the world.
Board members from the Arizona (USA), Victoria (Australia), Alberta (Canada) and Ireland voiced concerns about the rapidly evolving security situation they face. To keep their members’ money safe, they rely on advanced technology to help fight the threat of cybercrime.
Kevin Bradley continues, “there is a constant focus in protecting the Credit Unions and their members. The movement in Ireland is proud of its community image, however the strong Irish representation at this World Council of Credit Union Conference indicates the dedication in learning from their peers across the globe in order for them to offer professional financial services at the same standards as their commercial rivals.”
The challenge is clear: CUs need to remain local and connect to their community, while adhering to national and international security standards to protect their customer base. As Sam Wheeler, Board Chairman of the Arizona State Credit Union explained, “the biggest threat all of us face is cybercrime. We plan for that, it’s going to happen, so we make sure they don’t get in and do bad things”.
It’s a threat that all financial institutions face and that CUs are tackling head on. Planning is crucial, as is the right infrastructure to ensure that the members have the products and services they demand, without creating easy access for criminals.
A bright future
While the CU movement may not be the sexiest part of the financial market, with around 217,000,000 members worldwide, part of 57,000 credit unions in 105 counties, it’s a major player that shouldn’t be forgotten about. The movement faces many threats and challenges over the coming years, but if the optimism and co-operation that were present at the WOCCU event remain, then the future is bright for the Credit Union sector.
— TEC (@TECBelfast) July 22, 2016