Category: Observations

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What’s in a Name?

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

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

Credit Union Names Evolve

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

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

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

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

The Name: CommonBond

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

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

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

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

OUR SOCIAL PROMISE: A better way to do business

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

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

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

Empowering

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

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

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

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

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

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

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Martin Luther King’s Eternal Question

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

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

A Call for Self-Reflection and Awareness

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

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

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

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

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

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Mistakes and the Beauty of Music

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

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

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

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

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

It makes the instrument famously difficult to play.

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

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

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

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

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

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

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Investing in a 10 Year Rising Stock Market

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

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

Looking at Some Details

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

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

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

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Maya Angelou-Reflects on Why We Collaborate

This is a poem that deals with togetherness. It was published in 1975 in her book Oh Pray My Wings Are Gonna Fit Me Well.

Alone

Lying, thinking
Last night
How to find my soul a home
Where water is not thirsty
And bread loaf is not stone
I came up with one thing
And I don’t believe I’m wrong
That nobody,
But nobody
Can make it out here alone.

Alone, all alone
Nobody, but nobody
Can make it out here alone.

There are some millionaires
With money they can’t use
Their wives run round like banshees
Their children sing the blues
They’ve got expensive doctors
To cure their hearts of stone.
But nobody
No, nobody
Can make it out here alone.

Alone, all alone
Nobody, but nobody
Can make it out here alone.

Now if you listen closely
I’ll tell you what I know
Storm clouds are gathering
The wind is gonna blow
The race of man is suffering
And I can hear the moan,
‘Cause nobody,
But nobody
Can make it out here alone.

Alone, all alone
Nobody, but nobody
Can make it out here alone.

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From the Field: Words of Gratitude

“I noticed our profit sharing hit my 401K last Friday, thank  you so much for this wonderful benefit! I know you go to bat for us with the board and I appreciate them reciprocating in kind. During this holiday season I reflect on the year gone by and the year to come,  and feel very humbled and blessed. Appreciate it!”

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A New Year’s Resolution for Credit Unions

President Franklin D. Roosevelt once stated:

“We cannot always build the future for our youth, but we can build our youth for the future.”

September 28, 1940, University of Pennsylvania

Might  credit unions consider a commitment such as:

While we  cannot guarantee members’ future economic circumstances, we can promise to be here for whatever members may ask of us.

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Peter Pan and Captain Hook in Credit Union Land

James Barrie’s children’s play Peter Pan has become a staple of holiday presentations since it was first staged in 1904 in London. It just opened in Washington. Wendy, Tinker Bell, Peter, Captain Hook, Tiger Lily and the Lost Boys’ feats in Neverland are alive for those who have only seen the TV or movie versions.

The conflict between Captain Hook’s pirate band with Peter and the Lost Boys seems at times too real (walking the plank, if captured) and at other moments simply fantasy.

Peter Pan is the boy who doesn’t want to grow old. Tinker Bell’s pixie dust powers ordinary children to fly to the stars. And Captain Hook while trying to capture the Lost Boys, is always listening for the tick-tock of the alarm clock swallowed by the man-eating crocodile that bit off his hand.

Audiences both young and old are asked to imagine. Moreover, the play’s tension derives from the threats of mortality should the boys be captured, or what would happen if the crocodile sneaks up on Hook unawares.

Plays endure because they embody truths transcending the theatrical story. Who really wants to grow old? Has not a shadow of death crossed every person’s mind at some point? Does the lure of adventure, the dream of flying into the sky, ever end?

Do these theatrical insights have parallels with characters in credit union land?

Captain Hooks Abound

I confess to seeing many Captain Hook figures in credit union land. They hear ticking clocks and spend their lives running from a vicious crocodile. They warn others to flee also. For it is their desire, similar to Hook’s, to subdue the optimism of Peter Pans, and to assert control over their part of credit union land. Here are some recent tick-tock warnings:

A CEO:

“In our industry there is such a short runway—we’re all going to face challenges. . . You have to be aggressive because there’s big changes in banking coming. You have got to get bigger and do it at a decent pace, and you have to look beyond your borders. If a credit union is anti-merger, they’re probably burying their head in the sand. The financial services industry is going to be facing some headwinds in the future and you have to be ready.”

