Way to Grow! Growing Your Credit Union Membership in a Mature Financial Services Market. Why Credit Union Growth has Stalled

Transcription

1 NEW YORK, NY EXPERT INSIGHTS It s no secret that credit union membership growth has slowed to a snail s pace. In 2005, sixty percent of credit unions had no membership growth at all. With average annual membership growth rates hovering around 2 percent and growth trends on a downhill course, many credit union boards and executives are asking, Does growth matter? And if it does, how do we grow? In the 1990s credit unions were gaining about 2 million new members a year. Today, that growth has slowed to 1 million, and analysts say there is no end in sight to the slowdown. Why Credit Union Growth has Stalled Four key factors are contributing to the standstill: Way to Grow! Growing Your Credit Union Membership in a Mature Financial Services Market by Constance Anderson, President Constance Anderson & Associates, Inc. Factor #1: Hypercompetition In 1985, a consumer in a small town in North America had, on average, a choice of three financial institutions. Today, with offerings on the Internet included, a consumer in a small town has over 5,000 choices. Both traditional and nontraditional financial service providers have used the Internet and aggressive branching strategies to saturate markets. When we conduct focus groups with members, it s not uncommon for them to reveal that they have accounts with Internet providers such as ING Direct along with brokerages, traditional banks, insurance companies and a host of credit card providers Constance Anderson & Associates, Inc. All rights reserved. 1

2 Factor #2: Commoditization and Lack of Differentiation In the Filene study Why Choose a Credit Union? researchers found that even credit union members had a difficult time articulating the unique benefits of credit union membership. Most credit union products, branches, and prices look the same as those offered by banks and other credit unions. Consumers see no clear reason to choose the credit union over its competitors. Factor #3: Employer Group Saturation and Decline In the 1980s and 1990s, many credit unions grew membership by keeping the bond tight with a single sponsor group or recruiting hundreds of new select employer groups. Today, many credit unions struggle because their original sponsor group has merged, downsized, or disappeared. To counter those developments, credit unions sought to establish relationships with other employer groups in related industries or in the community at large. But after two decades of recruiting there are few large employer groups who do not have a relationship with a credit union, a bank, or both. Factor #4: Limited Advertising Dollars for Reaching a Community Market To counter employer group saturation and decline, many credit unions have converted to a community charter. The number of credit unions with community charters has risen 80 percent since Yet, few credit unions have the advertising budget to communicate effectively in most markets. Bank advertising budgets dwarf even the largest credit union ad budgets. Moreover, evidence mounts that consumers are becoming immune to advertising messages. Twenty years ago, 64 percent of consumers in the U.S. could recall one advertisement they d seen in the last week. Today, only 46 percent can do so. 1 Haller, John. Credit Union Membership Eligibility Among Non-Members, Credit Union National Association Research and Statistics Research Review, Issue #52, April Constance Anderson & Associates, Inc. All rights reserved. 2

3 Does Growth Matter? The threat to credit unions over the long term is the aging of the membership. With so many barriers to real, sustainable membership growth some boards and executives may wonder if growth really matters at all. After all, many credit unions are able to sustain adequate capital and return on assets despite the lack of membership growth. A credit union that adds mortgages or indirect loans to its product line-up is likely to see loan growth far outstrip net membership growth. The problem with lack of membership growth for a financially sound credit union is that it leaves the credit union susceptible to two long-term threats. The first is the inability to achieve the economies of scale necessary to compete when yield curves are flat or inverted and competition is fierce. The second, and probably more devastating threat to credit unions over the long term is the aging of the membership. Not only are credit unions in a mature industry, but they have the most mature segment of that industry. The average credit union member is now 47 years old up from 42 years old in At the same time, the average age of a U.S. citizen increased from 37 to Without the addition of younger members to the current membership base, many credit unions face extinction over the long term despite current financial health. 2 Sebastian, Annie and Carly Spring. Baby Boomer Retirement: A Looming Crisis for Credit Unions? Callahan and Associates, April 24, Constance Anderson & Associates, Inc. All rights reserved. 3

