Credit Unions Lack Growth Gene

April 18, 2018

A thoughtful response to CUES’ CU Management magazine’s March 2018 cover story.

By Mike Higgins

Businessman interacting with a holographic pie chart signifying market share and growthWhy don’t credit unions capture market share? It’s in their DNA not to. In the March 2018 issue of CU Management, the topic of credit union market share was addressed in the feature article titled “Same Size Slice.”

The author noted that while credit unions are growing, market share, as measured by asset size, has remained relatively unchanged. There is a reason credit unions are not capturing more market share —it’s in their genetic make-up not to. Let me explain.

Both banks and credit unions are regulated by a similar set of rules relative to capital. Capital must be maintained as a percent of assets. Where does capital come from? For credit unions, capital comes from the annual profit taken from members (i.e., return on assets or ROA).

How can credit unions capture more market share? They have to grow capital faster than banks. How do you grow capital faster than banks? You have to take more profit from your members than banks do from their customers. In other words, credit unions will have to make a higher ROA than banks in order to capture market share. Generally speaking, credit unions take only what is necessary from their members, which suppresses ROA, and inhibits their ability to capture market share, as measured by asset size.

Now, clearly, there are specific examples of credit unions taking market share from banks, but as an industry at large, significant market share gains won’t be made until the profits of credit unions exceed those of their banking counterparts by an equally significant amount; the current regulatory capital constraint won’t allow it to be any other way.

Mike Higgins is a partner in Mike Higgins & Associates Inc., Prairie Village, Kans.

Also read “Why Choose Our Credit Union?” “CFO Focus: Should You Be Serving Political Subdivisions?” and “CUs Will Feel the Decline of the Middle Class.

Learn more about setting a credit union's strategy at Execu/Blend, April 29-May 2, Santa Rosa, Calif.

Learn more about financial management of a credit union using the simulation that’s featured at CUES School of Applied Strategic Management, April 30-May 3 in Orlando, Fla.

Get big-picture options on credit union expansion when you attend Strategic Growth Institute, July 23-26 in Chicago.