Author: Chip Filson

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What a Patek Phillipe Watch and Credit Unions Have in Common

Cooperative ownership is a concept that can be difficult to communicate. It feels like a virtual, not objective, reality. Moreover, the democratic processes implementing ownership vary from credit union to credit union.

Credit unions create both personal and common wealth. The fiduciary responsibility of leadership is to “pay forward” the legacy which all members and employees inherit and add to. This is quite distinct from privately owned firms.

When properly presented and practiced, member-ownership can be a valuable advantage in all times and circumstances.

A Timely Reminder

“You never actually own a Patek Phillip. You merely take care of it for the next generation.” That is the message of this luxury watch ad. It is also the inter-generational contribution created by credit unions.

And while current members may not see all the future benefits, their children will. It is a tradition begun over 110 years ago.

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How Does This Demographic Trend Affect Your Strategy?

The chart below shows that the formation of married families is occurring later in life for both genders. It is a long term generational trend.

One question would be to ask why? And will the trend continue?

If yes, what will be the impact on credit union strategy? Both the impact on member demand for certain loan products and the changing pattern of employees’ career planning?

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Timeless Wisdom in a Time of Disconnects

“There are some serious disconnects going on. Ones that imperil the safety and soundness of credit unions. One is the disconnect between members and their credit unions. The other is between credit unions and their regulators. 

Organizations such as credit unions are market driven. Regulatory systems are bureaucratic and not market driven. The regulators are not so cognizant of just how rapid the changes in the real world are. They are just focused on a bookkeeper’s definition of safety and soundness.”

– Ed Callahan, May 1999

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The Essence of Democracy: Voting

Voting is how democratic firms (cooperatives) and countries sustain effectiveness and legitimacy. For citizens, it is an important civic duty in all circumstances requiring elected office holders.

Cooperative democracy is strengthened every time members vote for directors in a credit union’s annual meeting. For co-op owners, it is the process that undergirds sound governance.

Encouraging Voting by Members

The National Cooperative Business Association (NCBA) is asking all co-ops to encourage member voting in the upcoming November elections.

Voting, they maintain, is the practice of cooperative principles and values. Co-ops often serve as more than just a place of business. They play a central role in the community. Especially during a pandemic they are uniquely positioned to help people register, act as a conduit for critical voting information, and assist people to make a plan to vote.

NCBA CLUSA, U.S. Federation of Worker Cooperatives (USFWC), National Rural Electric Cooperatives Association (NRECA), and Democracy at Work Institute are sponsoring a webinar today, September 15 at 1:00 pm EDT. In the webinar, presented in English and Spanish, they will share information about National Voter Registration Day and how your co-op can play a part encouraging a high voter turnout this election.

The webinar is free. Register here: https://ncbaclusa.coop/blog/how-your-co-op-can-help-turn-out-the-vote-join-this-coopsvote-webinar-on-september-15/

National Voter Registration Day

National Voter Registration Day is September 22, 2020. The following are additional NCBA suggestions to get involved. I personally found the vote.coop website intriguing. There is even a store!

Credit Unions and Democracy

Elections have winners and losers. However practicing the responsibility of voting creates a win for democracy, whether in a credit union or for a public office.

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Timeless Wisdom in a Timely Moment

“I feel the wind blowing, and it’s blowing in the favor of monopoly. You can feel it in tele-communications; you can feel it in banking. It is an ill wind.

Credit unions are small. Yes, very small. But it is vital that America not say they are too small to be worth the effort of keeping them around. Because if nothing else, credit unions keep alive a principle; that principle is freedom of choice.”

– Ed Callahan, June 1997

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Part II: An Uncertain Future for Credit Unions

One Entrepreneur’s Effort to Create a New Co-op Model

“Encouraging the formation of new banks is another top FDIC priority. A key feature of any competitive industry is the ability for new startups to enter the market. In the banking industry, de novo banks are a key source of capital, talent, ideas, and ways to serve customers. They bring innovation and new energy to the industry.”