4 Choosing the Best Growth Strategy Credit unions that choose to pursue membership growth aggressively employ a variety of strategies to fuel the growth: 1. Indirect Lending 2. Charter conversion 3. Advertising and public relations 4. Business development with select employer groups 5. Brand differentiation 6. Small business market development 7. Branch network expansion Most credit unions that experience membership growth, use two or more of these methods. Which are most effective? That may depend on the credit union s market and resources, but overall, charter expansion combined with the development of an effective, member growth and relationship development team provides the most sustainable path to long-term membership growth. An in-depth look at each of the growth strategies reveals why. Indirect Lending There s no doubt that with good controls in place, indirect lending can drive gross membership along with significant asset growth while adding to the bottom line. However, an indirect lending program contributes little to net member growth. Indirect borrowers tend to leave the credit union as soon as their loans are paid off. Credit unions with a mature indirect lending program see as many indirect members leave each month as they see join. Even with the best marketing and sales campaigns, no more than 5 to 20 percent of indirect borrowers ever establish a relationship beyond the initial loan with the credit union. While some credit unions have taken aggressive steps to counter this trend, the return on investment for marketing to these members is minimal compared to the return on marketing investment that a member growth and relationship development team can generate Constance Anderson & Associates, Inc. All rights reserved. 4

5 Charter Expansion Charter expansion must be combined with a plan for penetrating the new market and developing deep relationships with every new member acquired. This strategy is a given for any single sponsor credit union that wants to achieve significant growth unless the credit union has low sponsor growth penetration or has a sponsor group with multiple locations that are not being served. Even given those conditions, a single sponsor credit union in today s environment faces significant risk associated with sponsor group downsizing, relocation, or buy-out. To counter this risk, most credit unions that want to grow have already converted to a multi- SEG or community charter. That s a good beginning for growth, but without a strategy for penetrating those SEGs or the community-at-large, the new charter is simply a document in a file drawer. Charter expansion must be combined with a plan for penetrating the new market and developing deep relationships with every new member acquired. Otherwise, the credit union is plagued with a plethora of inactive single-service savings members who add to membership totals on paper but fail to contribute to the cooperative. Advertising and Public Relations Credit unions that enter the community market understand that they will have to increase spending on advertising and public relations. Few, however, are prepared for the kind of increases that are necessary to achieve even a slight increase in market share. Credit unions double, triple, and quadruple their advertising budgets in an attempt to get consumers to join. While a community-chartered credit union can t neglect advertising and public relations, the spending here will produce little result absent a member growth and relationship development strategy. Without convenient access points, a retail sales and service culture, and an outside relationship development force, advertising will do little more than increase name awareness. Membership growth requires more than advertising Constance Anderson & Associates, Inc. All rights reserved. 5

6 Business Development with Select Employer Groups Credit unions have had more success in growing membership through direct sales to select employer groups than in advertising to the community-at-large. However, the effectiveness of this strategy is often hampered by a lack of a coordinated member relationship development strategy once the group signs on and the lack of a large, coordinated member growth and relationship development team. In most credit unions one or two business development officers attempt to make contact with a long list of SEGs. At best, they are able to maintain strong relationships with a handful. Meanwhile, dozens or even hundreds of groups remain untapped. Branch managers are enlisted to help in the relationship development strategy but few are trained, coached or supported to effectively assist in the effort. Brand Differentiation Like the charter conversion strategy, brand differentiation is an entry point for driving membership growth. Credit unions must provide an unrivaled member experience in terms of service delivery along with an innovative product line in order to support the sales and marketing effort. Many credit unions have defined and strengthened their brand value proposition. Member satisfaction levels and account usage rise in those credit unions. The next step for those credit unions is to communicate the brand value proposition to an ever-widening audience of prospective members. Again, advertising is important, but consumers tend to tuneout and disbelieve advertising messages that tout brand values. The best way to gain members in a credit union that can provide a consistent, superior service experience is to train, coach, and support a member growth and relationship development team. Small Business Market Development More and more credit unions are tackling the growth problem by entering the small business services market. For those credit unions with the resources and commitment to develop competitive products and delivery options for the small business market, there is huge potential. After all, small businesses are the new underserved middle market. Banks do little to serve or retain these small to mid-sized businesses. An astonishing 21 percent of small 2010 Constance Anderson & Associates, Inc. All rights reserved. 6

