Would Your Competitors or Peers Invite You to Talk to their Senior Management Team?

Yesterday Kelly Evans, a CNBC host, reported a meeting last week between Elon Musk and the senior management team at Volkswagon.  And no, it had nothing to do with merger or buying technology.  Here is the opening of her story:

Here’s a headline that should stop you in your tracks: “Tesla’s Musk dials into Volkswagen executive conference.” My first thought, when I saw this, was that it must have been either some kind of quirky Elon Musk prank or a weird fluky accident.

But it was neither. It was, in fact, an invitation by the CEO of Volkswagen for Musk to address a meeting of 200 top Volkswagen executives in Austria, in order to “galvanize [their] top brass for a faster pivot to electric vehicles,” according to Reuters. I’m sorry, what?! Can you imagine, circa 2015, “Microsoft invites Adobe CEO to talk about transitioning to the cloud,” or today, “Facebook invites TikTok CEO to talk about their success in short-form videos and algorithms.” Or maybe, “Jacksonville Jaguars invite Patrick Mahomes to talk about success on offense.”

Anyhow, Volkswagen’s CEO, Herbert Diess, confirmed his invite and Musk’s “surprise” Thursday video appearance on Twitter and LinkedIn. “Happy to hear that even our strongest competitor thinks that we will succeed [in] the transition if we drive transformation with full power,” he wrote. You have to give Diess credit. He sounds like a disgruntled CEO who sees the future but can’t pivot his company fast enough, and is now pulling out all the stops to get there–including inviting his “strongest competitor” to give his own employees a pep talk.

How did this happen? How could the CEO of the world’s largest automaker for much of the last decade be calling a company that won’t even deliver a million cars this year his “strongest competitor”?

The Credit Union Analogy

Would your credit union’s success be such that a bank or other financial institution (mutual fund, insurance  firm or broker dealer) would invite you to share your vision for the future of financial services?

Or, is the bank just inviting you over to see if you would like to buy them out at a multiple of book value?

Unfortunately, banks are unlikely to ask for an Elon-Musk kind of briefing thinking they there is little to learn from credit unions.  They believe coop success is due to an uneven playing field, especially the tax exemption.

A good test of how your competitors, local and otherwise, view your effectiveness is not the dollars they spend lobbying, but rather whether they seek to emulate your credit union’s perceived advantage.

Unlike Volkswagen, I have not heard of any banks trying to become credit unions in practice or by conversion.   But I read a  lot about credit unions buying banks.

Which model do you think has the real competitive edge? And which is most likely to transform financial services as they exist today?

When competitors respect you, then you know you are doing something special in their eyes.

Even when interest in your business initiatives are only from your co-op peers, that is one indication that your credit union could be “driving transformation with full power” using Elon’s criteria for strategic advantage.

 

 

 

 

 

 

What Credit Unions Can Learn from Morris Plan Banks

In justifying whole bank purchases credit union CEOs will reference learning from their competitor’s experiences and banking knowledge. Several areas include expanded commercial loan opportunities, entry into new markets and adding staff with  different expertise.

Trying to beat the competition by becoming the competition has always been a dubious strategy. Moreover, the example of early competition from the Morris Plan banks suggests credit unions will be more successful developing their own unique competencies.

Credit union success was never guaranteed. In fact, one of the earliest and largest competitors for the untapped consumer credit market grew much faster and was far more consequential than the slowly emerging credit union system. That is, until the 1934 passage of the FCU Act ushered in a new era of cu expansion.

Morris Plan Banks

In 1910, attorney Arthur J. Morris (1881–1973) opened the Fidelity Savings and Trust Company in Norfolk, Virginia.

The Virginia lawyer, was troubled that a securely employed workman, seeking a small loan, was denied access to credit from local banks and forced to borrow from loan sharks. Morris thought that a country that denied bank loans to a large part of its population had a “weak spot” in its banking system. Morris studied the various banking laws in the U.S. in the hopes that some type of “banking institution could be evolved that would correct the existing evils and supply credit to the needy”

Under a concept called the “Morris Plan” he offered small loans to working people. In this approach would-be borrowers had to submit references from two people of like character and earnings power to prove the borrower’s creditworthiness. Repayment of the loan was made through the weekly purchase of Installment Thrift Certificates equal to the face value of the loan, less origination and investigative fees.

