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The State of the Unions

As the Climate Changes for Credit Unions, They’re Turning Up the Heat
Sue Boniface and Jim Nagy

Sue Boniface and Jim Nagy of ValleyStone Credit Union

As more and more credit unions change their charter to a community base and increase their books of business, the number of challenges is also rising, from upgrading technology to improving marketing techniques and even employee professionalism. But as challenges arise, so do new opportunities.

Gary Fishlock, president and CEO of STCU Credit Union (formerly the Springfield Teachers Credit Union), said that three years ago, the institution didn’t even have its own Web site. But now, the credit union that once served only employees within Springfield’s public school system has opened its doors to a wider audience, and with the change has added that all-important online presence.

Now, STCU’s Web site gets about 9,000 visitors a month, and its new site for Spanish-speaking customers is gaining speed, as are STCU’s eStatements and online lending programs.

The technological additions and upgrades are one manifestation, says Fishlock, of the significant changes STCU has gone through since switching its charter from ‘single select,’ serving one specific employer or group, to a community charter, essentially opening its services to those who live and work in Hampden, Hampshire, or Franklin counties.

“We had to rewrite the playbook to a degree,” said Fishlock, “and adding new technology to our existing repertoire was necessary to creating a strong posture for ourselves.”

And STCU is certainly not alone. Indeed, many credit unions in the area are at the start of a new culture and operating environment, as an increasing number abandon their identity as a single-employer credit union to serve the general population.

For many, it’s a necessary change, brought on in part by shrinking employee numbers in the industrial sector as technology advances or companies downsize, and by an aging population of members who save more than they borrow, throwing many credit unions off balance.

The switch among credit unions to a community charter is being seen across the nation, but in Massachusetts, where U.S. credit unions got their start, the changes are particularly notable. Many credit unions, especially in industrial centers like Springfield, have been in business for 60, 70, or 80 years, and are, in general terms, changing the way they do business for the first time.

“Credit unions are operating in a new climate,” said Rob Kimmett, senior vice president of Marketing and Public Relations for the Mass. Credit Union League Inc. “They’re offering services to a wider number of members, and there is a movement toward taking the lid off and being more visible.”

As credit unions switch their charters, a number of challenges in the areas of technology, marketing, and member services arise, but as many professionals in the credit union sector agree, it’s also creating some new opportunities.

A Delicate Balance

“It has definitely been a learning experience for us,” said Jim Nagy, president and CEO of ValleyStone Credit Union, formerly the Monsanto Employees Credit Union. “We were in a friendly, rather insulated environment, and now we’re part of a major corridor in the Valley that is filled with competition.”

That has created some new focus points for ValleyStone, which changed its name in 2005 after obtaining approval for a community charter in 2000. Nagy said service, technology, and marketing issues are three areas in which all rechartered credit unions struggle to a degree, and other concerns are not as obvious as others, like appropriate safety and professionalism training for employees who are no longer working in a small, informal environment, but rather in a much more public, corporate world.

It’s an apt parallel for the vast changes that occur as a credit union switches its charter, and the time it takes for an institution to grow into its new role. ValleyStone relocated its offices to Boston Road in Wilbraham, a stretch of road already populated with a number of banks, as part of that change, and also opened a branch inside Chicopee’s Wal-Mart, a partnership that recently dissolved.

“I think that was the right decision,” Nagy said of ending the relationship with Wal-Mart, a chain that is entering the financial services arena on its own and calling attention to the mounting competition both credit unions and banks face. “In the last few years, I think we’ve progressed to become a reputable facility. We rank 29th in the nation in terms of assets, and we’ve adapted pretty well. But now, we need to use that capital to grow and expand further, to stay competitive and maintain an edge.”

Kimmett agreed that credit unions have a tough road ahead in terms of forging a road for themselves.

“There is a ton of competition in the financial services sector — from mutual funds to the strong box under the bed,” he said. “In terms of loans, it’s the same thing.

All lenders compete, locally and nationally. Because of that, it’s not necessarily a wise thing to focus solely on local competition.”

A Strong Statement

But in the name of balance, credit unions must still look at local trends and adapt accordingly. Kimmett said that’s creating some marketing challenges for credit unions, but again, creativity is paving the way toward new opportunities. One trend he said he’s noticed is a very targeted approach to advertising that is geared toward recruiting new members from various walks of life.

“Any good marketer understands how to market individually, and to meet the needs of particular demographics,” Kimmett said. “Any marketing campaign that appears to be geared to one group or another is likely an effort to achieve a balance. Women, for instance, make a tremendous amount of financial decisions, so we’re seeing a lot of marketing toward women among credit unions. And older members deposit more, and younger members borrow more, so we need people on both sides of the fence.”

