Talking Credit Unions from Swoboda Research Centre
Talking Credit Unions delves into the latest trends shaping the financial landscape, equipping credit unions with the insights they need to stay ahead in a rapidly evolving industry. This podcast also tackles key issues facing the movement, fostering knowledge sharing and collaboration. Featuring a diverse line-up of credit union leaders, experts, researchers, and industry suppliers, it offers valuable perspectives to drive best practices, innovation, and success.
Talking Credit Unions is brought to you by the Swoboda Research Centre, which works to support positive change and transformation in the credit union movement. (https://swobodacentre.org/).
The podcast’s current producer and host, Anca Voinea, is a trained journalist with over 13 years of experience in the co-operative and credit union sectors. To suggest a podcast topic or for any other inquiries, contact her at anca.voinea@swobodacentre.org.
Talking Credit Unions from Swoboda Research Centre
Mergers, CUSOs and Collaboration
Collaboration and mergers within the credit union sector may become more prevalent in future as credit unions in Ireland and Great Britain are navigating the challenges of maintaining their local identity while achieving economies of scale. This podcast, with expert commentary from Nick Money of the Swoboda Research Centre and Paul Norgrove, CEO of Serve and Protect Credit Union and Ronaldo Hardy from the USA association NACUSO, tackles the strategic decisions credit unions are facing as growth and efficiencies become needed. The guests share their perspectives on the importance of understanding member needs, the emotional and operational hurdles of mergers, and how Credit Union Service Organisations (CUSOs) offer a promising path for growth. Explore how tailored services can create win-win scenarios and why maintaining a focus on members is crucial in an ever-changing financial landscape.
This episode also sheds light on the emotional challenges faced by credit union boards and the critical balance of power in working with CUSOs, ensuring that you come away with an better understanding of the world of credit union collaboration.
Talking Credit Unions is a regular podcast dedicated to informing credit union practitioners, leaders, and opinion formers on a variety of industry topics. The podcast is sponsored by the Swoboda Research Centre.
Collaboration is now a buzzword for credit unions, who see the value and potential, even necessity, in working together. There are high-profile examples of failure in the past in both Ireland and Great Britain, notably in technology initiatives, but now credit unions are regaining their confidence with successful initiatives that have been taking place, such as current accounts with Payac and Mortgage CUSOs CUSOs being credit union service organisations in Ireland and even the Greater Manchester Consortium in England, which is a kind of advocacy and marketing initiative, and the newly incorporated QShare Limited in Scotland that's looking at back office opportunities. Put that together with, in Ireland, the Credit Union Amendment Act 2023, which has extended options for credit unions to collaborate. Credit unions are now considering merger alongside CUSOs or mergers instead of CUSOs, and what I want to explore a little bit today is how credit unions make these projects successful and sustainable. Bit today is how credit unions make these projects successful and sustainable and where should our collaborative or even merger energies focus next?
Speaker 1:Well, earlier this year, 2024 swoboda research center held a conference in dublin with speakers from several countries, from cuso's to credit unions and academia, and I thought it would be good to talk to a couple of those speakers, unions and academia, and I thought it would be good to talk to a couple of those speakers, plus a couple of others that have chosen the merger route. I started by talking to Nick Money, who's the co-founder and director of the Swoboda Research Centre, and Nick put a lot of effort into actually bringing the conference about with his colleague, paul Jones. I started by asking Nick just unravel this a little bit for me now about collaboration or merger.
