How One Credit Union Brings Members into its Digital Design

Many credit unions find their web site is in a state of constant makeover, or expansion. Often these changes are internally generated. Sometimes external consultants are used.

Canada’s largest credit union is redoing its opening web pages. Want to help? Just visit their beta site and click on the feedback link.

The draft design is a powerful statement, as is, of the credit union difference. But it goes a step further and asks the members to give their insight.

Question: When was the last time you asked your members to contribute to a development project in your credit union?

Learning About Leadership: From a Mentor and Father Time

I recently received the following comment from Doug Fecher, CEO of Wright-Patt Credit Union reflecting on celebrating another year of experiences. Or as he opens his remarks: “knowing that we know a whole lot less than we did just a few years ago.”

His reflection is a reminder of a leader’s influence as a mentor, whether intended or not.


I remember my first boss in credit unions – a former Ohio State All American who played for Woody Hayes, won a Rose Bowl and national championship with the Buckeyes in 1954, and played for the Steelers for a year or two until he blew out his knees (before they knew how to fix them). Bill came home a local hero for his success on the football field so they made him manager of the local credit union.

I’m starting to understand what Bill must have thought about us young kids as we went at our jobs like we knew it all. Of course he’d forgotten more than we knew about credit unions and the business of running them. His genius was in letting us make our mistakes so that we’d come to know what he did: that none of us is as smart as we think we are. Of course he would never let us make a serious mistake, and he went about it in a way in which none of us really knew how much he was teaching us. I remember him growling at us (he always growled even when he was being nice … I think it was the football player in him). “I don’t care what you do, just do something even if it’s wrong!” (I removed the expletives he used about every third word.)

Sitting still was never Bill’s style … Moving the ball down the field was his way, even if every once in a while you’d get thrown for a loss.

I think about Bill every so often, and especially as each year goes by. He played the part of a dumb football player pretty well … dumb as a fox. The man taught me more than I ever gave him credit for and I only started realizing that a few years ago.

Some days I think that’s the way people look at me, as if our business is starting to pass me by. And it makes me smile.

– Doug Fecher, CEO Wright-Patt Credit Union

Uber et al. and the Taxi Medallion Industry

It is accepted as a foregone conclusion that Uber and other shared ride platforms will eventually destroy the taxi medallion industry.

There is no contesting two facts at the moment:

  1. Ride sharing is a very popular and important addition to the public transportation industry.
  2. Medallions have been significantly devalued as collateral for lenders.

As a consequence of number 2, financing for taxi medallions has dried up in most cities. This means that medallion sales are now primarily on a cash only basis, which further lessens the value below what their actual earnings potential might be.

But will Uber and its competitors actually eliminate taxis as one form of public transportation in major cities? Recent events suggest that the future viability of ride sharing services is still uncertain.

Financial Performance as Public Companies

As Lyft and Uber are now public companies, they are filing quarterly financial reports. Neither company has ever made a profit. As one reviewer wrote about the Lyft IPO, the company loses money on every ride it makes.

Uber lost $5.4 billion in the 2019 second quarter.  Lyft’s losses for the same quarter were $644 million.

The Driver Challenge

This week, on the dominant local news and weather radio station for D.C., WTOP, Uber broadcasted an ad. Not for passengers, but for drivers. The ad stated that drivers would have a guaranteed income of $2,700 in their first 90 days. All they had to do was complete 400 rides. Even if that did not add up to the guarantee, they would still be paid that amount. That guarantee equates to an annual income of $10,800. If only the minimum total of 400 was completed, the average charge per ride would have to be $27.

If a driver had to work a 40 hour week to achieve this ride total in a 90 day period, that would work out to $5.65 per hour before taking into account any operational expenses from using one’s auto. If the rides could be done in half that time, the rate would be $11.25 per hour, fewer expenses. Still way below DC’s minimum wage law.

At a time of historically low unemployment, finding drivers for ride sharing firms will likely continue to be a challenge. Maybe that is why Uber leads this employment ad with an income guarantee.

