Category: Co-ops in Capitalism

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Money Management and the Voices of Gen Z

Each year the Credit Union Foundation of Maryland and DC sponsors a contest to distribute $12,000 in scholarships for college and trade school bound students.

There are three categories of awards:  ten $1,000 essay-based scholarships, one $1,000 video-based scholarship, and/or one $1,000 photo-based scholarship.

The topics for each category this year are:

This year’s essay topic: “In life, things can happen fast.  “More than two-thirds of people in America are not financially healthy. How would you define financial health? Describe how your credit union has helped you understand how to manage your money.”

This year’s video topic: “To be financially literate, or financially healthy, is to know how to manage your money. Show one lesson you’ve learned from your credit union about managing your money.”

Photographers are asked to capture an original photograph that represents the credit union core value of “Cooperation”

The contest is marketed through the League’s member credit unions.   The Foundation provides lobby posters, newsletter articles and access to all applications.   The result:  hundreds of submissions in all three categories received by April 15.

The Judging Begins

Now the fun begins. The foundation seeks over a hundred volunteers to review the submissions.  I signed up.  I was sent 19 one-minute videos and 10 essays to review and score.   The foundation provides a scoring model for the evaluations.  The progress is tracked automatically in a spread sheet for each volunteer reviewer.

A Generation’s View of Financial Health

I started with the 19 one-minute videos and reviewed all in a single sitting.   Some were applicants sharing their personal stories.  Others were more elaborate creations with one offering a “film” on the topic.  Some acted out short skits.  Several used animations to create their message.

What all had communicated was common sense money management suggestions or experiences.  The submissions showed clear financial maturity.  Following are three different approaches to the topic.

The first uses animation to communicate the lessons from a first-year college student.

(https://www.youtube.com/shorts/svZv-szOgCo)

A second video took a different tack and discussed just one topic: should a young person buy crypto or not?

(https://www.youtube.com/watch?v=_mrsj5AsZjI)

Another example by a high school student demonstrates the benefits of financial courses helping younger people understand the basics of money management.  The word she uses for the result is empowerment.

(https://www.youtube.com/watch?v=gYkoreEXmHY)

The Power of  Gen Z’s Financial Minute

While my sample of videos is a small portion of the hundreds submitted, these brief summaries show an awareness of financial skills that are well grounded.  These minute videos are literate, smart and often creative messages on the basics of financial life.

The Foundation’s contest is much more impactful than just the $12,000 distributed to the winners.   It provides hundred of personal snapshots of this generation’s awareness of financial responsibility.

These submissions rarely mentioned credit unions, but all of the applicants would have learned about the opportunity via a credit union.

For the hundreds of students continuing their post high school education, the volunteers reading the applications and the credit unions promoting the contest, this is a special cooperative effort.   It highlights the Foundation’s mission of financial self-sufficiency.

The student, volunteer and institutional contributions meld into a financial quilt of financial learnings from the upcoming generation of credit union members.

My only thought: Can more credit unions individually or collectively create this learning opportunity.  Perhaps the MD/DC Foundation might  share their software and infrastructure that makes this seem so effortless.

I certainly learned much.  It  creates confidence in this new generation’s understanding of financial responsibility.

 

 

 

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Spring’s Abundance & Credit Union Bouquets

Cherry tree

Cupid keeps watch over his beauty.

Azalea

Cherokee Dogwood

Tulips

Plox with pansies, carnation and daffodils.

Redbud flowers growing on tree trunk.

Easter Lilly transplanted after church.

Spring Flowers from Government

On Monday April 10  U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced over $1.73 billion in grants to 603 Community Development Financial Institutions (CDFIs) across the country.

CDFI Equitable Recovery Program (CDFI ERP) grants are intended to strengthen the ability of CDFIs to help low- and moderate-income communities recover from the COVID-19 pandemic and invest in long-term prosperity.

The release said 203 credit unions received $590.3 million in awards.  Peoples Advantage FCU in Petersburg, VA and four Puerto Rican Cooperativas were  each awarded $6,197,097, the largest single amount to a credit union.

Also getting in on springtime action the NCUA on April 5, announced it would take applications in five categories to award a total of $3.5 million from its Community Development Revolving Loan Fund (CDRLF).  Amounts will range from $5,000 for training to $50,000 “Underserved Outreach and MDI Capacity Building.”

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The Member-Owners’ Annual Meeting: Compliance Obligation or Celebration?

I attended my first credit union 2023 annual meeting recently.  No, I was not a member.  However the credit union published its Zoom link.   Anyone could follow along with the hundreds of members who attended in person.

The agenda was informative.   The CEO and three senior staff made presentations-all specific updates on future projects.   This formal meeting had apparently been preceded by an all-hands gathering soliciting open dialogue.    Questions were asked from the members,  but few spoke up.

It was a positive experience.  Well organized.  Direct communication that was respectful of the owners. The post-covid combination of in-person and virtual participation expands the opportunities for real member engagement and owner feedback.

But that is not every credit union’s plan.

The Required Meeting Notice

Yesterday I received an email with the Notice of my credit union’s 2023 Annual Meeting.  It opened with these words:

We are conducting the 2023 Annual meeting by Electronic Transmission as provided in Section 411 of the Amended and Restated Bylaws of the Credit Union effective April 28, 2017 (the “Bylaws”). The Annual Meeting will be hosted by video conference on April 28, 2023, at 5pm PT. Members can register by submitting an email request to annualmeeting@thecu.org.  Questions will not be taken during the Annual Meeting, so please submit any questions that you have in advance along with your attendance request. Answers will be provided during the virtual meeting.

The Notice then listed the material that could be downloaded in advance, such as the 2022 Annual Report, prior minutes and concluded:

Please note that there is no new business to discuss. The only matter requiring a vote of the members in attendance is approval of the 2022 Annual Meeting minutes. The four Directors nominated will be approved by acclamation of the Board of Directors as provided by the Bylaws.

The Notice ended with a brief economic update from the CEO headed:

We’re in this together 

The CEO’s comments summarized important market events in 2022 and the outlook for the coming year.  The message ends with these words:

Whatever 2023 brings, the credit union has the financial stability to continue supporting our members and helping them deal with whatever financial challenges come.

A Member “Woodstock” Celebration

Next month I was invited to a smaller credit union’s annual meeting to make very brief remarks to members.  To have an idea what might be appropriate I asked the CEO about the event.

It will be in the evening with dinner at the local Holiday Inn banquet room.  All members invited.  We will introduce new board members and go through the business.  There will be a local speaker who works at a non-profit in the areas we serve.  We hope you can give your thoughts about the future role our credit union can play in members’ lives and community.  You have 15 minutes. Expected attendance of 100-150.

We discussed the idea of brief video interviews with members to ask about their credit union experiences.  The CEO had done this at a prior credit union’s annual meeting with the question, if we were in a court of law, would anyone be willing to testify on the impact the credit union made on them?  Member after member told their story.

That is now being planned for  use in future member communications.

Prior to the event,  the CEO asked if I could visit the credit union, see the local community and some of the organizations with which they partner. And have dinner with the Board.  I jumped at the chance.

The CEO expects to retire next year. He has a transition plan underway and wants to affirm his belief in the credit union’s essential role and its vital future.

This is the kind of event that gets me excited.   I can’t wait to see his team, the credit union’s activities and hear the member stories.  A brief “Woodstock event” for the cooperative’s member-owners.  And for me.

 

 

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A Priest, a Barrio and a “Credit Union that Should Have Continued”

The story below is by a local El Paso reporter. It portrays a special credit union that served its community for four decades.  Its work mattered.

The coop system is more than current assets and member numbers. We are also the experiences and memories that we pass down.  This example raises the challenge today, who will remember our story?

The Forgotten Credit Union that Served Thousands of Unbanked El Pasoans

By Christian Bentancourt.  Published April 9, 2023 by El Paso Matters and  Next City

 

If you walk around El Paso’s Segundo Barrio neighborhood, it’s hard to avoid the legacy of the city’s beloved bicycle priest. Father Harold Joseph Rahm came to the city in 1952 and served as an assistant pastor at the historic Sacred Heart Church for 12 years.

In that short time, Rahm created a legacy that is still celebrated by residents: founding the Our Lady’s Youth Center to serve impoverished locals, creating outreach programs for low-income youth, working with gang members to clear their differences in the ring instead of the streets, riding his red bicycle around to reach community members in need.

Today, his efforts are memorialized in this Mexican and Mexican American barrio through several iconic murals, as well as a street that’s been named after him.

But one of Rahm’s most critical contributions to the neighborhood has been largely forgotten: Creating the Tepeyac Credit Union, a pioneering financial institution to serve Segundo Barrio’s unbanked residents and protect them from loan sharks.