Speaker 2:I think, just to be clear about what the debate merger versus collaboration. So what collaboration? I don't think that debate happens when, for example, a credit union is struggling with succession planning on its board, so it looks to merge in with somebody else because it's not sure how it can govern itself. Or when there's a management crisis, or when the balance sheet fails, there's a bad debt crisis or a fraud crisis. So in those situations, collaboration is very rarely likely to be part of the answer. The answer is likely to be who can we transfer to who provides a good home for our members? The debate really happens around these economies of scale. That's where the challenge is. We offer savings and loans or a wider set of financial services to our members, and those are products in a marketplace where scale just generally means you can keep your costs down and have more money to invest in services. So how do credit unions achieve that, assuming that they're looking to achieve that? Well, that's where the merger collaboration debate comes in. We have just introduced a series of seminars for the chief execs and members of Swoboda with George Hoffheimer listeners may know who's a credit union strategist in the US consultant and George pointed us to a Michael Porter observation that efficiency is not a strategy. Efficiency is just, in American terms, table stakes. So if we want to be able to offer competitive products and services that are attractive to our members against all those other people out there, the banks and others who are doing that, we have to be efficient too. But's not stress, that's just. But that's just the basics. And that brings you back to the discussion about scale. So it is important and and merger obviously offer potentially offers that you put two, two together, you get four, four, bigger than two, lots of two and and so there is that.
Speaker 2:But there are some challenges that come with it. You know mergers have a in, not just in the credit union sector but in the corporate world, as have a patchy record because all sorts of things that can get in the way. Suddenly, it turns out the cultures of two organisations aren't very compatible or there's some struggles to make the other things operationally connect. But the big thing for credit unions, I think, is the risk and it's not inevitable, but it's a risk that you lose the local identity and you lose the connection with the members. At that point there's a real problem If you start to lose patches of your common bond because you just don't understand them, got no affinity with them, aren't interested in them, then that's a problem. So that's one risk of a merger, and another risk as well is just that managing a bigger organization means the board and the management team tend to get more internally focused on how to manage their organization properly and they get less focused on the members.
Speaker 2:A merger does carry risks. So movement-wide consideration as well, which is that diversity is one of our strengths. Both in Britain and Ireland but also in other countries around the world, you've got multiple credit unions, you've got different business models, different ideas, different ways of doing things Makes you a bit more resilient, actually, to everything falling apart. You know, when there's a problem happens, some of the models that we're operating may be better placed than others to survive and, as we know, credit unions informally collaborate really, really well. So the more you voices you've got, the more ideas you've got nick.
Speaker 1:Surely a larger business or a larger credit union is going to be more successful than a smaller one, or is that just an assumption?
Speaker 2:I can't I can't remember the statistic now, but a huge chunk of american credit unions which we always think of as enormous. But but actually there's quite a segment of the American credit unions which are not enormous they are smaller than many Irish and even some British credit unions and they're able. But they're offering current accounts, they're offering credit cards, they're offering mortgages, they're offering wealth management Because there is a CUSO, a credit union service organisation primarily, but potentially, potentially a private provider which is offering to a range of credit unions those services so they can afford it and that correct, that means that they are sustainable because they're offering a proper offer to their members but there are some challenges with it uh, one advantage ronaldo has is that his organization and his members because he runs a you the membership organization for those CUSOs.
Speaker 2:they're serving a continent you know whatever, I don't know 300 million people, ireland's 5 million people, britain is 70, and the credit union movement in Britain is relatively small. So the scale opportunities for those credit union movements are different from the US. But there's other ways, and so the CUSOs themselves will have economies of scale. So one of the challenges, for example, is how many CUSOs can you have? So in Ireland they're looking at a mortgage CUSO. Great idea. If you're a credit union that didn't like what that mortgage CUSO was offering, there probably isn't room in the market for there to be another mortgage CUSO that's doing things differently.
Speaker 2:So there's kind of a little bit of all or nothing, really, you do it yourself or you buy from the CUSO, or there probably isn't space to do more. But I think there's also something culturally more challenging about it. You've got to give up control to somebody else. You know board's comfortable with that. Um, how much control are they prepared to concede? And if they're not prepared to allow a organization to manage itself, then it's it's going to really struggle, because if it's constantly got to go back to I don't know 12 boards to get a decision every time it wants to spend to buy a photocopier, then it's going to really struggle to operate effectively as a business.
