In this week’s issue of the Principle 6 Newsletter, republished below, Mike Mercer reminds readers of how vital the early credit union movement was to consumers. They created access to financial services where there was no alternative, taught the discipline of saving and even introduced affordable loans based on character of the borrower.
Somewhere along the way, though, being “essential” got replaced with being “relevant.” How can credit unions, and the broader cooperative movement, reclaim “vital”? They can start by working together to create a long-term strategy of making irreplaceable connections with Americans.
“The opportunity would essentially be to establish a public reputation that positions democratically owned and controlled co-ops as the only institutions where the well-being of those being served is the unquestioned top priority,” Mercer writes.
Read the full issue of Principle 6 Newsletter below. And while you’re thinking about “cooperation among cooperatives,” take a moment to consider how you and your cooperative practice this principle. NCBA CLUSA is on a mission to document Principle 6 collaborations across the country so we can identify trends, document best practices and share this knowledge with you—our fellow cooperators!
Principle 6 Newsletter – Being Vital (Again)
Issue 17 – March 10, 2021
“Of the utmost importance—suggests something that is necessary to a thing’s continued existence or operation.” – definition of “vital,” Merriam-Webster Dictionary
“Meaningful or purposeful in current society or culture.” – definition of “relevant,” The Free Dictionary
“Credit unions are no longer vital. There are many alternatives and fewer differences.” – Bill Cox, Federal Reserve Bank of Atlanta, 1981
Through today’s digital-first lens of competitive strategy, did you ever wonder how tiny, volunteer-driven financial cooperatives prospered? It turns out that they were vital in several ways. For most folks, there was literally no alternative to banking at work, especially on company time. And, for the average worker, there wasn’t much success at saving money until the credit union taught the discipline of payroll deduction. Finally, and most profoundly, credit unions introduced affordable loans based simply on the collective character of the borrower and his/her co-signers. In these ways, credit unions were literally irreplaceable. They were vital.
As always, things change over time. The 1970s and 1980s introduced a time of significant deregulation in financial services. Fixed brokerage commissions were the first to go. Deposit insurance was draped over all depository institutions under the banners of the FDIC, FSLIC, NCUSIF and numerous state/private schemes. Consumers no longer had to worry about the stability of their financial institution. Credit unions were able to offer transaction services, rate ceilings were lifted, and doors opened to new forms of lending. Job growth was happening more in small companies, credit unions physically moved into places where people lived and shopped. Seeing this unfold, Bill Cox predicted the loss of essentiality for most credit unions. Sometimes, things are easier to see from the outside.
Today, no serious student of credit union competitive strategy would pretend irreplaceability at the institutional or individual service level. There are many options for most members. Big banks are going digital fast. They have physical stores in all the right places. Fintechs are redefining customer experience, especially online. And, there are a half dozen competent credit unions nearby that could step into the existing service roles of any credit union, no matter how large. Being “relevant” in the market is the current competitive aspiration for most credit unions. A little better pricing, a little more convenient, a lot more helpful—but not irreplaceable, not vital.
Being “relevant” in the market is the current competitive aspiration for most credit unions. A little better pricing, a little more convenient, a lot more helpful—but not irreplaceable, not vital.
Note: an aside to this story. There are credit unions that are substantially vital to people in their neighborhoods or circumstances. Typically small and usually serving those of extremely modest means, these credit unions perform yeoman’s work under difficult conditions. They deserve widespread admiration and strategic respect. But, let’s get back to the majority of the flock…
The pursuit of relevance is likely a glacial slide toward homogenization. The margins of relevance will continue to decline. Already the customer satisfaction ratings of credit unions have converged with those of banks. That never happened in all the decades that such data were gathered. The tools of relevance-based strategy include the deployment of automation (i.e. dehumanization), the pursuit of cost efficiencies (more dehumanization) and consolidation (do I have to say it?). Arrival at homogenization with other providers is to fulfill commoditization of product and purpose. Probably not an exciting long game.
Arrival at homogenization with other providers is to fulfill commoditization of product and purpose.
In the Netherlands, the Catholic-centered Raiffeisen banks came together with the Protestant-centered Boerenleen banks to create one cooperative financial system under the present-day flag of Rabobank. Through consolidation, common branding and an international focus on agriculture and food production, Rabobank has certainly excelled at the market relevance strategy. In agriculture, they may even be vital to farmers in some parts of the world. The systemic strategies of Rabobank are being substantially emulated in Brazil by the Sicredi credit union system. But this is America. Our determination for crafting individual destiny is likely too strong for accepting the requisites of successful market relevance strategy: consolidated infrastructure, centralized decision-making and common branding.
So, what if U.S. credit unions wanted to strategically leapfrog relevant, becoming vital again?
Credit unions and the other co-ops, working together, could design and execute a long-term strategy of creating vital (irreplaceable) connections with American citizens. The opportunity would essentially be to establish a public reputation that positions democratically owned/controlled co-ops as the only institutions where the well-being of those being served is the unquestioned top priority. Virtuous vitality! Each co-op continues to specialize with its own product/service offerings. But value is projected as a combination of product benefits, trustable advice, and handoffs to other non-extractive providers (especially other co-ops) for navigating all of life’s challenges. And every value-producing interaction comes with the reminder, “because we are co-ops…”. Take the competition where it cannot legitimately go. Build vital connections around trust and helpfulness.
From some, the retort will be, “that’s what we already do.” From others, “look, we have all we can say grace over now, there’s no more bandwidth for something like that.” In some towns, there is only one co-op. But, with a systemic strategy, one co-op (say, a credit union or an REC) could be an oracle into the entire “co-op system.” In a small Newfoundland town, the only co-op was a credit union. They made more co-ops, organizing a food co-op and a housing co-op. They aren’t done. It takes vision and courage to make something transformational happen. Becoming vital again would take significant transformation. And the timing could be good for creating a virtuous circle with increasingly enlightened consumers…
“We know that there are strong synergies between the phenomena of corporate social responsibility and discriminating consumption. It is completely normal that consumers’ attention, whose behavior can be expressed by the slogan “consume better and be happier” rather than “consume more, pay less”, is largely directed towards civil companies (think co-ops). At the same time, the expansion of civil companies broadens civil consumption.” – Bruni & Zamagni, “Civil Economy,” 2016
True, getting back to vital wouldn’t be easy. If it was easy, any company could do it. But it probably looked insurmountable when somebody suggested that the Catholics and Protestants join hands in Amsterdam. In the U.S., credit unions would have to lead. The rural electric co-ops touch many, but they aren’t everywhere. Some of the ag co-ops are enormous, but farmers don’t live in population centers. Worker co-ops, housing co-ops, health clinics, childcare co-ops and others are already vital, where they exist. But their touch points are extremely local. Credit unions cover the country and they serve more than 100 million Americans. Unlike smaller co-ops, many credit unions are uncomfortably positioned on the “relevance slide.” Credit unions, more than any other form of co-op, would benefit from a strategy to reclaim “vital.”
Unlike smaller co-ops, many credit unions are uncomfortably positioned on the “relevance slide.” Credit unions, more than any other form of co-op, would benefit from a strategy to reclaim “vital.”
Thought framers would have to paint a picture. Leaders would have to encourage and fund the innovation processes. Entrepreneurs would have to do the work on the ground.
What organization will light the fire?
Something like this could be a cornerstone for “deepening our cooperative identity,” the focus of the International Cooperative Alliance’s World Congress deliberations in December.