A Forgotten Legacy

It’s a legacy that has largely been forgotten by El Pasoans. . . But through archival research and an interview with one of the credit union’s early board members, El Paso Matters and Next City have begun to unravel that history.

It’s a history that illustrates community-based financial institutions’ power to support unbanked and impoverished people – and shows how such economic initiatives were a core part of major movements for social justice in the city.

The historic neighborhood in which Rahm served was known as South El Paso until several pockets were designated as Segundo Barrio, Chihuahuita and Duranguito in the 1970s. Banks redlined the community, making it challenging for residents to obtain financial services.

“People needed loans, and the banks at that time discriminated against South El Paso,” local historian David Dorado Romo says. “There were redlining maps in the 1940s that deliberately neglected areas marked in red. Since people couldn’t qualify for any kind of loans, especially not for home improvement…the community had to create its own credit union.”

The 1961 Founding with a Chicano Cheerleader

In 1961, Father Rahm banded together with a group of local residents and activists to create the Tepeyac Credit Union. According to historian Romo, one of these collaborators was Abelardo “Lalo” Delgado, the prominent Chicano poet from El Paso, who served as one of the credit union’s first presidents.

“He was one of the people that would go throughout the community and let them know that these kinds of services were available,” says Romo. . .  “Lalo, he was a great activist and also a very well-known poet.”

Delgado, who died in 2004, is considered the “abuelito” (grandfather) of the Chicano literature movement, pioneering writing that reflected a commitment to social justice and illuminated Mexican American heritage and struggles.

“He was our cheerleader,” says Felipe Peralta, an early board member of Tepeyac.  Peralta had been a youth worker at the Our Lady Youth Center when he was invited to serve on the credit union’s board. “He was always motivating us to do more things.”

Father Rahm and Delgado collaborated at the Our Lady Youth Center. The center, created in 1953 and located at 515 S. Kansas, served as a home to programs for Segundo Barrio residents, including an employment center and the Tepeyac Credit Union.

“That was a place that generated a lot of social movement,” Romo says. “They had a lot of outreach projects for youths, they had the employment center — they would find jobs for people at Segundo Barrio — and they created the Tepeyac Credit Union. It was a religious, social work project in South El Paso.”

An Unusual Creation

Today, the notion of creating a credit union is unusual. In the past decade, only 25 credit unions have been chartered in the United States. . .Before 1970, it was common to see 500 or 600 new credit unions chartered every year.
Tepeyac only had two employees, according to former director Peralta: office manager Teresa Cordero and Mr. Flores, who was in charge of debt collection.“(Cordero) did a lot of work for the credit union,” Peralta says. “Mr. Flores, whenever he was around the neighborhood … you would not see anybody else because his job was to collect delinquent accounts. I can’t remember too many people defaulting on their loans.” Indeed, a 1971 El Paso Times article records that only 18 of 1,448 loans had gone uncollected.

“I remember even borrowing money for my second car,” Peralta says. “If I remember correctly, at one point, we had over a million dollars. It helped a lot of people to generate their credit. Once they establish credit with us, we will trust them with a little more money. It really helped a lot of people.”

 Making the News

A March 1961 newspaper article from the El Paso Herald-Post showed the Tepeyac Credit Union had potentially 30,000 members, between congregants in the parish at the Sacred Heart Catholic Church and employees and staff of Our Lady’s Youth Center.

“Much time, effort, and sacrifice went into the organization of this unique credit union,” the article reads. “Realizing the problems involved in setting up a credit union which serves a large low-income group, volunteer workers, El Paso Chapter of Credit Unions personnel and many others devoting themselves to the task of solving those problems.”

”Father Rahm and a man named Ed Morrisey raised interest amongst the potential members,” the El Paso Herald-Post article reads, “while others held workshops to explain the idea and principles of operation of a credit union.”

“Tepeyac Federal is considered a pioneer type credit union,” the news clipping says. “Prior to organization, its potential members had no access to credit union benefits and services. Experienced credit union workers now believe Tepeyac Federal Credit Union will not only succeed but will serve as a model … for the organization of similar credit unions elsewhere.”

The efforts of these activists helped create El Paso’s Chicano Movement for Mexican American civil rights, Romo explains: “They were serving the needs directly of the community that this local city government or state or federal governments were not meeting.”