Speaker 1:Ronaldo Hardy is an executive powerhouse. He's driven by a mission to build leaders. He's driven by a mission to build leaders. He's also the president and chief executive of NACUSO, which is a US national association focused on cultivating collaboration, inspiring innovation and strengthening credit unions in the United States. I asked Ronaldo what is it?
Speaker 4:then, about credit unions and collaboration instead of merger. For instance, and a lot of my work here in the States are to create the tools and the resources to strengthen small credit union sustainability, because I do believe there are instances that there are communities in particular that are served better by smaller institutions that understand them well. However, the other side of that strategically sometimes coming together builds a larger, stronger institution that's able to provide adequate resources, access to technology, things of that nature that are also necessary. So I believe in the balance. I think that credit unions need to be familiar with where they are in their story and also knowledgeable about what's needed next for their membership base, and I think those two things become a driver of whether or not a strategic merger is the right direction. Sometimes it is when you've been able to determine that viability alone, standing alone, is not going to happen. Then it is better to come together to build something better.
Speaker 4:A merger should always have some level of strategic thought placed into it, and they work best when there are strong conversations about why are we doing this? What do we hope to accomplish? How do we make sure there are benefits to our members, because if that's not the case, we shouldn't be doing it. And how do we protect the things that matter to those who are part of this? Because, you know, credit unions, they are democratic institutions and when I say that you know, of course I'm not talking political party. It's the process of democracy, of that ownership being spread out across the smaller one, right and when it should be about. How do we go about this coming together, being collaborative, in a way that's strategically thought through so that everybody wins? That to me, excuse me, is what a merger should always be, no matter the size difference.
Speaker 1:Ronaldo, there must be some cases that have crossed your desk that look like they're just right for merger and not necessarily right for CUSOs.
Speaker 4:So I'll give an example. A credit union that is built for firefighters has to understand how they work, how they're paid, what that looks like. They often have a friend who's a firefighter, right, so he works like 10 days a month because they're 24-hour shifts. But a lot of firefighters are also entrepreneurs, so they use that career to give themselves access to additional time so they can build things that matter to them. A credit union that is serving firefighters understands that about their work. So even when they're lending to them, they're thinking about what's the ebbs and flows of how they get it done.
Speaker 4:So sometimes it's like a yes and no. People are people. There are elements of people in the UK and Ireland that are just like people in the United States, because people are people. But there can be some unique differences, based upon zip code, based upon vocation, that can give a different level of information to the leadership serving them, which is why to me, like when we're coming together to do a merger, that's why they need to be strategic in nature, and those are the conversations that are critical. A lot of times the conversations don't elevate in the ways in which they should around that, and when they do, then I believe they create the best win-win scenario for the two previous organizations, now the new combined organization and, ultimately, the members who are being served as a result of that institution.
Speaker 1:How do groups arrive at a decision that they want to start at CUSO? How do they make that decision? What sort of things galvanizes their thinking?
Speaker 4:We can accomplish something together that maybe we could not have done on our own, and it's not about a merger, but it's about combining resource to build something that addresses those things I mentioned. Can we reduce our operational overhead by combining resource to do something better together? Can we increase our efficiency by combining our resource to do something better, whether we're building new technology or we are disrupting markets that already exist with a better solution, here's where collaboration strengthens the whole system. There's still ways to work together to collectively move forward, and I'm excited. I believe, that we're going to see the acceleration of the CUSO model. It's already growing in our states. We have a very sophisticated process around it, but I see the opportunity for even greater strength emerging in that model for us, and I know that you all have some interest there as well.
Speaker 1:Ronaldo. Entering into merger discussions with another credit union inevitably is going to bring the emotional side to the fore. You're going to possibly lose some staff as a result of scale economies.
