October 19, 2023 was the 75th anniversary of International Credit Union Day and next month we celebrate 115 years of credit unions in the United States.

On November 24, 1908, the “La Caisse Populaire, Ste-Marie” (The People’s Bank) became the first credit union in the nation. Monsignor Pierre Hevey, Pastor of Sainte-Mary’s parish in Manchester, New Hampshire had a goal to help the primarily Franco-American mill workers save and borrow money. It all began in the living room of a house at 420 Notre Dame Ave., which today is the site of America’s Credit Union Museum.

In its early days, establishing a credit union was a relatively straightforward endeavor. Often, these credit unions had humble beginnings, with anecdotes frequently featuring groups of colleagues who would pool their funds, initially storing them in a cigar box or a Prince Albert can. Dedicated volunteers would shoulder the responsibility of managing day-to-day operations until the credit union reached a point where they could afford to hire their first employee.

Notably, this was an era devoid of the digital technology we now take for granted. Computers were nonexistent, and all financial records were meticulously maintained within ledger books. Loan records were kept in file folders, and checking accounts had not yet made their way onto the credit union scene. As time marched forward, credit unions had to evolve to keep pace with the changing financial landscape, embracing technology, expanding their services, and providing even greater value to their members.

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Challenges facing credit unions 

There are many challenges facing credit unions today. The complexities of a rising interest rate environment, coupled with the impact of inflation, have left many CEOs feeling like they are navigating in uncharted waters. Interestingly enough, Mike Higgins, a consultant for banks and credit unions had this to say about our current rate environment: “Since the inception of the Fed Funds Rate in 1954, the average is 4.60 percent and median is 4.16 percent. Today it’s 5.33 percent (Source: St Louis FRED). The recent decade was a statistical outlier. If you entered the industry after the iPhone was introduced, this is how things used to be. As one expert noted to me, it’s going to be ‘normal’ for longer.”

Economic downturns, inflation, interest rate fluctuations, and global political and climate events have all been impacting credit union operations as much as the bigger regional and national banks. Having a resilient strategy and contingency plans in place is essential for sustainability. By leveraging technology to enhance member experiences, streamline operations, and tackle issues head-on, credit unions can not only navigate these challenges but also thrive as an alternative to the bigger banks.

With market conditions continuing to change and evolve, credit unions are going to need ongoing, accurate insights to inform their lending strategies and help them proactively take measures to firm up their lending business. This means finding the right tools to attract borrowers particularly in the underserved communities and insights that will continue to be fair and accurate after the loan has been approved. Being able to view risk migration and take proactive steps to help members struggling due to change, or adjust your strategy on decisioning are key.

Innovation and evolution are necessary steps to future-proofing your lending business, especially for smaller credit unions. Having an AI loan decisioning tool in your pocket will help you navigate through all kinds of economic storms. Using an AI tool to auto-decision also means you can free up loan officers’ time to work with members who have difficult credit situations.

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Credit unions have an age problem

The good news is credit union membership is growing: Over the last five years, average credit union membership has increased by over 7,600 to 135 million members nationally, a number that represents 18 to 22 percent of US households. However, credit union membership is decidedly older: the average credit union member is 53 years old, while the median age of Americans is 38.5 years.

Since their creation, credit unions have depended on referrals for new members. That’s basically how credit unions came to exist. However it seems in recent years these referrals have been happening less and less often:

• 90 percent of members DO NOT encourage their children to join their credit union
• 60 percent of credit union members’ children choose to bank at a different institution

Engaging younger members and tailoring services to their preferences — and higher standards for digital transformation — will be essential for long-term sustainability.

Manual underwriting processes are notorious for being inefficient and time-consuming. Shockingly, 83 percent of credit unions take more than 30 minutes to provide a decision*. In our fast-paced world, where consumers demand immediate responses, this delay often causes younger members to simply look elsewhere.

Another challenge reaching younger members is having the technology to score a “thin file” credit report. Experian describes a thin credit file as a credit history with fewer than five accounts or accounts that have only been open for a short period of time. Machine learning and alternative data allows lenders to assess the “credit invisible” and cover 90 percent of American adults.

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Why we need both small and large credit unions

At one point not so long ago, the industry was experiencing almost one merger a day. As might be expected, during COVID-19, the pace of mergers dropped from pre-pandemic activity. As of June 2023, there have been 69 credit union mergers, slightly down from 2022.

‍TruStage released a report which is based on data as of July that showed for the first time in many years, smaller credit unions are reporting a return on asset ratio very similar to the billion-dollar credit unions. And for the first time in living memory, small, medium and large asset size credit unions reported similar double digit loan growth.

Both large and small credit unions play essential, symbiotic roles within the financial services landscape. Small credit unions have a unique capacity to provide localized, community-centric services, especially those that are still single sponsor credit unions.

On the other hand, large credit unions offer a more extensive array of financial services, thanks to their economies of scale. Their size affords them the resources to compete effectively in the ever-advancing realm of technology, ensuring that their members have access to the latest innovations.

This coexistence of small and large credit unions is vital for maintaining a balanced and inclusive financial ecosystem, addressing the diverse needs and preferences of a wide range of consumers, and safeguarding financial access for all.

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Will credit unions be around for another 115 years? 

In just the past 23 years, credit unions have demonstrated remarkable resilience, weathering challenges such as Y2K, the 9/11 attacks, the Great Recession of 2008, and the global pandemic. Our collective strength and unity have been pivotal in not only surviving but thriving especially during these times of adversity.

International Credit Union Day (ICU Day) serves as a poignant reminder of what sets credit unions apart — their unwavering mission to foster financial inclusion and well-being for people worldwide. As we confront the present challenges head-on and join forces to shape a brighter financial future for our members, we set our sights on the horizon. In 2098, we anticipate commemorating the 150th anniversary of International Credit Union Day, a testament to the enduring commitment of credit unions to empower individuals and communities around the globe.

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*Source: Zest AI 2021 NACUSO Survey

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Denise Wymore – Manager, Corporate Philanthropy

Denise Wymore is an inductee to America’s Credit Union Museum and a cheerleader for passion and commitment. Currently, she is the Marketing Manager for Small Credit Union Initiatives at Zest AI and is proud to be a credit union lifer who started her career as a teller.