Remarks at the 2014 World Credit Union Conference
This is our gathering of the tribes. This is where we come together, credit unions, mutuals, financial cooperatives from around the world, to exchange lessons and best practices. We are 57 thousand credit unions serving 208 million members. Together we form a global community.
We face the same challenges, more so today than ever before, and regardless of what we call ourselves: mutual, credit union or cooperative bank.
Number one is increasing regulatory burden. Since the global financial crisis, our credit unions have been under more legislative and regulatory pressures than ever before. Many of these pressures come from international standard setters such as the Basel Committee, Financial Action Task Force or International Accounting Standards Board.
Number two is the challenge of innovations in the payments space. Consumers expect convenience and ease of access. They want what they want, when they want it, and where they want it. There was a time when payments, commerce and finance were different sectors. Today they overlap and merge with one another because consumers can do all three easily with their online or mobile devices.
The number three top challenge is membership growth. Everywhere credit unions are looking to how to increase membership growth.
Fourth is the sustainability of small credit unions. All of these challenges aggregate to increased challenge to small credit union sustainability: costs of regulatory burden, required investment in and maintenance of payments technology, the need to offer a full package of services and channels to attract young adults.
The fifth common challenge is competition with non-traditional new entrants and market disruptors. Our traditional competition has always been the for-profit stockholder bank. Our new competition are the large payment companies with scaled consumer patronage and global scale like Google Wallet and PayPal, the large retail commercial institutions which have large physical point of service installations and large customer base, like Coles department stores in Australia, and Walmart in Mexico and the U.S., and Internet-based financial services which do not carry the legacy brick and mortar assets we carry in our overhead.
We focus on membership growth, particularly young adult membership growth, one of the top three challenges for everyone today. This is what ties it all together.
We need empowering / less restrictive legislative and regulatory frameworks to allow for growth. We need mobile, online and payments technology in place to respond to consumer demands. We need to identify and share the best practices and tools for young adult membership growth. For small credit unions to be sustainable, they need not only greater efficiency and regulatory relief but they need to be able to offer today's payment services and online channels to attract young adult members. Where are the young adults? They are flocking to the new entrant market disruptors, which are often global in nature. We need to study these objectively, learn from what they are doing right and do it better.
We are in the age of the graying of the credit union movement. The median age of credit union members in most countries is the middle to late 40’s. This is 10 to 15 years older than the median population age in their home countries.
In Canada the median age is 53.
In Costa Rica and Panama it is 50.
In Korea and Romania the median age is 48.
In the U.S., Australia and the UK it is 47.
In Brazil the median age is 46.
Why do we care? As such, we are past our prime borrowing years. This is what Nobel Prize Winner Economist Franco Modigliani shared with us in his 'Life-Cycle Savings' theory. In our younger years we borrow, first in small amounts and then in increasing amounts. We save little. Then, as we become more established, we start to save, building up savings gradually. We start to borrow less. We change from net borrowers to net savers. As we approach retirement with its lower average income, we plan to live from our savings. As net savers our set of demands for services from our credit unions are often for investment and wealth management services.
So when we talk about membership growth, we look to the 18–35 age groups. They are in their prime borrowing years. It is in their 20’s that many undertake their first large financial commitments. They will be the largest source of future financial services business soon. We are often told that they are larger in number than the baby boomers.
Many young people are un-banked, but they are not unconnected. They are often using commerce or payments systems mobile or online. With these, they often substitute short-term, non-interest bearing stored electronic value for financial services.
They have grown up using mobile phones and the Internet for communication, entertainment, social networking, shopping, and information. So, they are going to expect to use the same when they access their financial services.
They have a strong trust in their social network as a principle source of information. They rely more on each others' references than on institutional reputations.
Our challenge is: How do we serve this market profitably? There are differences in how they access financial services compared to previous generations. There are differences in the channels they use. But it is more than building mobile and online roadways to the same products. It requires assessing product offerings to the demands of this population. It requires addressing whether our messages are compelling to this demographic.
Young adults have more options available to them today than were available for previous generations. They will pursue cheapest options for service. But we also learn that they will often pay more for convenience. Convenience is king.
Young adults are undergoing life transitions, just as we did when we were that age. They are pursuing their education, getting a job, starting a career, getting married, buying a home, buying land, starting a business and having children. These life events offer opportunities to offer financial services which help young adults deal with these life transitions. The products may be different than what we remember, but the principles are the same. Credit unions have always designed products by identifying the goals of our members and then asking how we can help our members achieve their goals.
One of the most commonly reported requests of young adults is to establish credit. Many of us remember how our parents or our family told us that they were so grateful that it was the credit union which gave them their first loan for their education or their car or their home. This is our opportunity to make the same impression on this generation.
We hear from our colleagues how they make all core services available via online and mobile channels. For this to be successful, they tell us, it must be easy, should take only a few minutes, must be completed online and certainly be within regulatory requirements. If the members have to go to a branch in order to complete the process in person, we lose them.
We hear from our colleagues about marketing strategies for young adults. Bundling strategies include linking the use of one financial product with lower fees or rates if one uses the full menu of products. New combinations involve bundling financial products with cheaper fees for transaction or payment services. Some credit unions offer young adults loyalty rewards programs.
We talk about messaging and branding. What is our differentiator? What creates loyalty? For any financial institution, the necessary condition is to be the most convenient, … followed by high quality, service and price. This is a threshold, a first order condition; we have to do this just to be in the game. It generates little loyalty. Our differentiator is that we put the member’s gain before the profit of the credit union or mutual. That is what makes an impression and what members remember. That is what creates loyalty.
Where do we want to be in the year 2020? We said membership growth ties it all together. It is a simple goal to measure. It measures how successful we are in responding to consumer demands. It shows how successful we are in overcoming our challenges.
So we set a challenge to reach 50 million new members by 2020. Today we stand at 208 million members. If we pursue an aggressive campaign of membership growth, we could reach 258 million members by 2020.
That is what we are here to discuss this week. What do we need to do with regard to legislative and regulatory frameworks, payments technology, sharing best practices in membership growth, credit union sustainability and lessons learned from non-traditional market disruptors to reach this goal?