Speaker 4:Because you're trying to figure out, okay, what will we need? Who do we need? I mean, a lot of times it does create scenarios where people are out of work, you know, because the redundancies and the staffing are not necessary, and that's the hard part of doing this, you know, which is why some take advantage of these opportunities to develop QSOs instead of looking at that pathway, because there are people connected to this. We're ultimately responsible for managing our organizations in a way that protects our membership, because that's the interest that we put, and we elevate, above every other interest. But we don't deny the fact that there are people that are helping us to do that and we do want to do all that we can to take care of them.
Speaker 4:I have seen, as a result of mergers, that you know that's one of the casualties that exists is that some great people are going to be displaced in the process, and that's why I think that we have to have a balance to how we approach it. It can't all be like, yeah, we should just merge. Balance to how we approach it. It can't all be like, yeah, we should just merge. And sometimes you need to think about how do we keep organizations still thriving in the midst of what can be a challenging environment, because consumer expectations are moving at, I believe, the fastest pace ever, the fastest pace ever, and I don't think that it's going to slow down.
Speaker 1:So, ronaldo, to recap, what's driving all this is credit unions that have got great aspirations but just don't have the wherewithal to be able to achieve those additional services and facilities for their members on their own.
Speaker 4:Absolutely In-house. They didn't have the expertise or they may not have had the financials to truly build that in-house, but by spreading that across multiple credit unions through a QSO and now they gain access to an area of opportunity for their community, for their membership, that needs it. Those very traditional models work. So payment systems lending indirect was big for us. Mortgage lending business lending great opportunity there. Also, like I said, wealth management so giving our members access to the tools that they need to manage their investments, better Insurance these are things that already exist on the market. But credit unions were like okay, can we compete and can we provide either a better or lower price solution that our members truly need? Those traditional models will work and work and work and they'll never stop working because they're needed.
Speaker 1:Ronaldo, that's really helpful. Your details to our listeners who are listening here in Ireland and in the United Kingdom who may be interested in talking to some of the existing CUSOs in the United States.
Speaker 4:Absolutely.
Speaker 1:We'd love to connect you so that you can learn and grow from the credit unions here that are doing the work. Thanks very much, ronaldo. We'll be in touch and I hope to hear from you again soon. You're welcome, thank you. So Ronaldo's quite happy to share his information with you. Dead easy to find NACUSO N-A-C-U-S-O National Association of Credit Union Service Organizations Just Google NACUSO and up it comes. They've got a very helpful website, right down to including Ronaldo's own email address, and I asked him later on and he said he's very happy to connect anybody up that's interested in either a specific subject on CUSOs or indeed to talk to the credit unions themselves in the United States that are involved in CUSOs.
Speaker 1:Well, it wouldn't be a proper podcast on mergers and collaboration if I didn't mention the merger of Serve and Protect Credit Union, which is one of the largest credit unions in Britain, and the National Firesavers Credit Union, took place in October 2024. The National Firesavers has been a trusted financial ally for its members since its journey began in 1998 and, prior to the merger, serve and Protect Credit Union proudly reached a remarkable milestone in September of being one of the few British credit unions with 100 million pounds in total assets. I spoke to Paul Norgrave, the Chief Executive Officer of Serve and Protect Credit Union to try and get down to the basics on merger. But I particularly wanted to know what is the most difficult part of mergers.
Speaker 3:Oh well, start with the big one, chris. I think it's the stuff that you almost can't measure. That's complicated. I think there's enough guidance out there and we all know how to run credit unions in terms of Almost the process side of it. So if you just break it down into numbers and accounts and data and bringing that across and transferring it, that's the easy bit. Accounts and data and bringing that across and transferring it, that's the easy bit.
Speaker 3:The real complicated bit is the meeting of minds at the start and having the conversations around. You know, collaboration in essence to me is losing a little bit or giving a little bit of way to win as a collective. And once that happens and you realize them, the benefits are there for the members ultimately. You know we went backwards through the people, so we went. Does it benefit the members? Yes, what's the next steps? How do the boards align and what happens there? And then the sort of paid staff who run the credit union. But ultimately, ultimately, as a people-first driven approach, and once all that's broadly agreed, the actual execution of it is quite cold and mechanical. But I think you know the essence.
