From Dairyland to Down Under

A Wisconsin CU CEO on sabbatical in Australia finds clues for dealing with challenges facing U.S. CUs.

October 2, 2010

Be a sponge.

That’s the best way to approach a leadership sabbatical in another country, says Kim Sponem, CEO of $1.5 billion asset Summit Credit Union, Madison, Wis. In other words—learn from your hosts, don’t offer unsolicited advice, and don’t be judgmental.

Sponem spent three months in Australia in 2010. She first worked with Abacus, Australia’s credit union trade association, then with mecu, a $2.2 billion asset credit union based in Melbourne. This was all part of a pilot exchange program launched by the World Council of Credit Unions (WOCCU).

Dairyland to Down Under

Focus

In Australia, CUs are taxed, there’s one regulator for all financial institutions, and board members often are paid.
Successful CUs in Australia have a clearly articulated vision and brand.
•  Board focus: Australian CUs have experienced many challenges now facing their U.S. counterparts, including reduced interchange income and accelerated industry consolidation.

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Australian credit unions have experienced many issues now facing U.S. credit unions, including challenges to their tax-exempt status, reduced interchange income, and accelerated industry consolidation.

“This was an opportunity to step into the future and see how Australian credit unions have been able to survive and thrive in a very bank-like environment,” Sponem says.

She tells Credit Union Magazine about what makes Australian credit unions successful, key differences between U.S. and Australian institutions, and what U.S. credit unions can learn from their counterparts Down Under.

CU Mag: How did your sabbatical come about?
Sponem: I was talking to Dave Grace [WOCCU’s vice president of association services] at a meeting, and asked if WOCCU had a sabbatical exchange program because they’re fairly prevalent in other industries. He said no, but they’d been thinking about starting one.

He contacted some folks in Australia, including Louise Petschler, CEO of Abacus. I proposed it to Andy Faust [Summit’s former CEO] and the board, and everyone thought it was a great idea.

I spent two weeks at Abacus and met with regulators and industry leaders. Then I joined mecu’s senior management team. I went to board and committee meetings, attended all senior management meetings and board planning sessions, led a project team, and met with community leaders. It was great.

Next: What did your family think about moving to Australia?



CU Mag: What did your family think about moving to Australia?
Sponem: My husband’s initial reaction was to think about all of the things we’d have to make happen to be able to do this. I tend to not think about that; I figure out the details later. Once he went through all of the details he became very excited.

The kids were excited right away [Sponem has three children]. Our middle child, who’s 11 years old, told me, “I’m really looking forward to seeing what it’s like being the new kid.”

After it was over, they all wanted to stay. They embraced the culture and made tremendous friends. On the way home, my eight-year-old said, “Mom, I never thought it could have been this good.”

CU Mag: What are some differences between U.S. and Australian credit unions?
Sponem: Credit unions there are taxed, and the marketplace is dominated by four large banks.

There are a number of differences, and my intent is to let readers draw their own conclusions. Even with a focus on providing a high-value member return, Australian credit unions have reluctantly introduced several fee structures out of necessity. This has been largely driven by taxation and significant decreases in interchange fee income. For example, mecu charges consumers $1.65 per month to use its debit card.

Operating in a bank-like environment creates the need for credit unions to think more corporately. It’s a harsher environment to operate in, and credit unions that don’t rise to the occasion become merger candidates. In a taxed situation, where 30% of what would go into reserves disappears, the focus on growth and profitability is intense.

There’s one prudential regulator and one set of laws for banks and credit unions. In the U.S., we should be glad we have our own regulator. If a credit union in Australia loses money for more than one quarter, the regulator requires a capital restoration plan. If the credit union doesn’t turn it around quickly, the regulator suggests a merger partner.

I asked a regulator in Sydney if he was concerned about the declining number of credit unions. He said, “That’s not my concern. It doesn’t matter to me if there’s one credit union or 100. I just care about safety and soundness.”

Regulators have no vested interest in seeing the credit union movement survive. People would tell me behind closed doors that it would make the regulator’s life easier if there weren’t any credit unions—it’s more work to make sure 100 credit unions are safe and sound than 25. That’s scary for consumers.

In addition, many board members are paid—anywhere from $20,000 to $140,000 per year. This is more common among large credit unions.

In Australia, board requirements are stringent in terms of education, understanding of rules and regulations, and risk management. So it makes sense to pay directors if you’re going to require that kind of time commitment. Board chairs get paid more, which makes that position a little more political.

Next: What are some differences in products?



