The credit union industry has been seen as a network of financial institutions (FIs) behaving like “mom and pop” shops. But, some credit unions (CUs) say, what’s wrong with that?
While banks and rival FinTech companies are often able to more quickly adopt and release new technological solutions to their customers, one of the areas in which credit unions have managed to be highly competitive with their financial rivals is customer service. Many credit unions operate as member-owned organizations with a not-for-profit business model and are thus able to offer more personalized services than traditional banks.
For this reason, some CUs have chosen to embrace the industry’s “mom and pop” image as a badge of honor instead of trying to change it. One such credit union is the Knoxville Teachers Federal Credit Union (KTFCU) of Knoxville, Tennessee, which exclusively serves members working in local education.
To gain insight into KTFCU’s strategy for addressing the needs of a small member base, PYMNTS recently spoke with David Underwood, treasurer and manager of KTFCU, who explained how the credit union balances innovation and maintaining an old-school reputation.
‘A Small Pond to Fish in’
KTFCU currently holds approximately $205 million in assets and caters to more than 7,200 members employed at more than 100 school facilities in Knoxville County, and a few others nearby. In addition to teachers, the CU also accepts various other education system members, including school administrators, nurses, custodial staff, food service workers, bus drivers and other education professionals.
Underwood said KTFCU’s charter limits it from accepting members who are employed outside the local education system unless they are married or related to qualifying members. As he explained, having such a small base of members to serve has both positives and negatives for the CU.
On the positive side, having such a small group of members makes it easier for KTFCU to build member loyalty and offer more personalized services, according to Underwood. And, he added, this is where the credit union industry’s reputation for customer service shines.
“We know people when they walk in or even recognize a lot of our members by voice when they call in,” said Underwood. “We have a good, loyal relationship with them.”
Based on recent research, KTFCU might be right to focus its services on a smaller member pool. A survey from CFI Group released last year found 2016 member satisfaction with credit unions had dropped from 87 to 84 points on a 100-point scale, a four-year low for the market. The survey indicated credit unions, which had been forced to merge or consolidate with other CUs, faced challenges in the services they could offer members. Following the survey’s results, CFI Group urged CUs to invest in solutions to better measure member satisfaction.
While being able to offer customers personalized member services and quickly address their needs is part of the “mom and pop” reputation that Underwood said he wants to maintain, he also acknowledged there is a downside. Because KTFCU is focused on serving Tennessee’s education system, there are few opportunities to grow its membership.
“We can’t put some guy in a chicken suit on the sidewalk and wave cars in with a [sign] or something,” he said. He added KTFCU doesn’t invest in advertising because of the limited member base it can serve. “We have a small pond to fish in, and we only fish in that pond.”
Additionally, the competition in the local market is tight. KTFCU not only competes with local banks and FinTech services, but also with other credit unions offering their own services to potential members both in and out of the education field.
“They fish in their ponds and ours, too,” Underwood said.
With a limited number of members and plenty of competitors, Underwood said KTFCU’s survival strategy has been to develop long-term relationships with its members.
An Education Investment
While the simplest solution to addressing KTFCU’s limits would be to amend the charter to allow it to serve a broader membership base, Underwood said KTFCU has never seriously considered the idea.
“We’re a teacher credit union,” he said. “That’s what we are, that’s what we’ve been and that’s what we’re going to be.”
This means KTFCU has occasionally been forced to turn an interested customer away because of the definitions outlined in the credit union’s charter. For those who do not work in the field of education, Underwood has one simple piece of advice that would allow KTFCU to serve them.
“Marry a teacher,” he joked.
With an amendment to its charter off the table, Underwood said KTFCU focuses heavily on building long-term relationships with its members to stay competitive within educational parameters. To build these relationships, KTFCU attends school orientations for new teachers to encourage them — and other staff — to consider the benefits of a credit union over a bank.
Because KTFCU’s membership is education-specific, it takes a selective approach when deciding which financial innovations to adopt, Underwood said. For example, KTFCU recently added remote signature capabilities from eSignature solutions provider IMM for its members.
Underwood noted that because many teachers start their work day at 7:15 a.m. and can work late because of after-school activities or parent-teacher conferences, finding time to visit a branch during business hours can be difficult. By offering remote signature capabilities, KTFCU members can sign loan applications electronically on a computer or from their smartphones without having to visit a nearby physical KTFCU branch. Since the feature’s rollout in July, KTFCU claims it has closed 25 percent of its loans remotely.
While new solutions, like remote signature capabilities, offer education professionals an option to sign loans without darting out of school, Underwood also noted that KTFCU will only move forward with innovations requested by its members.
“I don’t know of anything that we don’t offer at this point that our members are asking for,” he said.
Maintaining the ‘Mom and Pop’ Legacy
Underwood explained the appeal of CUs is the sense of familiarity. Credit unions were originally launched to provide customers with a member-focused alternative to for-profit commercial banks. For this reason, Underwood believes credit unions’ reputation as “mom and pop” institutions is a strength and sees it as a key component of KTFCU’s appeal among educators.
“We want to be a ‘mom and pop’ that operates on another level — [a level] that is as good or better than anywhere else and we know you [personally],” he said.
With no plans to amend its charter and a selective approach to adopting financial innovations, Underwood said one of the best opportunities for KTFCU and other credit unions to better serve their members would have to come from the relaxing of federal regulations impacting the overall CU market.
Underwood believes many credit unions have been forced to shutter or merge with others over the years because of heavy federal regulation. In the mid-1980s, when he first joined KTFCU, there were an estimated 12,000 credit unions in operation nationwide. Since then, that number has decreased considerably. The latest figures available from the Credit Union National Association (CUNA) indicate the current U.S. credit union level is just over 5,700.
Underwood offered an example of a regulation imposing a burden on CUs: KTFCU was recently forced to jump through several hoops to remain compliant with the Military Lending Act (MLA), which was originally designed to prevent military members from falling prey to predatory lending practices. While he said KTFCU currently serves approximately two dozen active military members who are education workers (and their families) — and offers them the same APR as it does for other members — the law required KTFCU to redesign its promissory notes and invest in several legal and financial resources to ensure the CU was fully MLA-compliant.
“My hope for the credit union movement is to have regulatory relief and common sense deregulation to allow us to serve our original purpose,” he said.
In addition to serving their original purpose, the CUs might find the “mom and pop” image isn’t such an outdated or uncool concept after all.
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