“In 1972, when the La Raza Unida Party was organized, (Delgado) stood up and read his poetry to begin the whole conference.”

Building on a Legacy

In El Paso, the credit union built upon the legacy of Mexican American sociedades mutualistas. These mutual aid societies focused on economic cooperation and community service, flourishing from the 1890s onward.

“It worked a little bit like credit unions,” Romo says. “Whenever people had an emergency sickness in the family, definitely for funerals. They were almost like community insurance groups. There’s a long tradition that goes back to the late 19th century, here on the border of Mexican American communities looking out for each other.”

Information on key figures within the credit union is difficult to come by, but a few names stand out . . .Former director Peralta remembers John Falke – the credit union president in a 1967 . . . as a vital part of Tepeyac.“He was a veteran or involved in the military and did a lot of the groundwork. He would go out of his way to set up the whole thing.”

Another leader of Tepeyac was Henry Rayas, who served as president and is showcased in newspaper clippings from the early ‘60s . . .“He and his wife had 18 children,” Peralta recalls. “Once the children grew up and were a little bit more responsible, they would come and volunteer there.”

No Longer Operating

Today, the credit union is no longer operating. Tepeyac’s last statement of financial condition filed with the National Credit Union Administration was dated Dec. 31, 2003, showing $194,730 in total assets, 220 members and one part-time employee.

In December 2003, the Texas Credit Union Department received an application for Tepeyac to be absorbed into El Paso’s West Texas Credit Union, which had been chartered in 1964 to serve state employees in the area.

The state-chartered credit union “made a special effort to reach out to minority populations by offering a range of products that meet their particular needs,” according to a May 2002 hearing before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. . .”These products including low-cost remittances back to Mexico, an affordable housing program and Individual Development Accounts, a form of savings account aimed at helping low-income individuals save toward assets and build long-term financial stability through matching funds.”

The CEO said that “credit unions like West Texas recognize that consumers and their members must give viable options to avoid the traps of predatory lenders. Credit unions have stepped up their efforts to combat predatory lenders in neighborhoods by offering affordable alternatives for both payday loans and mortgage loans.”

West Texas CU Liquidated

But after the credit union was “hammered by bad indirect loans,” per a Credit Union Times report, the National Credit Union Administration announced in 2009 that West Texas Credit Union had been liquidated “after determining the credit union was insolvent and [had] no prospects for restoring viable operations.”

San Antonio’s Security Service Federal Credit Union purchased the assets that year and assumed the member shares of West Texas, which had had $78 million in assets and was serving 25,000 members at that point.

“We Should Have Continued”

Peralta himself continues to be active in the community. . . “Everything that I have been fortunate to do, it has been because of El Segundo Barrio.”

After moving on from the credit union, he was involved with the Chicano movement. “My degree was in education. My goal was to teach at the public schools in South El Paso. But when I did my student teaching, I realized I was in over my head. Those kids were doing so badly that I knew that I couldn’t help them. So I went to try to help them with other stuff like housing.”

He looks back at Tepeyac’s board meetings, which also served as the credit union’s committee to approve loans, with nostalgia. “It was a really effective operation. It was one of the best things that we had going.”

“Now that I look back, it’s something that I feel we should have continued with.”
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Are Credit Unions Being Disrupted?

Disruption is both an adjective and a noun.  A word to describe changes upsetting the status quo in a market.  And a way to compete against larger and stronger foes.

The business theory with this name was formalized by Clayton Christensen. In this interview with MIT magazine the essential ideas are laid out.  He describes the circumstances as follows:

Disruptive innovation describes a process by which a product or service powered by a technology enabler initially takes root in simple applications at the low end of a market — typically by being less expensive and more accessible — and then relentlessly moves upmarket, eventually displacing established competitors.

Disruptive innovations are not breakthrough innovations or “ambitious upstarts” that dramatically alter how business is done but, rather, consist of products and services that are simple, accessible, and affordable.

In this process identifying the “job to be done” for the consumer is an important insight.  See below for the example of a disruptive example coming at credit unions from below.

The Adjective

A second approach to understanding disruption is to identify some consequences that become visible in markets when the process is at work.   Is the credit union system being disrupted?  What would be indicators?  Who is doing it?

Author and speaker Greg Satell wrote in an April 1, 2023 article “4 Signs Your Industry is Being Disrupted.” Among the four are events that may be familiar.  Note he is not writing about credit unions or even financial services.  Some of his terminology may seem more appropriate to manufacturing, but I believe his observations are still helpful in understanding where competitors are emerging.