– FDIC Chairman Jelena McWilliams on June 12, 2019 at the CATO Institute

In the second part of this series, I share a case study of the regulatory difficulty cooperative entrepreneurs confront when trying to obtain and sustain a credit union charter. This contrasts with the FDIC’s very public effort to encourage de novo banks as a “key source of talent, ideas and ways to serve customers.”

Internet Archive Credit Union (2011-2015), while not set up by students, is perhaps one of the greatest missed opportunities for the American cooperative movement. Its demise is told in this video and article from the Internet Archive blog: http://blog.archive.org/2015/12/14/internet-credit-union-2011-2015-rip/

Leo Sammallahti, marketing officer for Coop Exchange, sent me his summary of this landmark effort:

Started by one of the founding pioneers of the internet age, Brewster Kahle, it attracted tech talent alongside experienced people from the financial sector. They had innovative ideas on how they could use technology to transform banking, motivated by a genuine passion to help people, not to make profits for themselves.

They managed to charter the credit union in 2011, but the regulations crushed it in 2015. Just one example – their total loan portfolio was restricted to $37,000 when they had $1,000,000 in reserve for bad loans!

I have only read their account of the events, simply because there is no one making the case that the regulations that crushed them were reasonable. Maybe someone knows something I don’t, and it makes more sense. But I’m afraid that is not the case. And if so, who suffers? Ordinary consumers – the same persons the regulations seek to protect but who now have a diminishing amount of choices where to put their money. 

But here’s one interesting thing the founders mentioned that might give some hope. They said that technology makes it “easier”, not harder to start a credit union than ever before. Sometimes the reason why new credit unions are not considered is partly due to technology – the reasoning is that once you need sophisticated software instead of pen-and-paper to run a credit union, it gets more expensive to start one. But according to the founder of Internet Archive, the opposite is true. 

American credit unions know how to lobby – they have had to defend themselves from attacks from the banks, perhaps one of the most powerful industries in Washington. Could some of that political power make it easier to charter new credit unions? From the average American’s point of view, it would hardly be an issue anyone would be opposed to, regardless of their political leaning. Can the movement afford to miss opportunities like the Internet Archive Credit Union?

FDIC Chairwoman McWilliams’ closing commitment to new charters at CATO:

“Finally we launched a nationwide outreach initiative focusing on de novo bank formation, beginning with a roundtable discussion in DC in December. We have since hosted similar discussions in each of our six regional offices, which have been constructive and thoughtful.”

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Part I: An Uncertain Future for Credit Unions

Gen Z and the Movement’s Future: Users or Innovators? 

Every product, brand, business, service, and even non-profit institution has the challenge of engaging the next generation of users. Or risk going out of business.

Coca-Cola’s marketing focuses on this never-ending generational transition. The One Day Last Summer ad series (from 2018) targeted Gen Z with a series of Vimeo shorts about high schoolers’ summer fun before college.

More Than Product Marketing

Coca-Cola also tapped into this generation’s social activism with the initiative summarized in the following release:

Coca-Cola launched the “Dear Future [Community] Challenge” inviting Gen Z and young Millennials to be changemakers and better their communities. The beverage giant has identified 15 communities across the U.S. where the company has bottling centers and other community stakeholders to partner with locals and address their concerns. Individuals ages 18-24 can submit proposals on how to strengthen these areas, and for residents outside those selected locations, there is a national competition. To help bring their ideas to life, winners will receive a $30,000 grant from the company as well as support and guidance from former Coca-Cola Scholar Foundation recipients and other community partners. Caren Pasquale Seckler, Vice President of Social Commitment for Coca-Cola North America, explains the engagement approach saying, “We really want to write the next chapter together with ‘Dear Future’ by engaging consumers and doing something together, [as well as] engaging all of our local partners in identifying all of the issues that are truly meaningful to them.” Coca-Cola is spreading the word with a “Dear Future” ad, which features employees and former scholars, as well as print, social and TV spots.

One University’s Approach

Individual colleges will also thrive or slowly expire depending on their perceived relevance to each new cohort of students. George Washington University in the heart of DC has long attracted liberal arts and science majors while being in the nation’s capital. But like a number of leading universities, it found that prospective students were not just interested in learning, but also applying their passions to start businesses and social enterprises. Hence the founding of the GW Office of Innovations and Entrepreneurship.