7 business owners say they are shopping for a new financial institution. The majority of those who make the switch 64 percent say they did so for better service. 3 But product development is only the first step. Penetration of the small business market requires the development of an effective small business relationship management team. Small business owners want to know they have access to a branch that is convenient and responsive to their needs. A credit union that wants to serve the small business market must develop and support a small business relationship team that may consist of branch managers, business bankers, and business development representatives. Branch Network Expansion In today s fragmented and expensive advertising market, growth leaders across commoditybased retail industries have discovered that distribution channels trump promotion and pricing as the engine for growth. Starbucks is a good example. The company does little mass media advertising. Marketing executives realize that few consumers will drive far out of their way for a cup of coffee no matter how unique the brand experience. The Starbucks strategy is to place an outlet within consumers radius of activity whether in a suburban hub or a tourist destination. Coupled with a unique in-store customer experience, the Starbucks distribution strategy has been successful in a crowded retail market. Today s time-pressed, working-age consumers are less likely than ever before to go out of their way for any product or service bar the most unique. People may camp out at Best Buy to get the latest Sony PlayStation, but they are unlikely to drive across town to get free checking. That s why credit unions that want to achieve sustainable net member growth must expand their branch networks as resources allow. Despite the promise of remote delivery channels, financial consumers of all ages still tend to choose their primary financial institution based on its proximity to home or work. 3 Scott, Jonathan A. and William C. Dunkelberg, Washington D.C.: NFIB Research Foundation, National Small Business Poll: Bank Competition, Vol. 5, Issue 8 published by the Constance Anderson & Associates, Inc. All rights reserved. 7

8 But building branches is not enough. Credit unions must couple their branch network strategy with a plan for reaching out to consumers, community groups, and businesses within the orbit of each branch. This means developing a member growth and relationship development team who work outside as well as inside the branch to gain new members. Given good site selection, most branches can reach the break-even point in 18 to 30 months but only if the branch management and outreach team is trained, coached, and supported to recruit new members and new businesses. The Missing Link for Credit Union Growth Credit union leaders must work with their natural business development force of branch personnel It s the missing link in credit union growth A credit union s leadership team may decide to grow the credit union rapidly or to grow it slowly. They may decide to pursue an entire community or multiple SEG groups. They might elect to enter the small business market or undertake an aggressive branch acquisition strategy. But there is only one way to maximize a credit union s return on investment on any of these strategic initiatives. The credit union must have a trained, willing member growth and relationship development team that can maximize and accelerate positive return on investment for branches by reaching out to new markets. But few credit union branch managers are equipped today to develop the markets within their branch radius. They lack the tools, the training, and the incentive to operate as branch business developers. Locked in an operational mindset, they do not identify unique market opportunities or reach out to their natural branch markets. In some cases they don t feel empowered enough or confident enough to act as internal entrepreneurs who recommend new products, promotions, and member development strategies inside or outside their branches. The next step for credit unions that have a strong member-centric culture within the branch is to go beyond the branch. I m not talking about a bank sales model and quota system. I m talking about a planned, systematic initiative based on proper training, relationship building, and the pursuit of unique, underserved and underappreciated niches within the branch radius Constance Anderson & Associates, Inc. All rights reserved. 8

9 RESOURCES: Constance Anderson & Associates offers a comprehensive Business Development course for branch managers and business development officers. Choose from four modules to customize your on-site learning experience. Each module is completed with a follow-up challenge to ensure transfer of training. To find out more call us at or us: info@membershoppers.com. Credit union leaders must invest in helping branch managers and their designees grow into their natural roles as community outreach officers. For example, in one credit union where I consulted, a branch manager took the initiative to visit homeowners associations in his branch area. He talked about the credit union s mortgage program and how it could help first-time homebuyers. He also talked about the credit union s home equity loan program. This branch manager s mortgage loan totals were double those of similar branches. If the credit union could train, coach, and incent other branch managers to do the same, it could double its assets and grow its membership without adding a single branch or spending an additional advertising dollar. Credit union leaders must work with their natural business development force of branch personnel to nurture their talents and empower them to become internal entrepreneurs. It s the missing link in credit union growth Constance Anderson & Associates, Inc. All rights reserved. 9