One sign is maturing technology.  The truth is that every major technology has a similar life cycle called an S-curve. It emerges weak, buggy and flawed. Adoption is slow. In time, it hits its stride and enters a period of rapid growth until maturity and an inevitable slowdown. That’s what’s happening now with digital technology and we can expect many areas to slow down in the years to come.

A second is consolidation, or mergers.  Yet when an industry is in decline, the forces external to the industry get the upper hand. With new market entrants and substitutes becoming more attractive, customers and suppliers are in a position to negotiate better deals, margins get squeezed and profits come under pressure.

That’s why a lot of consolidation in an industry is usually a bad sign. It means that firms within the industry don’t see enough opportunities to improve their business by serving their customers more effectively, through innovating their products or their business models. To maintain margins, they need to combine with each other to control supply (or I might call it vendor relationships). 

The third response he calls “rent seeking and regulatory capture.”

The goal of every business is to defy markets. Any firm at the mercy of supply and demand will find itself unable to make an economic profit — that is profit over and above its cost of capital. . .

That leaves entrepreneurs and managers with two viable strategies. The first is innovation. Firms can create new and better products that produce new value. The second, rent seeking, is associated with activities like lobbying and regulatory capture, which seeks to earn a profit without creating added value. In fact, rent seeking often makes industries less competitive. . .

It seems like they (rent seeking industries) are getting their money’s worth. . .Occupational licensing, (read new charters) . . . restrictions have coincided with a decrease in the establishment of new firms. If your industry is more focused on protecting existing markets than creating new ones, that is one sign that it is vulnerable to disruption.

His fourth indicator he calls the Inevitable Scandals.   He cites Thernos and WeWork as examples.

He might have included the ongoing compliance problems at Wells Fargo or the recent failures of well capitalized institutions such as Silicon Valley and Signature banks as “scandals”—although it is still unclear who all the contributors to these failures are.

Who Is Coming After Credit Unions’ Members?

Disruption is a constant factor in competitive markets.  Firms try to respond to these pressures in both self-protective ways as well as the more formal response in Christensen’s theory.

Where is credit union competition coming that  would fit both descriptions?  In many credit union consolidations scale is cited as the dominant motive, suggesting that bigger players are the greatest threat to credit unions’ future.   Apple Pay, Walmart Financials services, even some recent fintech firms such as Rocket Mortgage, SoFI or other product centric online platforms will take away critical member-product segments.

But my two favorite examples of disruptive competitors using Christensen’s analysis are Venmo’s peer to peer payment transfer and Chime, a neo bank.

Venmo was described by a 21 year old financial writer in an article last year.   The person-to-person payment application requires a depository account, but then begins to function as a broader transaction option overtime.  While it must synch with an existing account from which to draw funds, this would seem just the first step in becoming a dominant player in processing multiple kinds of consumer financial transactions.

My favorite example is Chime which describes itself as the #1 Most Loved Banking App.   The firm’s goal is to be the entry point to a person’s financial institution by making digital banking easy.  It lists some benefits as follows:

Online banking made easy

No minimum balance requirement or monthly service fees

 Manage money 24/7 with the #1 most loved banking app

 Get paid up to two days early with direct deposit

 Deposit checks from anywhere

One of the most enlightening interviews about Chime is from January 2022 in which founder Chris Britt is interviewed by the CEO of Goldman Sachs.

The whole strategy is easily followed in this 17 minute interview.   Listen carefully to how Britt describes his addressable market description (paycheck to paycheck); “we are not a bank”;  how incumbent providers pay attention to only the top 20% of users;  how direct deposit is the pathway to his customers; and designing the firm’s services to match unmet consumer needs.  Listen also to the role of core values.

Chime is a classic example of Christensen’s theory.  There is nothing in this model that credit unions could not do or have not done in the past.   I believe however that many credit unions have moved “up market.” Now firms like Chime are after the market credit unions were originally designed to serve.

Review again this disrupter’s description of financial strategy–a transaction business with a subscription service.   Note his relationship with regulators: Respect the Rules.

This model is what credit unions were designed to be.   Is Chime signaling that  we left our core members and purpose behind?

 

 

 

 

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A Holy Week Theme: Money Changers and Temples

Managing money has always been political. And always will be.

A measure for credit unions:  “The extent to which we apply social values more than mere monetary profit.”

