Credit unions are capable, strategic opportunists. Whether it's a pullback in small business lending or a cultural moment of dissatisfaction with big banks, the credit unions have been ready and willing to take advantage of opportunities when they arise.
When the big banks curtailed small-business lending during the financial crisis, the credit unions swooped in. In 2011, credit unions were the primary financial institution for nearly 7 percent of small businesses, up from less than 4 percent in 2009.
Another example is the buzz around Bank Transfer Day in November 2011. Following the banking industry's initial attempts to impose monthly fees, a Los Angeles woman set up a Facebook page to encourage people to switch banks. The resulting media attention sparked a successful membership drive for credit unions.
Yet these opportunistic stories are not enough, as the big banks won't stay easy targets for long. Despite big banks falling into public disfavor, overall market share for credit unions has been stuck at around 6 percent of total financial institution assets for over 20 years.
To reach the mass market with a broader range of compelling services, the credit union industry will need to take an innovator's approach to the marketplace, disrupting the commercial banking industry with low-cost, high-quality alternatives to existing products and services. Credit unions have to popularize great products that banks would never dare to launch for fear of cannibalizing existing revenue streams.
At present, credit unions rely far too heavily on the marketing-led concept that they are morally superior to commercial banks because of their community focus, ethical lending policies and member-owned structure, and by extension, that their customers are better people for supporting the credit union movement. By that thinking, credit unions need only to maintain service levels on par with commercial banks because virtue-based messaging will do the rest. And by that thinking, credit unions will stagnate at 6 percent market share forever.
The leaders in the credit union community do recognize the need for technological innovation. "We [the credit unions] should have invented Square," remarked Gene Blishen, general manager of Mount Lehman Credit Union in British Columbia, speaking at BarCamp Bank Seattle, a day-long event devoted to disruptive innovations in the world of banking and finance.
Similarly, during a discussion of personal financial management (PFM) tools, I asked whether the credit unions should have invented Mint, the popular PFM from Intuit. Again, the consensus was "Yes."
I respectfully disagree. No credit union or CU collective could have invented Square or Mint. The credit union industry, either individually or as a group, lacks the DNA, the tech talent pipeline, and the stomach to invest member assets into financial technology startups. Credit unions may be among the first to envision the future, but they're among the last people we should expect to invent it. Innovation doesn't wait for a group consensus to emerge about the proper way to proceed. Innovations fail, and they fail badly and at great cost to investors and inventors.
Nevertheless, credit unions are more than capable of acting as proving grounds and test beds for emerging technologies. Credit unions should have been the first to deploy Square and Mint or their equivalents. The financial technology market consists of countless companies, whether startups or established players, having new approaches to core banking, multichannel management, mobile access, branch reconfiguration, and any number of other powerful and potentially disruptive technologies. If credit unions intend to shift financial power away from big banks, there's no quicker route than for credit unions to discover a better technological formula for serving customers.
The main challenge is that the overburdened, underpaid technology leaders at credit unions are in no mood to field the constant stream of technology pitches that bombard anyone with a visible presence in the industry.
In attendance at BarCampBank Seattle there was just one technology vendor, Graeme Cox, CTO of Mobilearth. When given a brief opportunity, Cox described how the company's MobiBranch tablet app untethers employees from the branch, allowing them to accept deposits, open accounts or take loan applications from anywhere.
A perfect match for credit unions, wouldn't you think? In the pre-mobile era, banks competed on branch network coverage. When bankers can go anywhere, the credit unions with local community ties should be in a great position as long as they're not late to the party.
At BarCampBank Seattle, the response to the pitch was lukewarm at best. A profit-seeking software vendor has to tread carefully in the not-for-profit world. Unless you have a free, open-source product, it's unlikely that you'll be given the time to present a live demo, let alone score an introduction to a credit union's CTO. My sense was that if you're not part of the virtuous and saintly not-for-profit credit union culture, you're an interloper, a profit-seeking vendor, or an MBA-toting infiltrator -- even if it's precisely those people who are best able to help the credit unions to achieve their goal of changing the financial system for the better.
Free advice to the CU industry from this MBA: Transform BarCampBank into an event like Finovate. Spend more time listening to pitches, and then share your impressions with your peers. Work as a community to identify firms that can shake things up, and then have the courage to go for it. Get a reputation for being first to launch by working with those who are first to invent. Forget "skunkworks" projects; you're outgunned. Don't worry if your business partners get rich while helping you to succeed. Try everything to find out what works.