Why Do Credit Unions Settle for 7% of the Market?

There was much rejoicing in the credit union world last week when the Supreme Court batted back the American Bankers Association’s challenge to the NCUA’s expanded field of membership rule. The decision is undeniably good news- it removes a cloud of uncertainty and provides Americans with greater access to affordable financial services. Consumers deserve the option to be a member of a credit union- I say this out loud all the time. However, the court victory won’t be truly meaningful until the credit union movement capitalizes on its momentum.

According to Callahan and Associates, US credit union membership grew by 32% in the 2010s, reaching an all-time high of 120.9 million last year. As impressive as those figures sound, credit unions hold only 7% of consumer deposits- a ratio that’s remained remarkably stagnant for 30+ years. The natural question is “why?”

The 2010s were a period of consolidation, with the number of CUs declining by nearly 2,400, or 30%. There were some closures in the aftermath of 2008’s financial crisis, but the vast majority of the change came from merger activity. Some of these combinations made strategic sense, building the scale necessary to better serve members. But they didn’t all have to happen. The NCUA’s field of membership rule will make it easier for credit unions to grow by attracting new members rather than merging with other CUs.

The average credit union’s member base nearly doubled over the past decade, to over 22.000. Again, much of this increase is attributable to consolidation- and it implies that CUs are building enough scale to match with their personal touch. Most of the net new member growth has occurred at the largest credit unions, though- a pattern also seen at the largest US banks versus their smaller brethren. It amazes me how much energy community banks spend throwing darts at CUs when it’s their 800 pound siblings who are actually stealing their market share.

Growth at the largest CUs is good, but it’s not enough to sustain a thriving movement overall. I believe a good starting point would be to say it loudly and proudly- the credit union movement should own a larger share of the market. With a reasonable share of wallet from our existing 120 million members, 25 or 30 percent shouldn’t be out of the question. Simply crossing the 10% threshold, however, would mark a major milestone and represent significant growth.

The next question becomes “how?” I see digital services as the answer and a more critical capability than ever. CUNA CEO Jim Nussle had it right on his Twitter feed in 2017 when he declared, “We are Fintech, baby!” The right technology can allow small and mid-sized credit unions to punch above their weight. The trick is for them to carve out time for innovation, when many are buried by the day-to-day constraints of survival. This is where our movement’s “superpowers” come into play, whether through CUSOs, the State Leagues or CUNA’s collaborative efforts to identify and vet promising solutions.

There are plenty of positive examples- look at the tech incubator operated by Digital Federal CU. They’re large by credit union standards, but invest in innovation at a level that’s the envy of banks many times bigger. On a smaller scale consider Partner Colorado Credit Union, which successfully launched its Safe Harbor unit in the face of hostile opposition.

Finally, let me preempt another potential objection- “If we grow too much, will it jeopardize our tax status?” Such a mindset is essentially an excuse for settling for our current paltry market share. Wouldn’t building up enough assets to bring on a stronger tax challenge be a nice problem to have? Besides, we have great advocates like CUNA to fight those battles and we’d have an even more delighted and engaged member base ready to raise their voices on our behalf!