(https://vimeo.com/448618095)

The Office sponsors an annual New Venture Competition:

(https://vimeo.com/446467162)

The winners receive significant cash, mentoring, legal and in-kind support to carry their ideas to the next stage. The summer showcase provides another opportunity for startups to garner resources and external interest through the University. The nine winners from this summer’s 2020 GWSSA program are linked below.

These 8-12-minute pitches are classic models of the “elevator speeches” honed to attract investors. They demonstrate the iconic American spirit of innovation and inspiration as well as the necessary business disciplines to succeed.

The Credit Union Challenge

The cooperative challenge is not merely honing the Coca-Cola skill of attracting the next generation of “customers” but more critically, captivating those members who want to be credit union “entrepreneurs.”

Those students who want to fashion the credit union model for the needs and virtual world of their generation, not copy what has gone before. The GW New Venture Competition awarded one of its prizes three years ago to a group of freshmen who proposed offering a credit union uniquely designed to serve the needs of fellow students far into the future.

Are Credit Unions Missing Out on the Next Generation of Entrepreneurs?

Those freshman winners are now entering their senior year. They are transitioning the project’s leadership to underclassmen to continue the chartering effort. The challenges are not technical or even financial. They have completed all the policies and projections and raised the minimum level of donated funds NCUA said was needed.

But NCUA’s chartering process is endless. There is neither encouragement nor transparency. NCUA’s attitude appears to be “no one has a right to a charter;” regardless of circumstance. The practice is to extend the process until people just give up and go away.

Public companies and private universities have made significant changes to attract generation Z’s loyalty. And to continue their institution’s relevance and sustainability. Will credit unions just attract Gen Z as users or can it also include those who aspire to create the next evolution of the cooperative model?

Tomorrow: The fate of one credit union entrepreneur.

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From the Field: Ideas for Increasing Voter Participation

The following comment from Leo Sammallahti, a coop enthusiast from Finland, was posted in response to “From the Field: Democratic Governance Makes a Difference”:

Voter participation in large cooperatives can be increased from the low level it is in the US.

I’m from Finland, where the most widely used bank is the OP cooperative, with 2 million members out of a population of 5.5 million. Around 15% of the members of the largest branch voted in the board election, where any member who would get a signature from 3 other members could stand as a candidate. From hundreds of candidates, 10 receiving most votes were elected – the votes are very contested!

This does not require a long tradition – Tipton and Coseley Building Society in the UK increased their voter participation more than ten-fold, from 1.7% to 18% between 2002 and 2009 by introducing donations per vote cast, online voting and pre-paid reply envelopes.

Here are few ideas how credit unions could do this in the US:

    1. Contested elections

Have contested board elections. There are many credit unions that do, and they seem to be doing fine. Research should be conducted on what is the effect – would be great to hear your thoughts on contested board elections in credit unions.

    1. Cooperate to increase member participation

Cooperation between credit unions by having them coordinate the the vote on same day in all or many credit unions, and work together to campaign to get members to vote. Maybe the shared ATM network could be used to advertise members to stand for board or vote in board elections by showing a message encouraging them to do so when they use the ATM and wait for their cash?

    1. Pay credit union board members according to voter participation rates

Instead of board members being unpaid volunteers, pay them according to voter participation of the members. So if 10% of members vote, each board member receives 100$ per monthly meeting. If 20% vote, they receive 200$, etc.

To get paid more, one would have to encourage members to hold one accountable. There’s a lack of incentives for members to vote as #coop membership grows. Incentivising elected representatives to increase participation could help. It could incentivise engaging contests, as more votes for candidates not elected would increase the pay for those elected. Might be that it would backfire, and members would be *less* likely to vote if it meant paying the board more! But nevertheless, it could be tested in a low-risk way.

It would be a performance-related pay model designed uniquely to cooperatives that could not be adopted in conventional businesses.

Leo Sammallahti

Coop enthusiast from Finland, where 90% of the population is a member of at least one cooperative