The Uber Culture

In a new book, Super Pumped, the Battle for Uber, author Mike Isaac tells the story of the company’s early years led by founder Travis Kalanick. In the words of the book review by Leslie Berlin, “Kalanick understood that Uber could succeed only if it grew faster than any competitor, attracting large numbers of riders and drivers in cities across the globe. He let nothing get in the way of that growth–not the livelihood of the drivers, not the health and welfare of employees, not the counsel of his own advisers, not the laws and regulations of multiple states, and not the rules of Apple’s app store. He hired former NSA, FBI and CIA employees to spy on competitors.”

The review proceeds to describe the undoing of Kalanick by a number of individuals who revealed the toxic culture that had been created.

Disruption Is Not Necessarily Terminal

The future resilience of ride sharing systems, and their systematic underpricing of taxi rates, has disrupted the regulatory monopoly that taxi licensing system created. But it is not clear that the taxi industry will in fact be killed, and that the subsidized, financially losing strategy of ride sharing companies will wipe out their regulated competitors.

Hedge funds are reportedly buying up taxi medallions in New York for cash. Just as was done in the 2008 housing crisis, investors are coming in, paying cash at the low point in the valuation cycle, hoping to turn an above average return, when the market normalizes.

So the taxi medallion story is a long way from being over, even though there will be painful adjustments in the interim.

When a President Promoted Credit Unions

The White House
Washington D.C.
July 2, 1936

MEMORANDUM FOR
THE SECRETARY OF THE TREASURY

What do you think of some
publicity on Federal Credit Unions?
I understand 1,479 of them have already
been organized, with an estimated
membership of 205,000. We might do
something to push this. They are
popular.

–F.D.R.

My only question is, who brought this opportunity to FDR’s attention? That is the kind of “Washington presence” credit unions should have today!

How Tight is Today’s Labor Market?

In CUInsight’s Sunday jobs report, there are credit unions listing 10 to as many as 40 job openings in this weekly post. In addition to individual senior management positions, the most recent numbers ranged from a high of 23 to a low of 7 openings per credit union.

Finding and keeping employees is getting tougher. In a recent presentation by Economics Professor Alan Gin from the University of San Diego, some of the macro trends show why today’s labor market is so competitive.

All traditional measures of under or unemployment segments are the lowest levels in the past 15 years.

Secondly, the labor force participation rate is at its lowest since the 1980s. He cites four factors contributing to this structural decline:

  1. Baby boomer retirements;
  2. Fewer students working;
  3. Disability leavings;
  4. Affordable Care Act enabling persons to be insured when leaving a company plan

The Human Factor Challenge

Tactics for responding to this tight labor market are vital. Retaining and growing current staff becomes more urgent.

Other efforts include automation (how many credit unions answer the phone with a live person), moving jobs to different areas with less tight labor markets, process and productivity improvements, and outsourcing.

Whether the situation is short lived or a more permanent feature of the evolving economy, the need for new ways to find and retain the right staff will be a critical factor in many credit union’s ability to grow and to serve members well.

A Regulator on Bank Ethics

Recently the CEOs of the Business Roundtable issued a policy statement that proclaimed the purpose of the corporation is to promote “an economy that serves all Americans.”  Hopefully that would embrace the vital role of cooperative credit unions.

The Chairman of the Business Roundtable is Jamie Dimon, who is also CEO and Chair of JP Morgan Chase and Co. The statement is a positive example of a vision for corporate America that transcends the single-minded pursuit of shareholder value.

But the challenge is more than an expanded purpose statement as we are reminded in the following comment:

“There is evidence of deep-seated cultural and ethical failures at many large financial institutions. Whether this is due to size and complexity, bad incentives or some other issues is difficult to judge, but it is another critical problem that needs to be addressed.”

William Dudley, President, New York Federal Reserve Bank, November 7, 2013

This observation was years before Wells Fargo’s decade long mistreatment of consumers became public.

Just Another Bank?

From the 2008 Filene study: The Credit Union Brand: What is it good for?