Morris Plan Banks expanded relying on state charters just as did the nascent credit union movement. By 1931, there were 109 Morris Plan banks operating in 142 cities with an annual loan volume about $220,000,000.

In a November 23, 1931, TIME magazine personnel announcement, the industry’s two decades of success and growth were described as follows:

“Walter W. Head, past president of American Bankers Assn., was elected president of Morris Plan Corp. of America, succeeding Austin L. Babcock. Morris Plan Corp. has large stock holdings in all the Morris Plan banks, the largest industrial banking system in the U. S. In the last 21 years these banks loaned $1,750,000,000 to 7,000,000 people, and now do about $200,000,000 annual business with 800,000 customers.”

Morris Plan banks pioneered the use of automotive financing through arrangements between the Morris Plan Company of America, the holding company for Morris Plan banks, and the Studebaker Corporation. In 1917 through the subsidiary Morris Plan Insurance Society, credit life insurance was offered to pay off any outstanding loan balance if the borrower died. Any insurance left over went to the borrower’s estate.

In their description of Morris Plan banks, authors Phillips and Mushinski offer one explanation for model’s success versus credit unions:

“The Morris Plan structure was more attuned to the individuality of typical Americans than were credit unions.

“It should also be noted that the Morris Plan was not without critics, especially from the Russell Sage Foundation which viewed the lending procedure to be misleading at best, and at worst, an attempt to defraud the borrowers. Hence, many viewed the profit-seeking Morris Plan institutions as little better, and in some respects worse, than loan-sharks.”

Morris Plan Banks vs Credit Unions’ Growth

Morris Plan banks began the same year as credit unions. In just two decades, by 1931, they became the leading provider of financial options for consumers.

The following slides summarize this state chartered, for-profit enterprise.

1. Begun by a lawyer to meet the need for unsecured personal credit.

2. Innovative legal structure incubated in the state chartering system.

3. Loans were made based on character, for a good purpose with at least two cosigners of similar economic standing.

4. Morris plan banks’ annual loan volume in 1931 is estimated at over $200 million. The state-chartered credit union system reported just over $40 million.

5. Morris Plan banks failed during the Depression. Many converted or were sold to commercial banks which took consumer deposits and had broader lending options.

Today the descendant of this banking model is the Industrial Loan Company (ILC) state chartered, FDIC insured banks that primarily serve as specialty lenders.

Morris Plan institutions relied on wholesale funding and stock subscriptions. Credit unions which offered savings options and consumer loans quickly became the preferred option for members and communities in the Depression. Their non-profit cooperative design, self-help appeal and local leadership created a positive reputation and loyal members following numerous failures in the banking system following Roosevelt’s bank holiday in March 1933.

Some Reflections for Credit Unions from the Morris Plan Experience

  • Being first to prove a market need and establishing a dominant position does not guarantee ongoing success. Second movers can create a long-term advantage.
  • Growth requires innovation and staying in touch with a market’s needs.
  • The more flexible the institutional model, the greater the chance of sustainability;
  • The Credit Union system took on a new wave of expansion and credibility when a federal charter option became available—Morris Plan banks were dependent on state-by-state legislation;
  • Values and perceptions matter. Although Morris’ instinct was to serve the unbanked, the for-profit structure created a public perception of conflicting purposes.
  • Dramatic or sudden changes/crises in the economic, social, or political environment can lead to demise of models developed in another era.

Buying Used Up Models?

As credit unions pursue whole bank acquisitions, are they buying “tired” business models built with different values and goals? Are these credit unions giving up the advantages of cooperative design and innovation attempting to purchase scale? Will combining competitors’ experiences (and customers) with the credit union tax exemption create an illusion of financial opportunity that fails to prove out when evaluated years down the road?