Speaker 3:The complicated bit is the nuances, the difficulties of doing it. There's enough guidance out there. You can pick up the phone and speak to someone and say how do you take data from one system and put it in another? Um, your auditors will help, uh, in different ways. But ultimately the most complicated bit is the meshing meshing of cultures, um. But again, I think, in terms of choosing merger partners, I think that's important to know why you're doing it. And strategic mergers for us have to fit within our CERN, protect family, our common bond, and they're done purposeful. It's not that we don't want to extend our services beyond that, but I think the very notion of a credit union is a common bond and its identity, and I think if you have some form of common identity, everything just flows from there. But yeah, the most complicated bit is the people, and not everybody wins and benefits, but if the majority of the members do, from both organisations, then it's the right thing to do in our eyes then it's the right thing to do in our eyes, Paul.
Speaker 1:it must be difficult for those credit unions that still have the actual founders of their credit union on the board of directors, moving into a really modern era of merger and collaboration.
Speaker 3:We are standing on the shoulders of giants in many ways. You know anyone who finds a credit union, and particularly a career in a credit union. You know they love it and they find something. But there was people at the start who it wasn't a career in a credit union. You know they love it and they find something. But there was people at the start who it wasn't a career, it was a passion, it was, you know, advocacy for a community, whatever that community might have been. Um, but the interesting thing and we still have a founder director of one of our credit unions on our board, so we're classed as now 21 years old, but our roots go back to the mid 80s and seven credit unions merged in 2003. But one of the original founding directors is still on our board and he coined a wonderful phrase when we started talking about mergers more recently in 2021, about the with them's, the.
Speaker 3:What's in it for me is an ultimate thing. The members, as you quite rightly pointed out what am I getting on my savings? How cheap are your loans? How do I do business? There's actually quite a unique position.
Speaker 3:I think that is a blessing and a curse in some ways about having founders around Cause, like I said, people find credit unions and they're passionate about them and they love them and they've been kind to me. You've got to be willing to almost give something away. You know, the seven credit unions that founded police credit union, as it was then all gave up their names, all gave up a little bit of something. We did end up with a board of 24, which is wild in these current days, but it was because Midwest Police Credit Union had additional permission, so they got six and the other six credit unions got three, you know, and we were fairly small by comparison to what we are today then, but I think it's that the real difficult thing is actually the volunteers who have and quite rightly so are the very foundation of our movement and they have a sense of belonging, and we all do, and when you've led an organization, it becomes part of you and it becomes something you're passionate about. But it's also knowing when it needs a little bit more or it needs a little bit different to to thrive, beyond where it can get to.
Speaker 3:Um, and we've been blessed to have people aligned through all our mergers.
Speaker 3:So, whether it be the founding merger with Durham Constabulary in 2021, where we had a founder involved in that.
Speaker 3:And then also, you know, the National Fire Saver merger more recently where you know their chair recognised that the ultimate potential peddling quicker and quicker to stand still where ultimately, you know, it's not a size matters debate, it's about scale and a collective sense of what it can be delivered to the members, and that mindset within founders and boards is so, so difficult.
Speaker 3:But once it's there and people are open to it, it becomes part of that entity's dna and that's part of the serve and protect DNA. Now our board and our team and hopefully our members, recognize that we've only got better for mergers and it's allowed us to be more diverse in our thinking and product delivery as well. So I think really always hinges on on the board and with them. But if they can take a step back and think if only we were in this position when we founded it, what did we think beyond there, I think we end up in the right place for the members, which is ultimately, as I said in the first, uh, first comments, the most important thing in a mutual is the member paul, what's your view on CUSOs credit union service organizations and how do they fit alongside mergers or even instead of mergers?
