By Becky Reed
In case you haven’t noticed, the credit union model is dying – lost in a quagmire of dizzying consumer options. Our message is getting lost as we fall further behind with digital adoption and modernizing our infrastructure. We continue to communicate our differentiators to the marketplace based on products or services rather than the fundamental uniqueness of being owned by the very people we serve. Our collaborative superpower is being diluted by mega-mergers where we look to everyone else just like another bank.
Yet – there seems to be a never-ending supply of people, companies, communities, industries, and even whole countries that are unable to access fair and equitable financial services. Isn’t serving the needs of the “little guy” why we exist? Are we succeeding?
Credit Unions were created because people, specifically farmers, were being left out of the traditional financial system. Through early grassroots efforts in Europe and Canada, people banded together to create their own democratically controlled (decentralized) financial cooperatives.
The New Grassroots
The first credit union in the United States was officially chartered in 1909 with the creation of what we now know as St. Mary’s Bank. Edward Filene took up the cause, which eventually led to the passage of the Federal Credit Union Act in 1934.
This global movement is rooted in the inability for people to have fair and equal access to financial services, particularly credit. Today, credit unions play a crucial role in providing financial services to individuals and communities that are underserved by traditional banks. Our industry prides itself on this concept.
But, were you aware that there is a new grassroots movement afoot? It’s one that appeals to the digitally native generations that are fed up with traditional financial systems. It’s called the DeFi Movement and it will disrupt everything we do.
Understand This First
Before we can talk about the Decentralized Finance (DeFi) Movement, you must understand Bitcoin. Born out of the Great Recession, Bitcoin was created to address issues with the traditional centralized financial systems that caused it. Bitcoin is driven by the disenchantment with the existing model which can lead to single points of failure, censorship and control over the flow of money - all of which leave people out of the equation.
Bitcoin, which utilizes Blockchain technology, represents a stored value in the form of digital currency that requires no financial intermediary in order to use. Bitcoin cut out the middleman. No financial institution is required to use or transfer Bitcoin. This laid the groundwork for the broader cryptocurrency ecosystem that emerged after its creation in 2008.
The DeFi movement aims to create a more inclusive, transparent, and accessible financial system that operates without traditional intermediaries.
A Close Alignment
Having been born into a completely digital environment, DeFi looks to recreate and innovate all financial services including lending, trading, asset management and investing in a digitally native way. All digital cryptocurrencies will eventually replace traditional payment systems.
Interestingly, the ethos of the DeFi movement and the credit union movement are closely aligned. Both movements began as grassroots efforts that endeavored to provide the “little guy” with more control and access of their own money. While the credit union story is losing traction, the decentralized finance story is gaining momentum with huge global communities dedicated to its vision. In fact, credit unions could be considered “Analog DeFi.”
Ignore at Your Peril
Credit unions: Ignore this movement at your own peril! Our message resonates with this burgeoning, young and restless community who know almost nothing about our movement. Now is the time to shout our story from the mountaintops!
Traditional financial systems are ripe for disruption. Credit unions, as an industry, have fallen behind in technology adoption, innovation and messaging. A financial renaissance is brewing and credit unions can be the torchbearer that carries the DeFi spark.
The alignment between the De-Fi movement and the credit union movement cannot be ignored. Cooperative frameworks, democratic governance, fair and equal access, financial empowerment, self-reliance, and self-responsibility are all aspects of both movements.
Embrace the Opportunity
The credit union movement is well-established and regulated, while the DeFi movement is relatively new and operates in a more decentralized and experimental space. The evolution of the DeFi movement needs the regulated consumer friendly and trusted credit union space in order to grow and thrive. It cannot live in an unregulated and experimental space forever.
This is why credit unions should embrace the opportunity to innovate and collaborate with this movement now.
Becky Reed is the former CEO of Lone Star Credit Union, founder of BRaaS Consulting, cofounder of PureIT CUSO, current NACUSO board chair and COO of the fintech BankSocial. Ms. Reed is also author of the book “Credit Unions and DeFi: A Financial Renaissance.” The book is available here.