CU Sustainability: Time for a Business Model Makeover?

It’s time to for CUs to re-invent or reposition themselves.

September 18, 2011
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Does the health of the credit union business model keep you up at night?

I’ve had many sleepless nights pondering the fate of our fine industry. When you step back and look at the credit union landscape, you see an economic environment where operating expenses are higher than net interest margins, negative earnings are all to frequent, lost income due to regulations, industry consolidation, and the possible removal of our tax-exempt status.

Some proposed solutions to these ills involve access to alternative capital and raising the member business lending limit. I’m not certain these are the best solutions.

Anne Legg
Anne Legg

Fortunately, these thoughts arose while I worked on my MBA thesis. And really, what is a better vehicle to create a new industry business model than a thesis?

Where to start?

Let’s start at the beginning, the roots of the credit union industry. We were founded on seven cooperative principles:

  1. Voluntary and open membership;
  2. Democratic member control;
  3. Member economic participation;
  4. Autonomy and independence;
  5. Education, training, and information;
  6. Cooperation among cooperatives; and
  7. Concern for community.

Wow! Go back and read those again. They’re spectacular!

What other financial industry has roots like that? I dare say… only us.

This begs the questions, what are other cooperatives doing and what can we learn from them?

About 48,000 cooperatives operating in nearly every business sector serve 120 million members—roughly four of 10 Americans. The top three types of U.S. cooperatives ranked by revenue are agriculture ($58 billion), grocery ($26 billion), and finance ($10 billion).

What can we learn?

Let’s start with agriculture cooperatives, which are facing similar issues as the credit union industry. This industry created a new model of cooperative called the Wyoming model, which is a clear departure from how agricultural cooperatives have traditionally been defined.

This model—initiated in a statute in Wyoming in 2001—allows non-user ownership and non-user control to generate larger pools of capital. This is particularly interesting as it basically provides for alternative or secondary capital—a solution credit unions are exploring.

However, cooperative grocers took a different position. This industry has grown and declined in waves since the 1950s.

The most recent growth period occurred during the mid-2000s when food cooperatives once again experienced growth-driven, intense consumer interest in alternatives to a market system that didn’t always serve their needs. Sound familiar?

Cooperative grocers are successfully connecting the consumer to the producer, and in doing so are creating a better community. This is the seventh cooperative principle: concern for community.

The more outreach the cooperative grocery makes, the better the community becomes. Cooperative groceries have changed the relationship people have with their food when they engaged their members with the food and the food suppliers.

Next: How does this apply to CUs?

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