“For years now, it seems that credit unions have placed themselves more and more in the bank brandscape, and our research supports this conclusion. What a pity that credit union members think that credit unions are just another bank. But when you look at credit unions, what is there about them that signals to consumers that they are not banks? The buildings are often designed to look exactly like a bank. Consumers conduct their financial affairs in a similar manner. Often even the advertising shouts “bank!” These signals do not go unnoticed by consumers. And, it appears that some credit union management may have felt that credit unions as financial institutions didn’t get the same respect as banks in the past; thus a natural reaction would be to try to make credit unions more like banks to attain the same status. (page 41)

The Only Threat to Credit Unions

At a time when many credit union leaders see NCUA board members announcing new regulatory agendas in virtually every speech, it is helpful to remember this counsel from a former NCUA Chairman:

“The only threat to credit unions is the bureaucratic threat to treat them for convenience sake, the same as banks and savings and loans.  This is a mistake, for they are made of a different fabric.  It is a fabric woven tightly by thousands of volunteers, sponsoring companies, credit union organizations and NCUA-all working together.”

 Source:  Chairman’s letter: NCUA 1984 Annual Report

President Obama Speaks to Cooperatives in Canada

A CONVERSATION WITH PRESIDENT BARACK OBAMA

The Nova Scotia Co-operative Council in celebration of their 70th anniversary have teamed up with presenting sponsor Atlantic Credit Unions and a grouping of other sponsors to host “A conversation with Barack Obama” in Halifax at the Scotiabank Centre in Halifax.

Wednesday November 13, 2019  6:30pm

$115 – $325

The web site reports the 9,000 seat auditorium was sold out almost immediately.  Now that’s an eye-opening brand impact!

Pick Your Number: What Risk Based Capital Looks Like Today

Corporate credit unions have labored under a very detailed risk based capital rule (RBC) for almost eight years. At the end is a footnote from a corporate’s audit showing the reporting required by the rule which demonstrates four very different outcomes:

  1. Leverage ratio
  2. Tier 1 risk based capital
  3. Total risk based capital ratio
  4. Retained earnings as % of capital

As of December 2018 these ratios range from 6.26% (leverage) to 44.07% (total risk based). These single numbers actually simplify the multiple ways the ratios can be presented by using different ways to calculate the average asset denominator.

Two other columns show the regulatory minimum ratios to be considered “adequately capitalized” or “well capitalized” under the rule..

There are a total of 12 numbers for a reader to compare to evaluate a corporate’s capital status at a point in time—before undertaking any trend analysis.

With a range of outcomes from 6.26% to over 44% as indicators capital sufficiency, one must ask if the numbers have any meaning at all.

The Delay in Risk Based Capital for Natural Person Credit Unions

In June the NCUA board approved a two-year delay in RBC rules for credit unions. Among reasons given was consideration of yet another leverage rule for complex credit unions in addition to PCA. That would make the rule more complicated, not less.

As shown by the bank regulatory agencies and even more clearly by the corporate RBC rule, the outcomes are so complicated that the data fails to clarify any dimension of capital adequacy; for example does this corporate have  too much or too little capital?

It is a tool that confuses, adds burdens and ultimately locks credit unions into a legally-mandated assessment of relative risk among all asset categories.

Natural person credit union balance sheets are many times more complex than corporates whose balance sheets are almost all investment securities. These all have relatively easy market based values for referencing.

Risk based approaches are not only confusing, they can also tilt credit union decisions to increase exposure to whatever the regulatory “safest” relative  risk of the day might be.

The simple leverage ratio has served the industry well for over one hundred years including more than 50 since deregulation. RBC might be useful as a tool; but it could potentially drive credit unions off a cliff if it were to be a rule.

CORPORATE FOOTNOTE 11 – REGULATORY CAPITAL

The Credit Union is subject to various regulatory capital requirements administered by the NCUA. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Credit Union’s financial statements. Failure to meet minimum capital requirements would require the Credit Union to submit a plan of action to correct the shortfall. Additionally, NCUA could require an increase in capital to specific levels, reduction of interest, and ceasing or limiting the Credit Union’s ability to accept deposits.

The Credit Union’s actual and required ratios for December 31, 2018 and 2017 are as follows: