WASHINGTON–Why were credit unions organized around a common bond in the first place, and does it even matter now?
Those questions were tackled by Chip Filson, co-founder of Callahan & Associates, during remarks to the Underground Collision conference here, with Filson saying one of the answers can be found in a fintech.
First, Filson explained credit unions were organized with a common bond because they began with very little financial capital but considerable sweat equity. Common bonds also acted as something of an early credit bureau.
Credit unions grew rapidly in the U.S. until there were 24,000 in the 1970s. And then the whole system was “disrupted.”
To illustrate that disruption, Filson pointed to a New York Times’ front page reprinted to highlight the anniversary of the U.S. men’s hockey team, which in 1980 overcame incredible odds to win a gold medal. Also on that front page was other news, including that the consumer price index was up 1.4% for the month and the prime rate was 16.5%.
‘Just the Beginning’
“And that was just the beginning,” said Filson, who was up close and personal with the issues facing CUs at the time, as he was president of NCUA’s Central Liquidity Facility and director of the Office of Programs, which included the NCUSIF and the examination process at the time.
“The assumption around which field of membership was built, in particular the employer base, was disrupted. Factories closed. Employers could no longer be counted upon,” he said. “Ultimately, the deregulation era meant the legal franchises that protected credit unions were done away with.”
Does common bond mean anything today?
Filson said it does, although in a different way, and to illustrate his point he cited a fintech organized in 2013 that makes student loans and that calls itself, appropriately enough, Common Bond.
“What they have tried to do in their words and philosophy and advertising is identify with the marketplace they are trying to serve, which is students. They talk about their global perspective and how they differ from others by acting in their members’ best interest. Here is a company that has built its whole name and business around common bond,” said Filson.
Why One Fintech Failed
To further bolster his point, he pointed to the failure of another fintech, Brandless, which sought to remove the brand “tax” that is part of all of all primary products.
“They offered value goods at a low, fixed price of $3. The packaging was plain,” he said. “But the company failed after 2.5 years. It appealed to people just seeking the best value. But the reason the concept didn’t work is consumers didn’t know what to think about it. They didn’t know what brandless meant. They are comfortable choosing something in which they might pay a little bit more but they understand what the brand is about.”
A Credit Union Example
As a second example, Filson pointed to Ironworkers USA Credit Union in Oregon, which has turned its fortunes around. Once a struggling, small Code 4 credit union, today it has $40 million in assets after growing 16% last year, with share growth up 25%. Capital is at 10%.
“They have built upon the brand of ironworkers. They have not only embraced the common bond, it has been an engine to financial success,” he said. “You can think about this in ways of how you establish your identity and value proposition. The freedom you have today is to align that with your business model. Whether it’s a branding approach or marketing focus, the most important thing is it is an expression of how you are trying to talk about your value to your members. I believe it’s still an important part of your ability to communicate the difference between you and another institution.”