By Ray Birch
ARLINGTON, Va.—They should be seen walking into credit unions during this holiday season, or logging into home banking or mobile branch, yet they are an apparition—there, but seldom seen.
“They” are the “Ghosts of Members Past,” vast portions of the millions of Americans who have joined credit unions in 2017 in the record numbers credit unions love to boast about, but end up as phantoms who contribute little to the financial cooperative. Some disappear quickly when their indirect auto loan is paid off, while others slowly fade into the coffins of the credit union balance sheet, with maybe an unused checking account or debit card their only signs of life.
As Christmas approaches, CUToday.info spoke with several economists and credit unions to determine how well CUs are doing at turning all these new members into profitable accounts, in this the first of a three-part series.
CUToday.info posed that question at a time of record credit union membership growth, expected to end this year above 4%. Credit unions added more than 3.964 million memberships in the first nine months of 2017, the fastest pace in credit union history, and significantly above the 3.539 million added in the similar time period of 2016, according to CUNA Mutual Group’s Trends Report.
80/20 Rule
Curt Long, NAFCU
If the 80/20 rule continues to hold true, it means that of those 3.53 million members, 2.82-million are not contributing anything positive.
Like many credit union data reports show, the record membership growth can be attributed in part to credit unions’ rapidly increasing penetration in indirect lending. As CUToday.info reported here http://www.cutoday.info/Fresh-Today/CU-Direct-CUs-Now-No.-1-Auto-Lender, CU Direct in August said CUs on its network are now the number-one auto lender in the nation.
NAFCU Chief Economist and Vice President of Research Curt Long sees indirect auto as a major contributor to the membership growth, noting, however, that checking is driving some of the gains as well, as members flee banks and their higher-priced products.
“When you look at the Call Reports you can see the various loan segments that are growing for credit unions,” he said. “As you would expect, auto loans have risen accordingly with the rise in membership. That is the common refrain, that the increase in membership is due to people seeking car loans.”
But Long said that also corresponding with the increase in membership is growth in credit cards and mortgage loans, suggesting it’s a sign that more than just auto lending is pulling in the record numbers. He also said the growth in credit cards and mortgage lending could indicate that credit unions are doing a better job than they have in the past at deepening relationships with members after they join.
Tough Question
Since most credit unions don’t track how well they perform at deepening relationships with new members, Long said answering the question of whether CUs are doing well at encouraging new members to participate in the cooperative as opposed to being a cost center is a difficult one to answer.
“When you look at the issue of profitability, obviously, credit unions are in the business of serving their members,” Long said. “In the discussions I have with our credit union members, I see they are focused on operating efficiencies—making sure they are efficient as they can be at serving all their members.”
While it may be a hard question to answer, member profitability is an issue credit unions must address, agreed Long, especially as some CUs—particularly smaller ones—struggle to grow.
“Credit union margins are stressed from a lot of different areas—regulatory burden and the current interest rate environment being just two,” Long said. “It is getting harder for a lot of credit unions to stay afloat. This situation will become much more problematic if the new members they add to the cooperative are not contributing.”
Long emphasized that one point is clear from the membership growth—credit unions are adding more young members. He said most shops are investing in the delivery channel technology to appeal to the digitally savvy younger members.
Long said he sees no signs of the record membership growth slowing.
“It just continues to increase. We are kind of in uncharted waters, so I guess that suggests it won’t last forever,” said Long. “But I don’t see any signs of this slowing down in the next few years.”