Two decades ago, the prophets of cooperative doom were selling charter conversions, first to a mutual option and then later, going public with stock. The pitch was: more capital flexibility, no common bond restraints and expanded asset and investment options. And oh, you could also make a lot of money if the former credit union went public.

Between 30-35 credit unions bought into this vision of future financial nirvana. Today only one institution remains, still a mutual whose growth has trailed its cooperative peers since the conversion took place. But that is a story for another day.

We know the fate of the Morris Plan banking model and the “consultants” siren calls to convert to another financial charter. We don’t know if bank purchases will indeed add value for members or their co-op.

But we can learn one thing from history—if these purchases do not create a stronger cooperative, the credit union’s future may have just been attenuated in this effort to induce growth by paying out members’ collective wealth to bank owners.

Watermelon Flavored Oreos Offer Insights into Individuals’ Behavior

In June 2013, Nabisco’s Oreo, the best-selling cookie brand in the world, introduced a “refreshing” new product extension.

The new Oreo had a watermelon flavor filling to create an association with its summer market launch. The internal flavor coloring aligned well with its Golden Oreo product. Children were a prime target because of their willingness to try new flavors.

One does not have to be a market research guru or have a sweet tooth addiction to suspect this might not be a great consumer success.

On Twitter, responses ranged from, “These sound heavenly,” to “i looked up ‘abomination against nature’ in the dictionary and there was a picture of watermelon oreos.

One media outlet asked its Facebook followers for comment and received a deluge containing one word, “Eww.”

An econlife review opined: If you really want that “fun, summer flavor,” stick with the real thing and dive into an organic watermelon. They’re limited edition summer treats too, with much healthier benefits.

Harbingers of Failure

Marketers study failures, not just success stories.

In a 2015 paper, marketing scholars from MIT, Northwestern, and Hong Kong University of Science and Technology looked at consumer demand for new products. After gathering data on 8,809 new supermarket products, 439,546 transactions, and 77,744 customers, they concluded that success didn’t necessarily equate to sales growth. The explanation was that consumers who liked the items most were not representative of the total market.

Analysis identified these buyers as exhibiting what marketers labelled “Flop Affinity.” These are people who buy something that really doesn’t resonate with the majority of the market, such as Crystal Pepsi or Lemonade Doritos. These individuals are also more likely to buy a type of toothpaste or laundry detergent that fails in the broader the market.

Traditionally, companies want increased demand. But demand is about more than the quantities; it involves knowing who likes your product. If sales increase because “harbingers of failure” purchase something that most would avoid, then a firm can have a flop on its hands.

But just as important, an NBC story on the study found these group preference choices work the other way around. The data found those “who tend to purchase a successful product like a Swiffer mop are more likely to buy other ultimately successful products, like Arizona Iced Tea.”

The Watermelon Oreos Phenomena in other Contexts

Researchers are exploring how widely this “harbingers of failure” pattern applies in other areas, from everyday shopping selections to financial markets.

Is the concept applicable to behaviors other than choosing consumer products? Do credit union leaders tend to join with others around similar performance patterns?

Can the Watermelon Oreo research also identify behaviors or mindsets that exist within organizations; that is, micro-cultures that can compromise or promote purpose and performance?

Responding to External Demands for Change

In addition to ongoing market competition, every institution today is confronting external pressures for change. These range from the operational pivots responding to Covid to the social and political demands for accelerating equity and economic inclusion.

Northwestern’s Kellogg School identified a range of leadership responses ranging from the least to most meaningful when an organization reacts to external demands. Least effective were public statements of support. The most consequential was finding champions for the cause within the organization and tasking these internal believers in the change to develop the organization’s response.

The Watermelon Oreos case suggests that people’s choices, even if popular in the moment, are not indicative of long-term success. Winners tend to align with other winners in their behaviors whether within an organization or in the distribution of consumer preferences.

Effective leaders put those who believe in the required change in charge and not let the doubters harm their brand or organization’s reputation.

The Nose of the Camel?

At FDIC’s December meeting, the Board approved an updated regulation relating to interest rate limits on banks that are less than well capitalized.

The changes are intended to provide flexibility for institutions subject to the interest rate restrictions and ensures that those institutions will be able to compete for deposits regardless of the interest rate environment.

One way this flexibility is enhanced according the explanatory Fact Sheet is:

MORE COMPREHENSIVE NATIONAL RATE – The final rule defines the National Rate to include credit union rates for the first time.

  • “National Rate” is defined as the weighted average of rates paid by all IDIs and credit unions on a given deposit product, for which data are available, where the weights are each institution’s market share of domestic deposits.

The Level Playing Field

Is this what bankers mean by “a level playing field?” To implement this rule, the FDIC camel must poke its nose into co-ops’ tent to track credit union rates on “given deposit products.” Be alert for more “leveling” activities in the future.

AN EYE-OPENER: New Study on Size and Cost Efficiency

This month the FDIC released a 27-page study entitled “Economies of Scale in Community Banks.”

The authors analyze all community banks less than $10 billion in assets from 2000 to 2019 to measure their actual trends in economies of scale and productivity by asset size.

The major findings are below. Over two thirds of the paper present the analytical method and data used to develop their conclusions. The most significant conclusion in my view is:

“. . .our results suggest efficiency gains accrue early as a bank grows from $10 million in loans to $3.3 billion, with 90 percent of the potential efficiency gains occurring by $300 million”

The Relevance for Credit Unions

The average credit union size on September 30, was $345 million. That is the sweet spot for peak operating gains in the study. While credit unions would not mirror the balance sheet and business model of a typical community bank, the overall conclusions seem applicable.

Moreover, it is probable that the greatest gains in efficiency occur at an ever lower average asset range in coops for three reasons. Credit unions have a consumer-focused lending specialty, which the authors cite as a factor in greater efficiency. They do not have to manage the complexity of paying federal or state income tax. Finally, credit unions achieve economies of scale and efficiencies by cooperating in local and national CUSOs that bring members convenience no single bank or firm could duplicate with its own resources.

Credit unions are undergoing some of the same consolidation pressures described for banking. The study provides needed insight for two much talked about issues in the credit union system. One is what is the ideal size for operational competitiveness. The finding that a range of $300-600 million in assets achieves 95% of efficiency gains, is easily within reach for many credit unions’ business models. Secondly, larger size does not create major gains in efficiency.

In fact, there may even be a cap on size ($3.3 billion) after which diseconomies of scale occur, that is increasing expense ratios. An example of this would be the dramatic performance decline in PenFed, the industry’s third largest institution, as it grew by $7.5 billion over the past five years. This is documented in the analysis “PenFed’s Spurious Strategy.”

The Problem We All Share Part I: PenFed’s Spurious Merger Strategy

In the extracts below, emphasized (bolded) text focuses on the most important conclusions presented by the FDIC authors.

Abstract Summary

Using financial and supervisory data from the past 20 years, we show that scale economies in community banks with less than $10 billion in assets emerged during the run-up to the 2008 financial crisis due to declines in interest expenses and provisions for losses on loans and leases at larger banks. The financial crisis temporarily interrupted this trend and costs increased industry-wide, but a generally more cost-efficient industry re-emerged, returning in recent years to pre-crisis trends. We estimate that from 2000 to 2019, the cost-minimizing size of a bank’s loan portfolio rose from approximately $350 million to $3.3 billion. Though descriptive, our results suggest efficiency gains accrue early as a bank grows from $10 million in loans to $3.3 billion, with 90 percent of the potential efficiency gains occurring by $300 million.

Introduction

Economies of scale occur when the per-unit cost of production falls as the number of units produced increases. In the context of banking, scale economies exist when the cost per dollar of loans (or assets) declines as the number of loans (or assets) increases. An efficient bank is operating at the lowest cost per dollar of assets or loans, , , ,

Our estimates are not causal and do not predict how a bank’s costs would change were it to change in size. We find evidence, however, that the overwhelming majority of any gains from increasing a bank’s loan production from $10 million to the cost-minimizing loan portfolio size of $3.3 billion accrue early in the growth process. Our nonparametric results suggest that once a loan portfolio reaches approximately $300 million, a bank has achieved about 90 percent of the potential efficiencies from increased scale; by $600 million, a bank has achieved about 95 percent of potential efficiencies. . . .

