The leaves are changing, and the kids are back in school. Another seasonal event for many credit unions is the budgeting and strategic planning for next year. This article will cover a few highlighted items that might be considered and discussed during the strategic planning process. Scott Butterfield and I hosted a webinar last week on strategic planning. Scott has a philosophy of helping and promoting the success of credit unions that is very similar to ours at MHSI. Scott has helped many credit unions with strategic planning and offers some great insight and suggestions when it comes to strategic planning. If you missed the webinar, you can watch and listen to the archived webinar on our website, www.markhsmith.com.
Here are four strategic categories to evaluate and discuss during your planning sessions:
- Economic landscape
- Human resource changes and priorities
- Technology
- Competition
Economic Landscape
The economy is always changing, and there are many economic uncertainties on the horizon. The federal reserve just lowered the federal fund rates for the second time this year, and it is unclear if this will continue or stop. It is important to anticipate how an increase in rates or a decrease in rates may affect the credit union's profitability. While the regulators are often fixated on the risks associated with increasing rates, most credit unions we at Mark H. Smith, Inc. work with, have more risk to earnings in a down rate scenario.
Some trends show the long economic expansion and strong loan growth may be slowing. The credit union should anticipate and prepare how an economic slowdown may impact profitability. The ability to invest in continued loan growth, as well as some of the other areas that will be discussed further in this article, will be dependent on the profitability. If the economy weakens, loan growth stops, deposit growth slows or declines, and delinquency increases. The credit union must plan how it will preserve earnings. See the economic commentary in this newsletter for a little more insight.
Human Resources
As Baby Boomers exit the industry, it has become apparent that many credit union employee rosters and benches do not contain what is needed to keep up in a dynamic and competitive market and secure future business. Creating a work culture to attract new talent, then train and retain employees must be solved. Evaluate whether you have the right people in the right positions and a plan to develop the talent needed to ensure the credit union’s future success. Over the last 12 months, 168 credit unions merged. Of that number, over 4% cited the “inability to obtain officials” as the reason. A bit lower than I expected, but it still cannot be ignored. Ask what human resources, both staff and volunteers, the credit union will need in the next five years to deliver your services, keep up with market changes, and meet the needs of your members.
Technology
Over 76% of the mergers in the last year cited “expanded services” as the reason for the merger. Keeping up with technology, developing new products, capturing and using data to promote products, as well as compete with the new non-traditional financial providers can be a daunting and expensive proposition. Earnings are an important part of this equation. The credit union will need financial resources to make the investments needed to keep up with the quickly changing industry.
Competition
FinTech lenders are eating the credit unions lunch. Based on data gathered from Experian, personal loans have exploded from $25 billion to almost $35 billion over the last three years, and 44% of all consumers have personal loans. Credit union market share of personal loans has remained flat over the same period. Credit unions used to capture a larger percentage of the personal loan market. FinTech companies have used technology and data to market to the younger generations and made it easy and convenient to access and use their services with mobile devices. Ask yourself if your members think of the credit unions first for all their financial services. If they do not, how can this be corrected and how can the credit union defend itself against further loss of market share in other types of loans and financial services? Competition in the future will continue to change. With FinTech in the picture and a cooling economy, there will be a smaller pool of borrowers. While competition is tough, it will get tougher.
The intent of this article is not to depress or discourage, but to encourage and bring to the forefront some of the ideas and discussions that should occur during the strategic planning process. Find your niche. It could be a niche demographic, niche products, or niche services. Find and develop what differentiates your credit union from the competition and move out into open waters that are not inhabited by the big financial sharks. Both Scott Butterfield and I have worked with many successful, attentive, and hard-working credit union managers and boards that run a profitable financial institution. A strong ROA will be essential now, and in the future, so the credit union can invest in technology, people, and competition. Emphasize your strengths and continue to serve your members with products and services that will ensure your success in the years to come.