By Ray Birch
MADISON, Wis.—When the coronavirus pandemic is eventually brought under control will one of its lasting effects be a Bank Transfer Day II, as well as a reduction in the number of branches moving forward?
One research expert believes both scenarios could be likely.
In the case of membership growth, it’s likely to be spurred by the stronger reputation credit reputation credit unions have built for themselves during the health crisis, when CUs have placed the needs of their members above the bottom line, ccording to George Hofheimer of the Filene Research Institute.
As an example, Hofheimer pointed to Bank Transfer Day, which took place in 2011 after the owner of an art gallery in Los Angeles, Kristen Christian took to Facebook to vent about proposed $5 a month debit card fee by Bank of America and urge people to move to a credit union.
That post, along with the economic recovery, helped to drive millions of Americans to join credit unions, a growth trend that has cooled since the beginning of the pandemic.
But the pandemic itself could now become a trigger for an additional shift to cooperatives, according to the message shared during a Filene Research Institute webinar on the impact of the coronavirus on credit unions.
Hofheimer, chief knowledge officer at Filene, pointed to the organization’s research indicating financial institutions are headed into a prolonged period of low rates. He said that environment will further reduce already tight net interest margins and challenge the abilities of all banks and credit unions to serve the bottom line and their account holders.
The Long Run
But where credit unions have a big advantage in that scenario, according Hofheimer, is in not being beholden to shareholders to make a certain profit, as as banks must. He contends many banks will make the decision to add fees or adjust service pricing to favor the institution over their customers, as happened during the Great Recession.
“We think in the long run that credit unions have advantages over other banks, even community banks,” said Hofheimer. “They won’t be forced to make decisions consumers will not be happy about, and we could eventually see another Bank Transfer Day.”
There is a risk in such a big migration. As CUToday.info has extensively reported, many of the consumers who made the move to credit unions during and immediately following the Great Recession have not been contributors to the co-op.
Four Key Effects
During the webinar, the second in a series of three virtual events in which Filene is addressing the effects of COVID-19 on the economy and CUs, Hofheimer detailed four key needs on which the pandemic has put a premium for credit unions:
- The need to support members, including small business members, today
- The need to rediscover financial wellbeing
- The need to elevate service delivery
- The need to prepare the credit union business model for an extended low-rate environment
“The need to support members today is obvious—the loan forbearances, waiving of fees…The short term needs of members are still there,” said Hofheimer.
George Hofheimer
Hofheimer noted vulnerable communities, such as ethnic minorities and those members with high debt, and those who are young, may need continued, extended short-term support. He applauded the work of credit unions to establish a “central information hub” where members can go for information on the pandemic and how the credit union can assist them, but added credit unions should find additional ways to assist, other than telling members to just give them a call.
“Just try to eliminate some of the steps for consumers here,” he said.
Getting Creative
Hofheimer noted some credit unions are using ACH data to determine if a member still has money coming in, identifying those who are in financial trouble, and then reaching out to them.
“That is just one example of some creative ways credit unions are being proactive and helping members during this crisis,” he said.
Credit unions don’t have a monopoly on assisting consumers. Hofheimer pointed to a community bank in Oklahoma that has used its overdraft program to get money into consumers hands quickly, extending its OD limit to $900.
The Changing Environment
Meanwhile, Hofheimer said Filene data separately show how the quick transition to a largely remote workforce is affecting the longer-term thinking of credit union executives.
Hofheimer said many CEOs have admitted to being surprised and impressed with how their CUs have shifted quickly to working from home. Filene has found many CU leaders said they had been considering putting a greater emphasis on digital delivery and even a remote workforce, but most had not yet pulled the trigger.
“It is amazing what organizations can do when faced with a crisis,” said Hofheimer. “The move to online was accelerated from the pandemic. But, we learned, too, from credit unions that the crash-course laid bare some weaknesses in those digital plans.”
Those weaknesses, however, have been offset by greater usage of digital delivery and having staff work offsite have helped reduce costs during a time of a low-rate environment and shrinking net interest margins. Hofheimer said credit unions will have to find ways to continue to pull expenses out of their operations.
“With a larger remote workforce, what is the ongoing need for all of the offices?” said Hofheimer. “Reducing the branch footprint is one way to pull out costs.”
Investment Needed
Many CUs will, however, have to invest more in improving their digital delivery.
“It may require a higher expense now, but the payback over the years related to the decision will be great,” he said.