Our analysis focuses on community banks—banks with less than $10 billion in assets—as these banks comprise the vast majority of banking organizations. Approximately 97 percent of all banks in the United States have less than $10 billion in assets, and roughly 90 percent of those have less than $1 billion in assets. The consolidation trend in the industry has differentially affected community banks. The number of small institutions—those with less than $100 million in assets—has declined by 92 percent since 1985. Much of the debate about bank consolidation centers on the largest financial institutions, primarily those some argue are “too big to fail.” But as consolidation in the industry has persisted in recent years, some have begun to turn the “too big to fail” designation on its head and question whether small community banks are “too small to succeed.”

Conceptual arguments that support this notion are often based upon the economics of scale. Some have suggested that increased regulatory burden affects small banks in particular because regulatory compliance cost is a relatively larger item in a small bank’s finances. Likewise, banks that operate in limited geographical areas may find expansion into new product lines less profitable. Another possibility is that technological investments, for example in credit scoring and model-based lending, may not offer enough upside to justify the investment cost for small banks to transition from slower, more cost-intensive business practices (i.e., relationship lending).

Consolidation that shifts assets from small to large banks is more than just a rearrangement of resources. Small and large banks are not interchangeable; a single $1 trillion bank is not the same as one thousand $1 billion banks. Small banks are often built around a relationship-lending business model. Bankers acquire costly but valuable private information about their customers and make lending decisions using this expertise. In contrast, large, remote banks often lack personal relationships with customers and knowledge about the local community, instead relying on a standardized approach to lending. Customers that are good credit risks to a small bank may be unable to obtain credit from a large bank that lacks local knowledge.

As the number of small banks has declined, concern about the future of small banks has extended to the future of small businesses. Small businesses generally obtain loans from small banks, especially when the businesses are in their infancy. The report of findings from the FDIC’s Small Business Lending Survey states that large banks are more than five times more likely than small banks to require minimum loan amounts for the primary loan products provided to small businesses and eight times more likely to use standardized small business loan products. Small banks are also roughly five times more likely than large banks to underwrite loans to start-up small businesses differently These businesses are sometimes described as the engine of economic growth in the United States, so a decline in credit availability to such businesses could affect the real economy.

The fate of small banks also portends that of the communities in which they operate: Kandrac (2014, p. 23) finds meaningful feedback from the failure of a bank and local economic performance, stating, “The disruption of banking and credit relationships is an important channel through which bank failures affect economic performance.” Scale economies in banking thus transcend the domain of business policy into that of public policy. . . .

Conclusion

Consolidation and growth have been hallmarks of the banking industry since the 1980s. The number of institutions has decreased by more than two-thirds while the size of the remaining institutions has increased. Although the problem of “too big to fail” has been frequently discussed within the corridors of government, academia, and the media, community bankers have begun to question if a “too small to succeed” problem also exists. Such concerns are commonly motivated by notions of economies of scale, whether due to cost efficiencies, expanded business opportunities, or the allocation of regulatory costs across a wider asset base.

Using financial and supervisory data on banks and thrifts with less than $10 billion in assets, we study economies of scale within the banking industry using nonparametric kernel regression and translog cost estimation. Our estimation period spans both sides of the financial crisis, enabling us to distinguish pre-crisis trends from post-crisis trends. We find that total costs have generally been declining over time. The crisis temporarily halted this trend, at least for some institutions, but the trend resumed in force post-crisis. With economies of scale, lending specializations matter: agriculture banks show less evidence of scale economies than commercial banks, while mortgage banks display the strongest signs of economies of scale.

Tracking FDIC’s Insured Deposit Trends in Your Market

Once per year using June 30 data, the FDIC publishes the total deposits per branch for every bank.

This Summary of Deposits (SOD) report includes an easily searchable database that enables any user to find the totals by any market segment: city, SMSA, county, ZIP code or state.