FDR and Credit Unions: “Push This”

Temples and Money:  Old and Modern

Cleansing the Temple

by Malcolm Guite

Come to your Temple here with liberation

And overturn these tables of exchange

Restore in me my lost imagination

Begin in me for good, the pure change.

Come as you came, an infant with your mother,

That innocence may cleanse and claim this ground

Come as you came, a boy who sought his father

With questions asked and certain answers found,

Come as you came this day, a man in anger

Unleash the lash that drives a pathway through

Face down for me the fear the shame the danger

Teach me again to whom my love is due.

Break down in me the barricades of death

And tear the veil in two with your last breath.

 

 

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Baseball and the Four Stakeholder Credit Union Model

A credit union’s relationship with its local minor league baseball team became more than a promotional opportunity.  It evolved into a strategic expression and expansion of its mission.

The Dayton Dragons (Dayton, Ohio) have the longest continuous sellout streak in North American sports history –1,441 games.   The team is the High-A affiliate of the Cincinnati Reds and plays in the Midwest League.

The team’s 2023 promotional video clearly highlights the credit union’s naming rights: the Day Air Credit Union Ballpark.  However the relationship with the Dragons goes much deeper than naming one of the most iconic venues in Southwest Ohio.

Both organizations have created a partnership that grows Day Air, the Dayton Dragons, and the economic vitality of the region.

Joe Eckley, Director of Marketing for the credit union, describes some of their joint activities:

  • Weekly meetings throughout the season to align strategies and prioritize promotions to drive fan engagement for the Dragons and member growth for the credit union.
  • Each year the two organizations develop a new promotion to meet a credit union-specific goal. The Dragons utilized their vast reach in the community to support this initiative.
  • During the off-season, the Dragons and Day Air work together on numerous events and promotions to benefit the community to enhance  key performance metrics for each organization.
    • College Prep Night
    • Business speaker seminars
    • 50/50 Holiday Raffle fundraisers
    • Annual 5k event.

  • The Dragons utilize their reach and community reputation to drive promotions for Day Air.
    • Special jerseys were only available at the credit union.
    • Food trucks and incentives for Day Air associates.
    • Sponsored donations to numerous organizations on the credit union’s behalf.
    • Mascot visits to Day Air locations.
    • Special ticket pricing for members
    • Discounts at the Dragons team store for Day Air members
    • Early access to exclusive events
    • Special service booth at Day Air Ballpark.

  • Day Air provides Dragons Associates, a SEG group, special member benefits.
  • Day Air supported the the Dragons throughout the pandemic when games were cancelled.

Building Community

The Dragons are a Dayton entity–they draw from the outskirts of the region to provide family friendly entertainment to all comers.

Day Air serves the greater Dayton area– people doing good for friends and neighbors. All the big banks in town are headquartered elsewhere (New York, Cleveland, Pittsburgh).

CEO Bill Burke says that from a strategy perspective, the naming rights partnership made sense because of the close alignment of both organizations for the community.

As a result the credit union changed its three stakeholder model to add a forth criteria when it obtained the naming rights.  All decisions are now run past the lens of the Credit Union, members, associates (employees), and the community.

The opening day on April 11 will continue the record sell out streak.  For the credit union, the Dragons and the Dayton community, it is a local celebration of two great American pastimes—alive and well in America’s heartland.

 

 

 

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D. Michael Riley’s Observations on “Creative Destruction”

In response to last week’s post on the impact of mergers on the future of the cooperative system, this former NCUA senior executive sent the following comment.

Mike Riley, December 1984

“Creative destruction” is uncomfortable to see in print. But it existed before Adam Smith, Malthus, Marx. Keynes, Schumpeter, and others began to try to explain the economic drivers and motivations that shape our world.

Cultural changes seem to be the main driver today. The personal seems to have switched to the impersonal, i.e. give me what I want on my terms with not  much regard to others. Fast and low cost are the motivators. (disclaimer: I love Amazon.)

We have to deal with what we have.  I am concerned about sound credit unions merging.  When I was a new examiner, I had 30 -40 credit unions who were below $100,000 and none of the rest I had were over a million. And no, I did not start in 1934.

This was in the seventies. They were basically in small towns or in rural areas where there was a factory of some sort. As I visited them (most were happy to see me, albeit a regulator, to hear about the outside world), it was obvious that the Board and Committees were involved in the credit union. Their members and the Treasurer were most involved of all. They were making loans on washers, dryers, refrigerators. Most of their members had no real access to credit except at an exorbitant rate. No savings accounts available to the members.