Speaker 3:oh, that's a good one, I think. I think they're different and I'll try and take them in two steps. So I think mergers are an immediate, very tangible way to scale one or two organizations into one, to hopefully build a more sustainable organization, and I think they are right. Where credit unions run into barriers of growth, where you know, if you take a credit union over the last 10 years, if it's not grown and you know the economic environment has been fairly stable until the last two, if it was unable to grow and become more sustainable during I don't want to say the glory years of, you know, the 2010s to 2020, before the world got flipped on its head, if you were struggling to be sustainable at that point, when most things were fairly stable, that's an indication that people should consider mergers. I think the impact of CUSOs or credit union service organisations could be huge.
Speaker 3:I think we have to break down the misconceptions I hear sometimes. Credit unions aren't allowed to own organizations or um. Our trade body uh, with my abq hat on is exactly that. It's um. You know it's a society owned by credit union. Kusos can operate in exactly the same model. There is question marks on on investment and ability for credit unions to actually cooperate and collaborate.
Speaker 3:But it is possible, and I think my knowledge of CUSOs before they've become the commercial powerhouse over in the states, for example, is they're often spun up to solve problems or common challenges, and I think you know I look at the maturity of our sector and it is still relatively young and underdeveloped. That's what we need to start with is CUSOs tackling common enemies or common challenges that we would all benefit from? So we're not reinventing it 10 times over, but I think that's a starting point and there are some fantastic people in our sector who are making inroads to what that might look like, which is really, really exciting, and hopefully we'll be part of that. But it's either to do new things that we can't do on our own or to tackle challenges that we all face and can't avoid, and I think that's how we'll get some traction in the kuso market.
Speaker 3:But to my knowledge, there are some uh, fledgling kusos in in discussions and and operating, but not ones that are sort of more broadly known, where you can go and either acquire services as a customer or have the opportunity to become a member owner, which, or have the opportunity to become a member owner, which ultimately skin in the game creates interest and it also means that there's care, and that is the root of all credit unions being successful. If you have individuals that care, they often thrive and they're often successful. So CUSOs are going to need credit unions with skin in the game so they care about what that CUSO delivers Rather than sort of standing there and potentially chipping away at what it could do better. They will make it do better if it needs to.
Speaker 1:Paul Norgrave. Thanks very much. Brilliant. Thank you for having me on, chris, and the final word goes to Nick Money Swoboda's there, all about informing credit unions on change and transformation. This sounds like one of the biggest changes and transformations that we've had for a while. Where do you see possibly going in the next five years regarding this very subject of mergers, collaboration and QSOs, where do you see it going?
Speaker 2:Well, I think we're going to see both. I mean, we're already seeing, and I think Ireland's ahead of Britain in both fronts at the moment. There's been an awful lot of consolidation in the Irish movement in the last dozen years, initially, in particular, driven by the regulator, but more recently driven by credit unions, determining some of the arguments you were making earlier, chris. Smaller credit unions feeling that they will get their members a better deal if they can join in with somebody else who's got a bit more capability and reduce risk to their members. So those mergers are just happening and some Swoboda members, like Dundalks, just recently had a merger with Carrot and Cross. So these are still live things that are happening.
Speaker 2:So they are starting to happen in Britain as well as in Ireland.
Speaker 2:But I think collaboration in Ireland they've got this fantastic initiative called Cultivate where there's very many credit unions offering a particular loan to farmers In Britain slightly different Collaboration is slightly different collaboration slightly different. I think Sound Pound in Greater Manchester is a really interesting initiative, more on the advocacy side at the moment but perhaps starting to get into service provision. I think the Brits are sort of starting to get moving and the Irish are already on, you know, getting ahead. So what we'll see in the next three years, I guess, is the success of some of those initiatives. And one of the things we'd really like to do in Svoboda is do some looking looking at some of those initiatives as case studies, perhaps working out what best practice is. And just to your earlier point about this emotional challenge for boards, that's one conversation. It's a live conversation we're having at the moment as to how we can get into helping credit unions understand how they have a relationship with CUSOs, where the right balance of power is how to manage the risk and opportunity.