Suzanne Boniface, marketing and business development officer for ValleyStone, added that to focus its strengths serving employer groups by reaching out to area businesses, ValleyStone has been providing informational sessions and setting up account sets for employees. That provides a no-cost benefit for the employer, and also grows ValleyStone’s member base more quickly than if the credit union focused solely on recruiting individuals.

“Those efforts have been well-received,” she said. “It sounds simple, but it’s a good practice for us to be neighborly, because historically, that’s what we’ve been about. That’s what we do.”

Transfer of Power

Fishlock agreed that growth in all areas of business, from lending capacity to the recruitment of a larger, more diverse set of members, is key as many credit unions redefine themselves. But the real challenges present themselves, he added, when credit unions recognize the many ways they need to function differently within this larger environment.

It’s a matter of striking that balance to which many professionals in the credit union sector refer – maintaining the historical tenets of service common to all credit unions, such as catering to the working class, offering low or no fees, and continuing to serve specific employer groups, while moving forward with new ideas and concepts.

The first area that divide is seen, Fishlock said, is among members. Credit unions may retain current members while recruiting others following rechartering, but must also be careful not to alienate those members, or fail to translate their strengths and services to people outside of that core group.

“By no means are we cutting off the educational group,” said Fishlock of STCU’s former member base. “We existed for 75 years solely because of the educational professionals of the Pioneer Valley. But now, we need to balance the new with the old.”

Fishlock said STCU is leaning heavily on the technology piece of its business to help achieve that balance, using its new Web site and other Web-based tools to recruit new members without alienating its current membership. The Web allows for widespread marketing and a new suite of services, said Fishlock, but it sidesteps the bells and whistles created by other marketing campaigns.

“We’re seeing an increase each month in our membership,” he said, “and there is so much more we can do on the technological end. It also helps us to compete while still providing cost efficiencies.”

Fishlock said STCU has also created a larger footprint in the region, opening a second branch in Westfield, and has recently unveiled a new service aimed at growing the institution’s overall book of business, becoming an equity investor of CU Business Capital LLC, a credit union service organization (CUSO) that focuses on business services.

Through the partnership, STCU is able to offer business loans, business deposit products, business checking, and other services, all brand-new offerings for the credit union. It’s a great example, said Fishlock, of the many ways credit unions are using the uncharted territory in which they find themselves to their advantage, getting creative with new business ventures and with getting the new message out to new audiences.

“Credit unions are primarily for consumers, but this sets us apart – it’s new and unusual to offer business services, and we think it’s the right way to go,” he said. “but it also didn’t make any sense to try and set those services up internally, at great expense. Joining a CUSO was the ideal method to harness the expertise and the capital we needed to offer high-level, quality services.

Similarly, ValleyStone has introduced shared branching, a phenomenon that is virtually unheard of in the banking sector, but is rapidly spreading throughout that of credit unions.

Shared branching allows members of a given credit union to make deposits and withdrawals, loan payments, and loan applications, as well as open sub-accounts and other services, through a different credit union that has entered into a shared branching agreement with their institution. In turn, credit unions that offer the benefit can grow in terms of branch profitability while reducing facility construction expenses, passing those savings on to members. In 2003, there were 436,000 shared branching transactions in Massachusetts and New Hampshire combined, according to ValleyStone’s figures; in 2004, there were 818,000.

“It’s all done through technology,” said Boniface. “It’s an exciting trend that’s spreading nationally; it allows for added convenience for members. They don’t necessarily need to close out their accounts when they move; 7-Eleven [convenience stores] signed on recently to offer service kiosks in their stores.”

Kimmett agreed that shared branching is a good example of the creative steps credit unions are taking to raise their profiles.

“Shared branching has existed for maybe about 10 years,” Kimmett explained. “It started small and is a very uncommon concept among banks, but it’s typical of credit unions and their focus on providing high-quality service and making sure the member is well-served. As counter-intuitive as it might be to suggest making transactions at a different facility, it’s a convenience tool that is so powerful among members that any real shred of a competitive issue goes out the window.”

Bonds and Trust

It’s also a way to increase a credit union’s profile on a national level. While credit unions are typically smaller than banks and serve a smaller, local population, that world is rapidly changing.

“There are some challenges, but in the end I think the consumer will benefit,” he said. “There are people who still haven’t heard the word and don’t understand that they can belong. But members tend to be devoted, and credit unions have always been focused on what members need and want. They just haven’t devoted as much energy to that in the past. Now, they need to.”

Jaclyn Stevenson can be reached at[email protected]

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