The credit unions really cared about their members. I remember one credit union was trying to decide on whether to make used car loans. They wanted some advice from me.  About 8 months later I came back and before I could start the exam they wanted me to go out and look at this used car and meet the borrower.

They were so proud of this accomplishment. (As a good regulator, I did check to see if the loan was to a Board member or family member.)  It seemed to be a good loan. Not to get maudlin, but this shaped my views of what credit unions are. And fortunately, the larger credit unions were much the same.

After I moved on, I tried to keep track of these credit unions. Around 1990 I put together a list of where these credit union were. I couldn’t find a few; but a little other 20 had liquidated because the factory closed down or the key people left or retired. Another 30 or so had merged either voluntarily or involuntarily. About 6 were still alive and functioning. To be fair, at the same time the American economy was undergoing a major transformation and jobs and manufacturing were moving overseas.

Ongoing Mergers

This ongoing march continues. The merger of two sound credit unions without some legitimate reason doesn’t seem to be member oriented. I still think of the members of those small credit unions who received services such as buying a washer that no one else would do.

Bigger is not better if the member does not benefit.  How many of these mergers produce lower loan rates , higher dividends, or distinctly better products at a lower price? Carried to the extreme we will be left with 20 credit unions that are no different than large banks.

NCUA’s Role

Schumpeter opined “If someone wants to commit suicide, it is a good thing if a doctor is present.”

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A Gen Z Story About Money Management in the Digital Era

(by Marit Hoyem, a junior  at Williams College)

Last summer I interned for Callahan and Associates where I wrote blog posts about my generation’s financial outlook and spending habits. As a Gen Z and local Credit Union member, I provided a perspective how credit unions can better serve their next generation of  members.

Currently I am studying abroad in Edinburgh, Scotland where I faced new financial challenges and learned valuable lessons about spending, budgeting, and saving money.

The Venmo User

During this time, I found myself reflecting on a prior  post, “Hello Venmo (Goodbye, Checking Account)”.  This discusses how Gen Z sees P2P payment services as de facto checking accounts, sharing money back and forth without ever using their credit union account.  Please see that piece for information  on Venmo and how phones facilitate Gen Z spending.

I first got Venmo in high school. What started as a way to split the cost of movie tickets or dinner through my phone has gradually evolved into a form of social media with friends. On the app we can see who our friends are paying and leave little messages with our payments that appear on a Twitter-like feed.

As I have gotten older, I have continued to do more transactions with the app, for much more money. Next semester I will split groceries and utilities as well as pay my rent using Venmo.

From Physical to Digital Spending

While I have done my fair share of splitting costs using Venmo while abroad, what has resonated during my experience in Scotland is how digital money affects how I budget and spend.

In Europe cashless payments are becoming the norm. In restaurants, grocery stores, and pharmacies, to make a payment all I do is double-click my power button and let Apple Pay do the rest.

After my first month in Scotland,  I checked  if I was sticking to my expense budget  I was shocked to see I had gone way over the amount of planned spending. One of the issues was that I was paying in a new currency, pounds, and wasn’t always doing the mental math to see the amount in American dollars.

Although there are ways to check my payments daily on my credit union app, it was difficult for me to follow just how much was leaving my account while paying for food, bedding, and other necessities.  I see the issue now–growing up in the era of digital money, I never had to take cash out of my wallet, physically count out dollars, or go to the ATM when I ran out.

This isn’t to say that my generation is irresponsible with their money or careless spenders and borrowers.  Rather, our perception and experience  of money is fundamentally different from older generations.

We grew up using phones, cards, and apps to pay for things, not cash. Credit Unions should note this difference in spending habits and offer money management solutions for digital transactors.

Better Money Management

Something that helped me understand my budgeting issue was to go on my credit union app, look back at my recent transactions, and add up how much I was spending each week on necessities (such as groceries) versus indulgences (like eating out with friends).

I think a great service for Gen Z members would be to make this categorization easier. For example, splitting up purchases on a mobile app by month, by location, or by dollar amount to help members track their spending habits.

In a world of cashless transitions, seeing the money available and visualizing the cost of something is harder for everyone, especially those who only make purchases with their phone.

Credit Unions have an opportunity not only to be a checking account, but also to serve as an educational and budgeting resource for their members.

