By Ray Birch
WASHINGTON—It’s the most vexing Catch-22 of all for smaller credit unions: they will grow when they have more time and resources available, and they will have more time and resources after they grow. So, how to overcome that huge issue?
Tom Sakash, small credit union advisor with CUNA, believes the answer lies in more collaboration, even though the leaders of many small CUs also lack the time and energy to seek out collaborative arrangements with other smaller CUs to improve scale and operating efficiency and grow.
As CUToday.info has reported, the trend line has been consistent and long running, with the latest NCUA data again showing credit unions with assets of at least $1 billion claim the strongest growth in loans, membership and net worth, while CUs with less than $50 million in assets continue to show declines in loans, membership and net worth.
Analysts and small CU CEOs themselves have long shared the frustration of lacking the time and funds to better grow and compete remains the primary challenge, and has been a primary driver behind many mergers. But Sakash remains hopeful those same CEOs will recognize they relief can be found in working together, which he insists is the solution to the plight of small shops.
“I think a lot of small credit unions are interested in collaborating, but their challenge is having the time and resources to build some sort of sharing program or even get an arrangement started,” Sakash said. “The leaders of these operations are stretched very thin, so creating a shared back office arrangement, for example, can be costly and time consuming to get started and is a huge obstacle.”
Role of State Leagues
Sakash believes the state leagues can be a big help here, working with small CUs to develop and implement collaborative solutions. He pointed to the New York CU Association, for example, which has taken the lead on a shared compliance solution for a number of smaller credit unions.
“I think the leagues, and possibly CUNA down the road, could intervene and help drive greater collaboration,” said Sakash. “In New York, several small credit unions are sharing a compliance person. The expert is an employee of the league, which takes care of the HR and logistics and pays this person.”
The league’s initiative helped to overcome a primary roadblock, he said.
“It’s just very difficult for small credit unions to take this kind of effort all on themselves,” said Sakash. “If they could figure out this piece of the puzzle, it would be a game-changer for small credit unions. Not only would they gain greater scale and save money, the CEOs could spend more time focusing on the business of the credit union and growing as opposed to just keeping the lights on.”
Sakash said that many of CUNA’s small CU initiatives are built around driving a culture of collaboration among small credit unions. He pointed to CUNA’s Small Credit Union Committee, a national body of credit union professionals that regularly meet to discuss issues, challenges and opportunities facing small CUs.
“We think this is one of the most important and valuable things small credit unions can do,” said Sakash about collaboration. “We really want small credit unions to work together to begin sharing ideas and resources to achieve greater economies of scale. Think about it like a scale. On one side you have a big credit union and the other side a small CU. It’s clear which way the scale will tip. But if you begin adding more small credit unions to the small CU side of the scale, it begins to level off as things balance out. It’s the only way to begin to reduce this gap in growth that is happening and begin leveling the playing field.”
A Windy City Example
Among other examples of small CU collaboration cited by Sakash is a group of 16 church credit unions in the Chicago area that have banded together to share core processing. He explained that not only are the credit unions now sharing a core system and therefore the costs, by partnering the group was able to purchase a more expensive core system than they could have individually, and that solution will better support their growth.
“They were able to negotiate with the core provider more effectively as a group,” Sakash noted.
In Spokane, Wash., the $11-million Spokane Media FCU is partnering with a small credit union in Florida to provide the Sunshine State CU with back-office support.
“Spokane Media has some extra capacity and found it could dedicate a couple hours every day to assist the Florida CU with back-office work,” Sakash explained. “I think this is an amazing idea and arrangement.”
Sakash said that the arrangement is worked through the two credit unions’ core processor, since it is the same company. He said the $46-million Florida credit union, which asked not to be named, pays the processor and then the processor pays Spokane Media for the work.
‘Very Beneficial’
“This is a very beneficial arrangement for both,” said Sakash. “The Florida CU does not have to hire more full-time people and Spokane Media gets another revenue stream, which is critical to small credit unions. Such a revenue stream can go toward paying the CEO more, allowing a small credit union not only to retain key talent but also attract, young, skilled executives.”
Sakash reiterated the importance of small credit unions banding together.
“But establishing these relationships and building these sorts of collaborative arrangements remains challenging for small credit unions,” said Sakash. “But if they can figure this out it will make a huge difference in driving down their costs of doing business and will strengthen their competitive position.”
Sakash also added that credit unions need to find what they do best and focus on that niche. He said that next year CUNA is rolling out the Small Credit Union Strategic Planning Workshop, which will teach small CU executives how to be better strategic thinkers and how to focus on a niche to differentiate their credit union.