A Board to its Membership:

Your FCU Board of Directors . . .has approved and is seeking a merger . . .It is the role of the board to look ahead and make decisions that we believe place our credit union in the best position to serve you. As we look to the future, we recognize the potential for economic challenges ahead. The last recession was very difficult for our credit union and we are not confident that we could remain well-capitalized through another economic downturn. We believe the time to take this step is now while our credit union remains financially strong.

Two NCUA Board Members:

“To me it’s always interesting to note the credit union community is now approaching $1.5 trillion in assets and we have an insurance fund with $16 billion, $17 billion in it. This is razor thin. There is not a lot of leeway here. (McWatters)

Or,

Harper called out the NCUA for tolerating “an uneven regulatory field. After the Great Recession, the FDIC and other banking regulators moved promptly to update and implement their risk-based capital standards, yet the NCUA wants to delay implementation for a second time. . . We know that a recession is coming. We just don’t know when and how severe it will be. That’s why we should fix the roof before it rains by implementing this (RBC) rule at the start of 2020.”

For Captain Hooks the end is around every corner. They preach negativity. It sounds expert, especially when facts don’t support their claims of future insight.

The Peter Pan World View

Like Peter Pan, credit union leaders have a different vision from the Captain Hooks of their responsibility. This is not a world where worries don’t exist; but rather one that believes in the radical, disruptive capabilities of cooperatives. Especially its focus on member well-being.

They know that the work of helping members is never ending and that hardships sooner or later come to one or all. But rather than looking for ways out of credit union land by giving up their charter, or outracing market growth, or emulating competitor’s models, or even hoarding more for future uncertainties, these leaders instead rely on one premise: how credit unions serve members will be the difference that sustains, whatever the economic or competitive climate.

As year-end nears, look for the many stories celebrating the sharing of credit union successes with members, communities and those in need. As the Hooks of the world continue predicting crises if one does not heed their ticking clock, recall the most dramatic moment in the play.

Tinker Bell appears to have succumbed in a fight with Hook and her spirit ended. Whereupon Peter appeals to the audience, breaking the theater’s fourth wall and asking “Do you believe in magic? Let me hear you.” And every time the audience shouts and claps, Tinker Bell recovers and the Lost Boys and Wendy make it home safely.

A lot of hard work goes into the cooperative model, but in the end, success depends on what you believe. The Captain Hooks? Or the many Peter Pans going about their work joyfully, knowing good works are never finished?

P.s. If you want to read about one leader whose tenure embodied the ageless power of Peter Pan’s optimism, read my article on Olan Jones.

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A Voice-over Message from a Credit Union Video

“Over the past hundred years, and many generations, credit union owners have built credit union value. Each owner through contribution, volunteering and stewardship has helped create credit unions worth over $120 billion and a credit union industry worth over $1 trillion. Every day new generations join these credit unions. And every day, the value of each credit is passed freely from one generation to the next. One owner to another.”

The close: “When you join a credit union, this value is given to you. You are not only a member, you are part of a community of credit union owners who share this value.”

A timeless message. Makes one want to see the video. Or to join and own a credit union today!

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A Thought from Paul Volker for the Season, or Anytime

On December 8th Paul Volker, the former Chairman of the Federal Reserve under Presidents Carter and Reagan, died.

The economist and regulator was a person of strong character.

The story is told of a friend who dropped by his New York office. The colleague began to brag to Volker about his son who worked for a hedge fund, was making a lot of money and living the good life.

Volker commented, “I have one thing he doesn’t have.”

The friend, curious, asked what that was.

Volker’s one word reply, “Enough.”