CU Mag: What are some differences in products?
Sponem: Fixed-rate mortgages are rare because credit unions keep them on their books and they need to manage interest-rate risk. Also, first mortgages have a redraw option.

People can withdraw funds from their mortgages, like a home equity line of credit. Many Aussies apply their entire paychecks to their mortgages and withdraw money as needed.

Australia doesn’t really have checking accounts anymore. You can have a debit card or checks with any account. There’s no Regulation D, an outdated regulation that creates a transaction account versus a savings account in the U.S. There isn’t that distinction in Australia and there doesn’t need to be.

The typical mecu member writes one check per month on average. Australian consumers are much more into electronic payments than we are, partly because it’s so easy for consumers to attach debit/ATM cards to their accounts.

One difference in consumers’ financial behavior is that Aussies will give up anything before they fail to make their house payment. There’s a strong commitment to not being delinquent or being foreclosed on.

CU Mag: What sets apart successful credit unions in Australia?
Sponem: The really successful credit unions in Australia focus on return on assets (ROA), giveback to members, profitability, and managing expenses. That’s their fuel for growth. Less-successful ones rationalize having higher-than-average expense ratios. They’ll say, “Our expenses are higher because we’re serving our members.” But successful credit unions in Australia believe that’s just an excuse for poor management.

Another success factor is having a clearly articulated value proposition that speaks to a segment of the market in a strong way—not just “we serve our members well.”

CU Mag: What’s mecu’s value proposition?
Sponem: Sustainability is a huge concept at mecu. This is defined as promoting sustainable behaviors.

For example, living paycheck to paycheck isn’t sustainable for members, or anyone for that matter. Therefore, the credit union’s mission is to eliminate that habit and make members’ financial positions sustainable by, for example, not raising credit card limits to encourage borrowing beyond members’ means.

Also, mecu contends that how we’re living isn’t sustainable for the environment, so it has taken “eco friendly” to a new level. It measures its carbon footprint as a business and incorporates that into what it does for members.

For car loans, members get the best rate if they finance a car with very low carbon emissions. The less environmentally friendly the car, the higher the rate. And for every car financed, mecu will plant enough trees or vegetation to counteract the emissions from the car for the term of the loan.

The credit union won’t do mortgages on homes of a certain size because of the carbon footprint the house emits. Also, mecu offers the lowest-cost credit card in Australia, and it’s made from environmentally friendly plastic that’s chlorine-free.

Next: Are there similar applications for Summit?



CU Mag: Are there similar applications for Summit?
Sponem: I see Summit doing the same thing with different execution. Our strategies encompass the idea of sustainability. Helping members no longer live paycheck to paycheck through thrift initiatives helps them create sustainability in their lives.

Efficiency helps us return value to our members. Growth, ROA, and capital keep us viable, and our community-involvement strategy is socially responsible. Helping to facilitate dreams gives us a higher purpose and
vision.

CU Mag: How will you use your experience in Australia to make Summit a better credit union?
Sponem: One thing I learned was to get out ahead of the changes affecting things like income and expenses. Sometimes changes happen in the marketplace and we wait too long to make changes.

We need to be more proactive. We need more contingency planning. And when things happen, we need to innovate and experiment more with new ideas.

Currently, everyone is wondering how Bank of America and Citibank will react to the interchange issue. But we’re sitting back. Meanwhile, our income will be affected and we’ll have to make some changes. And not all of these changes will fit with how we’ve traditionally thought about charging our members.

The Australian credit union system was averse to charging members more fees. It was difficult for them to look at their fee structures in different ways. But they had to do it.

If you wait too long and you’re forced to do something, you come up with different answers than if you get out in front of an issue—looking at it from a strategic, rather than a reactive, perspective.

CU Mag: What did the Aussies want to know about U.S. credit unions?
Sponem: They wanted to hear about the issues U.S. credit unions are facing because they’ve read about the corporate situation and the insurance fund assessments. They don’t have an insurance fund; they have an insurance guarantee, which wasn’t even in place until the global financial crisis started.

Everyone wanted to know about our vacation time because they don’t think we get much. Everyone in Australia gets four weeks of vacation. If you stay with the same company for 10 years, you get an extra 13 weeks to use within two years—that’s mandated by the government.

Encouraging young people to see the world is a huge thing in Australia. And Australians don’t worry about their jobs as much. They work hard and care about their careers, but they tend to believe that if something bad happens, something else will work out.

Resources
•  Abacus, Sydney, Australia
•  CUNA’s 2010-2011 Credit Union Environmental Scan
•  World Council of Credit Unions