The Stickiness of a Checking Relationship

In the January 2020 monthly AARP magazine, there is an article, Why You Should Search for a Different Bank.

There are four generic options listed: a national bank, a community bank, a credit union and a virtual/online firm.

The article provides brief pros and cons for each choice along with average rates from last October for two loan and two deposit options. But what struck me as important was the opening facts. Checking accounts are very stable relationships.

The Longevity of the Primary Checking Account

One 2019 survey cited that 40% of Americans have never switched banks.

A 2017 survey by Money magazine stated that the average primary checking account stays at the same financial institution for 16 years. People over the age of 65 have held their primary checking for 26 years.

No wonder banks are willing to pay as much as a $600 bonus to acquire new checking accounts.

The Business Analyst’s Challenge

The data suggests an interesting metric to track–the length of a member’s checking relationship, by age cohort. Obviously older members should have longer relationships.

Some questions that might be asked: How does the credit union’s checking loyalty compare with national averages? Are online competitors eroding the relationships of younger members versus persons in middle age?

More strategically, how might one predict that a member is likely to close their primary checking account in the next six months (or any forward time period) based on closed account statistics and related activity data?

PS: In 1985-1986 AARP received a FCU charter from NCUA to serve its nation wide members.   The CEO hired of  the de novo startup was P.A. Mack, the former NCUA board member.   The charter was  given up after approximately one year’s effort.   Might such a charter make even more sense today?

Clayton Christensen (1952-2020): A Case Study for Life

The Harvard Business School professor and author of thinking disruptively was not unfamiliar to credit unions.

A number of years ago, I heard him at a reunion panel describe why he thought education, especially post high school, was ripe for disruptive innovation. After all, most knowledge is digital, improved real time virtual interactions were feasible, and the scalability of online reach is limitless.

At the close he said he would be putting his analysis into action by launching an online offering for the Harvard Business School called HBX (now rebranded as HBSO). The focus would be applying disruptive thinking to any organization coping with change.

I caught up afterwards and told him that Callahan would be very interested in seeing if his new course might be open to credit unions. He gave me his business card and turned it over to show me his assistant whom we should contact.

Several months later the Callahan team visited Cambridge and the founders of HBX in their temporary offices to seek ways we might tailor the course for credit unions. This was done. The first course was launched in 2014 called Disruptive Strategy with Clayton Christensen. A second offering is now available: Sustainable Business Strategy with Rebecca Hendersen.

Success in Life is More than Course Work

But what I remember most about Clayton’s thinking were his periodic comments on the personal qualities of leadership. A most readable example is How will you measure your life?

The paragraph that struck me is:

On the last day of class, I ask my students to turn those theoretical lenses on themselves, to find cogent answers to three questions: First, how can I be sure that I’ll be happy in my career? Second, how can I be sure that my relationships with my spouse and my family become an enduring source of happiness? Third, how can I be sure I’ll stay out of jail? Though the last question sounds lighthearted, it’s not. Two of the 32 people in my Rhodes scholar class spent time in jail. Jeff Skilling of Enron fame was a classmate of mine at HBS. These were good guys—but something in their lives sent them off in the wrong direction.

That is Not the Brand We Stand For

A personal story that captured this unique combination of moral and professional leadership is what he reminded his children when one of them had been accused of pushing another student.

He told them that is not who we are: “The brand that the Christensens are known for is kindness.”

And that is why I received his business card that summer afternoon.

The Cooperative Advantage in Mutual Funds

The fastest growing mutual fund family over the past decade has been the Vanguard funds. Their products feature no load, low cost index funds. The underlying philosophy is that investors cannot beat the market. Paying fees to investment managers that claim superior returns not only locks in higher costs, but also the claim to beat market averages is rarely achieved.

But there is one other critical advantage that allows Vanguard to offer this approach to investing contrary to the market positioning of virtually all other major mutual fund advisors. The funds are owned by their investors.

As described in a recent LA Times article“the investment group is swelling at a dramatic pace, thanks to one crucial advantage over its rivals: It is owned by its own funds, allowing it to use profits after covering costs and business investments to lower its fees, rather than reward outside shareholders with dividends and buybacks.

In other words, the more it grows, the cheaper its funds can become, in turn generating more growth — a virtuous cycle that has helped Vanguard more than triple in size since 2011. It is particularly dominant in the U.S., where last year it took in more money than its two biggest rivals, BlackRock and Fidelity, combined, according to Morningstar.

Vanguard today accounts for over a quarter of the entire U.S. mutual-fund market — a market share almost as big as Fidelity, BlackRock and Capital Group put together — and it is one of the biggest shareholders in virtually every major listed U.S. company.”

A Harbinger for Credit Unions?

NCUA Chairman Ed Callahan (1981-1985) frequently described credit unions as America’s best kept secret or a “sleeping giant.”

Vanguard is a powerful example for cooperative design where the user-owners are the sole focus of management’s priorities. Could Vanguard’s success become an example for credit union’s future contribution to the American economy?

From the Field: Concerns About Leadership for CU America

The following email recently landed. The writer lists multiple concerns which reflect a lack of vision for the system. My experience is that his concerns are widely shared. Following used with permission:

I find myself squirming about another CU Times article pushing mergers.

  • A month or so ago I was talking with an Ohio CU CEO who shocked me with the tale that the NCUA was pushing them toward dropping their State charter because the CU was informed they would never be a candidate to acquire a CU in a merger if they did not fall back into the Federal ranks.
  • A few months before that I was contacted that my credit union was “ripe” and a good candidate for merger and wanted to know if I was interested further.
  • A year before that we were pulled from consideration from a perfect merger candidate when the NCUA put a rep in their shop to “facilitate” and pushed it toward a fed charter CU.
  • All of these things have been like an itch I can’t scratch. Here are my thoughts on lack of vision and these pressures:
    • I thought it was about member choice? – doesn’t the Boards know that they are the representatives and should stand up for their base’s wishes?
    • If CU Times and NCUA are going to champion mergers, why do they need MORE operating budget?
    • Why are well capitalized smaller, even the tiniest, cu’s “ripe” for anything?
    • What happened to the unique circumstance that brought them in to existence? – why is that not relevant now?
    • Why do CU leaders not recognize the risk to loss of tax status if we just keep consolidating, homogenizing, embracing banking attitudes and strategies, not evangelizing currently recognizable differences.
    • Why does the national leadership groups keep beating this drum? – what is the agenda and long-term vision for CU America?
    • Is CUNA Management school really focused on creating opportunities for CU rising stars in an environment that is saying less and less opportunities will be available?
    • When did CU leaders agree not to be cooperative and eat our own?
    • Can we get efficient with process and products and investments and keep our uniqueness out front?
    • NCUA approved 50 mergers in the 3rd quarter 2019 (138 Q3 2018) – what was the value gained for the industry?
    • Growth and value are not the same thing
  • These may seem like rantings with no clear meaning/point/resolutions. I may not be able to articulate the concern but my hackles are up and the lack of national CU leadership recognition and the media that pander to it are making me feel like I put on that thick scratchy wool sweater that you have to wear to a relative’s house because they gave it to you.

A Question of Leadership

What makes a leader? In the cooperative system, as in many other organizations, the answer is presumed to be those selected for the highest level jobs.

In the case of credit unions this might be the CEO of a trade association, the Chair of NCUA or maybe several of the CEOs of top ten credit union by asset size. Or maybe a very consequential business partner providing essential services to hundreds of credit unions.

However leadership does not automatically accrue to positions of responsibility. For some will chose to be managers of their institution only, others seek personal agendas, and some will be content with the recognition and rewards that come with their position.

Leadership In Cooperatives

For many credit union CEOs, it is tempting to assign the challenge of leadership to others. It is a big enough job after all, just to manage a credit union and board. Leadership of the larger system is for those who have a broader base or mandate.

However, in a cooperative system, leadership comes from the grassroots up. Which means leaders take stands and look beyond the boundaries of their own firm to shape opportunities in the system which has spawned them.

Leadership is not conferred with a job title. It is earned through engagement, courage and foresight.

When was the last time your credit union took a stand to change the status quo? What was at stake? What did you learn?

If the answer is “I don’t know” then ask do you want to shape the future or let the future shape you?

What’s in a Name?

”What’s in a name? That which we call a rose by any other name would smell as sweet.”

The question that Romeo poses to Juliet suggests that it is not a name but the person, or substance of a thing, that matters.

Credit Union Names Evolve

Upon chartering most credit unions adopted names that identified their common bond. Starting a credit union generally required one of three fields of membership: affiliation by employer, by association or by community.

Credit union names reflected this core legal identity for example: IBM Southeast Employees, International Harvester, GTE, St Paul’s Parrish, or 717 Credit Union.

But as companies merged or laid off staff and the membership broadened, names became more generic: Community First, Workers, Family First, Together or MY Credit union.

And today many new names reflect the impact of branding consultants with aspirational titles such as: Aspire, Ascend, People’s Choice, NuVision or Credit Human

The Name: CommonBond

So I was intrigued that a fintech startup from the 2011 chose the name CommonBond to describe its firm.

Since 2012, it has made over $4 billion in new or refinanced student loans. But why call the firm Common Bond? Is a tangible connection being referred to? Is there an insight possibly drawn from credit unions, but now forgotten, as names evolve into branding events?

The firm’s business model is to target student loan refinancing and new borrowings. The market is millennials. So how are they trying to connect with this demographic beyond a virtual platform with competitive products and pricing?

The first declaration from their website is a statement of their business philosophy:

OUR SOCIAL PROMISE: A better way to do business

The way we see it, businesses have a responsibility to do more than just business. We’re passionate about giving people the opportunity to live their dreams, and we know improving student loans is just one way we can make a world of difference.
Our partnership with Pencils of Promise has provided schools, teachers, and technology to thousands of young students in the developing world and our yearly trip to Ghana gives customers and team members a chance to visit the amazing classrooms we’ve built together.

As described in a TIME magazine note: “The firm offers services to anyone with a degree from a not-for-profit American university regardless of citizenship, so long as he or she meets the other criteria. The company is also the first and only finance firm to offer what it calls a “one-for-one” social mission: for every degree fully funded on the company’s platform, it also pays for a year of education for a child in a developing nation.”

It also partners with employers as noted in a Fast Company article: “CommonBond has skirted the fates of other online lending companies in recent years by partnering with employers to turn student loan repayment into something like the 401(k)s of the millennial and gen-Z workforces. The goal was to tackle two financial problems in tandem: the costly turnover facing employers and the debt weighing down their youngest employees. CommonBond has racked up more than 250 business partners to deliver its debt-refinancing program as a work perk…”


In CommonBond’s 2018 annual review, a video describes its core purpose as empowering the community, the workforce and the world.

The company relies on venture capital and wholesale funding sources including sales of bonds backed by student loans to the secondary market. This would lead one to believe that their funding costs must be higher than credit unions which rely on share deposits. Various student loan website comparisons say their rates are competitive, but there is no way to know the details unless one submits an application.

Therefore the initial positioning strategy of CommonBond is critical to attract prospective borrowers via the Internet. There is no prior relationship and no physical branches to serve borrowers.

The company is private and publishes no financials, so we do not know how financially sustainable its model is at this point in time. But what is clear is that the business design is focused on a set of values and actions that they believe will appeal to students who borrow for college. These concepts include social purpose, a global perspective, supporting educational projects, providing advice on college/work choices, partnering with employers, and empowering individuals through loans.

The company’s transactions are based on the belief that there is a need for a better student loan options, but that is not the starting point for their appeal. It is instead a description of values and commitments to attract prospects by making them feel comfortable when providing their personal information to evaluate a loan option.

With no legacy business reputation to rely upon, CommonBond instead must present a corporate profile that students, who are strangers to the company, will trust. Is that an example that credit unions can learn from as naming exercises continue? Or to paraphrase an expression : That which we would call a credit union by any other name should still be as trusted as before.

Martin Luther King’s Eternal Question

The legacy of Martin Luther King, Jr. covers many areas of public and democratic life. Based on a philosophy of non-violent protest, he transformed the civil rights movement into a national priority. Before he was killed, he had also spoken out against the Vietnam War in Vietnam and organized the Poor People’s March on Washington. The march’s goal has been transformed today into a growing concern with income inequality as the American economy celebrates a full decade of positive growth.

But as important and unfinished as these concerns are, I think King’s legacy for an individual may be more vital than a specific issue on one’s social/political agenda.

A Call for Self-Reflection and Awareness

In his I Have a Dream speech on the steps of the Lincoln monument, he prefaced his dreams with the following:

“We have also come to this hallowed spot to remind America of the fierce urgency of now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism.”

The Urgency of Now. That is the never ending question that each person answers in their everyday actions and priorities. It has both personal and professional or civic dimensions.

As credit union leaders, what is the most urgent priority motivating your leadership? Yes, circumstances can reorder priorities. But when do these become challenged? At a time when the cooperative system has record levels of reserves, members and assets, is better financial performance the most urgent issue?

A holiday from work is a time to step back, catch up, run errands or even honor the underlying reason for the day off. King’s holiday reminds us that what we do every day, the Now, matters. What is the urgency that causes you to get out of bed in the morning? What should it be?

Mistakes and the Beauty of Music

One of my hobbies is choral singing. Both in church choirs and at adult singing vacations in summer.

A choir director whom I follow tells the following about how professional muscians handle mistakes.

“The Baroque trumpet is really just a piece of bent tubing with a bell on one end and a mouthpiece on the other.

On a modern trumpet there are valves to change the effective length of the instrument, and thus to make notes more playable.

On the Baroque trumpet it’s all done with tiny and precise pressure adjustments of the lips with the difference between the notes shrinking as the range rises.

It makes the instrument famously difficult to play.

Historically, trumpet players have had big, bold personalities, something akin to fighter pilots. He or she must be confident in their abilities with even a touch of well-earned swagger.

A player hits a lot of notes, and makes them sound beautiful, but sometimes, a note will just fail to sound, or worse, come out in a loud and rather atonal squeak.

“What do you do when that happens in public?” I asked of a player who is a frequent soloist in the Messiah movement, The Trumpet Shall Sound, “like when you’re standing at the high pulpit playing out over the cathedral packed with 3,000 people?”

“How do you keep from having your confidence shaken for the notes that are yet to come after something goes wrong?”

I was speaking from experience. As an organist with many notes to play, some of them quite obvious if they go wrong, I’ve felt my confidence shaken after a mistake. Voices within berating me for many measures that follow. A wry smile came across his highly trained lips.

“I don’t even think about my mistakes,” he said. “I’m focused on the beauty of the musical line I’m playing.””

Investing in a 10 Year Rising Stock Market

It is hard not to feel very smart or lucky if you have made investments in the stock market during its 10 year bull run. Virtually all asset classes in 2019 increased in the high teens to more than 20% for broad market indexes. These are great returns especially when compared to risk-free CDs, which have earned 2% or less annually during the same period.

Most forecasts for 2020 support continuation of the current 2% GDP growth trends and a rising stock market. No recession or market retreat is foreseen. What could possibly go wrong?

Looking at Some Details

To the extent stock prices reflect the present value of anticipated future earnings, there seems to be a growing disconnect between stock prices and projected earnings. Especially for smaller companies. A cautionary analysis of 2019’s soaring market was written by James Mackintosh in the WSJ last Friday. He points out that the percentage of all listed companies reporting losses in the last 12 months is close to 40%. The highest level since the late 1990’s, outside recessionary periods.

Moreover, he cites another analyst who calculates that the proportion of US-listed companies losing money for three years also reached its highest point last year. The caveat in this second observation is that these are small companies which in total represent less than 5% of the market’s overall value.

Two thoughts. Almost all credit union member business lending is to small companies. And secondly, one of the eternal verities about market returns is “reversion to the mean.” That is average returns will revert to long term “normalized”values over time. Could 2020 be such a year?