The tool can be accessed from the FDIC website.

Grand Rapids, MI, FDIC Insured Deposit Report for June 30, 2020

I tested the program by searching all FDIC branches for the city of Grand Rapids.

The repost lists the 22 FDIC insured institutions serving the market in order of deposits. These total $15.4 billion in the 102 branches in the city.

Fifth Third Bank, Ohio headquartered, leads with a 26.5% market share. Seven banks have only one branch in Grand Rapids, all with less than $100 million in deposits.

Where Can I Get Credit Union Data?

For almost a decade Callahan has combined this annual FDIC report with credit union data. This Branch Analyzer database shows all the branches in a selected market. More importantly the analysis provides two year trends in the defined market, changes in market share by institution and even maps showing the geographic layout for all the branches.

Credit unions do not file a branch deposit report like the FDIC. Callahan’s searchable program approximates the deposits at each credit union branch by dividing a credit union’s total shares at June 30 by its number of branches.

The latest edition of Branch Analyzer can be found here:  https://www.callahan.com/market-analysis/

Manufacturing’s Future in the US

Sometimes (or often) political rhetoric is divorced from fact. One issue in the Presidential campaign is increasing American manufacturing. And hopefully jobs for tasks that cannot be automated.

The chart below shows that US auto production has declined 41% between 2014 and 2019. America’s share of global car production is 3.7%.

In auto production, manufacturing is a global factory system. Following the government bailout of the industry after the Great Recession, the peak of direct employment has ranged between 900,000 to 1 million jobs.

Given the underlying market trends, it is hard to see significant job growth in this sector.

The takeaway for credit unions and members dependent on this sector is to know your options and develop them. Market forces are impersonal and uncaring. That is why cooperative alternatives were created.

(Note: chart reflects total number of cars manufactured, not their market value)

International Organization of Motor Vehicle Manufacturers, founded 1919 in Paris, is an international trade association whose members are 39 national automotive industry trade associations.

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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.”

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.

McWatters’ Legacy and FDIC’s Implementation

In his maiden speech to the GAC in March 2015, then minority NCUA Board Member McWatters closed with the following suggestion:

“The NCUA board should establish not less than three formal advisory committees with the mandate to advise the NCUA Board about:

  • NCUA’ s budget and budgetary process,
  • NCUA’s examination programs and appeals process, and
  • Areas where NCUA may expedite regulatory relief for the credit union community without compromising safety and soundness. . .”

Nothing happened then or later when he became Chair.

An Example of an Advisory Board and its Agenda

In 2009, the FDIC established an Advisory Committee on Community Banking to provide input on bank policy and regulatory matters. It has 18 members from across the country. The Committee meets this week. The meeting is webcast live as detailed in the following:

On July 28, 2020, the Advisory Committee will meet to address a wide range of issues. The agenda includes: a discussion of local banking conditions; a briefing on the FDIC’s Rapid Prototyping Competition; an update on supervision matters; a report from its Minority Depository Institutions Subcommittee; and a discussion of diversity and inclusion at community banks. This meeting of the Advisory Committee on Community Banking will be Webcast live at http://fdic.windrosemedia.com beginning at 1 p.m. EDT.

In addition to seeing the advisory concept at work, I thought the rapid prototyping report would be of immediate relevance to the credit union community. NCUA has spent years trying to improve its quarterly reporting process, mostly making it longer.

Here is the FDIC’s innovative approach to making this technological improvement happen quickly and why you may want to tune in:

On June 30, FDIC announced the start of a rapid prototyping competition to help develop a new and innovative approach to financial reporting, particularly for community banks.

Twenty technology firms from across the country have been invited to participate in the competition. The competitors will develop proposed solutions over the next several months that will be presented to the FDIC for consideration, similar to an extended version of a “tech sprint” or “hackathon.” Competing firms represent leaders in the financial services, data management, data analytics, and AI/ML fields.

These modern tools – and lessons learned in future competitions – will help make financial reporting seamless and less burdensome for banks, provide more timely and granular data to the FDIC on industry health, and promote more efficient supervision of individual banks.