Empower and encourage members to track spending.  Give them an opportunity to learn from moments of spending exuberance (as I did).

 

 

 

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Is “Creative Destruction” the Future of Credit Unions?

One of Austrian-American economist Joseph Schumpeter’s descriptions of capitalism was called “creative destruction.”

This refers to a competitive economy’s relentless efforts to innovate for advantage and market dominance.   He described the process as: “the old way of doing things is constantly getting destroyed or supplanted as it is replaced by a newer, better.”

Some would suggest that business failures in a competitive economy are an inevitable and necessary event, even when they cause local hardship or dislocations.

The cooperative system is supposed to be immune from some of these economic forces. Credit unions are owned by their users, they have no traded stock, cannot be bought and sold as private firms, and reflect the values necessary for a communal, versus for-profit, enterprise.  Their founding, focused on a ”local” constituency with a common bond, is intended to improve the welfare of a community, not just individuals.

Local Destruction Where Dreams Become Reality

One example of this “creative” process is in neighborhood across the street where I live.   There is no home sold for less than $1.5 million and when offered, most list for at least twice that amount.

Even with this going-in price tag, Edgemoor is not a place for old homes.  No matter the asking price,  every purchase becomes a tear down.   Here is an example from across the street this past week.

The builder, entrepreneur, risk taker and innovator.

The destruction phase.

The front view.

This home built during  the depression was sold as is for $2.0 million.  About five or more large white oaks were cut down before the demolition started.  The land and location are so valuable that the builder will put up a mac-mansion of enough square feet to justify a new sales price at least double his cost.

Obviously, whoever buys this new home will believe this is progress, just what they were looking for. This is the free market at work.

Credit Union Destructions

We can debate the social and political implications of tear downs to build back bigger and more expensive homes, office buildings or condos.   But the example is not limited to real estate.  It happens in credit unions.  It is called mergers.

The key question is whether mergers are helping or hurting the credit union system–to be more precise, the mergers of sound, well capitalized long standing credit unions which have served their markets for generations.

Everyone undertaking a merger believes their new creation will be bigger and better.  Any downsides will be temporary.   Mergers are just a way of getting to the future faster especially when asset size is believed to be THE essential for competitive competence.

No Creativity, Just Destruction

Now to be fair, the house across the street had not been well maintained.  The owners had lived there for four or five decades.  The yard and landscaping were totally neglected.   The 80 foot tall oak trees made the property look like an unkempt urban jungle.

So whatever goes up after this tear down, will certainly be a visual and living enhancement-except for the missing trees.

Similarly, some sound credit unions have not been well maintained.  Leadership is just holding on until retirement; the board has given up leadership responsibility.   Selling out looks like an easy way to take care of members when the motivation has gone.

It becomes time for a new generation of leaders to take over the credit union’s legacy and continue serving members in the future.

An Existential Vortex

These easy-exit examples are becoming more numerous.  Personal advantage, not member value, appears to be the motive.

The systemic risk is creating an “existential vortex”  where all credit unions, not just the small, the poorly led or even the ambitious, are caught up in a system that is  increasingly circling the drain.

There are no new charters.  Industry assets are more concentrated. The leadership purpose  is more and more institutional growth and success.  The members, are not owners in any sense of the term, but merely customers used as the means to greater financial glory.

Credit unions competitive advantage has been collaboration and interdependence.  This is how the cooperative system was created, their regulatory institutions were differentiated, and why purpose justified a tax exemption.

Creative destruction destroys legacies, whether buildings, companies or credit unions.   New brands emerge.  Old locations closed.  New markets and business models tried.

Credit unions are not rebuilding on their old foundations.  Instead large mergers are just the age-old, typical financial market strategy of buying up competitors to become more dominate and survive.

I don’t think the merging of well run credit unions is sustainable.    It will take over two years before the new home is ready on the now demolished site and the new owners move in.   This  is also about the operational transition timeline of a large merger when members start to look for other options.

Unfortunately the creative destruction in credit unions is not putting new homes in place of the old; it is just moving all the occupants into the existing one.

Schumpeter believed that capitalism would gradually weaken itself and eventually collapse. Specifically, the success of capitalism would lead to corporatism and to values hostile to capitalism, especially among intellectuals.

In an historical irony, cooperatives intended as an antidote to the excesses of capitalism, are instead succumbing to the allure of free market takeovers.

Everyone wants to own a bigger house.