Despite the challenging business environment, Prof. Anne Marie Ward and Nadine O’Kane have identified several competitive advantages that credit unions in Northern Ireland could and should promote as they seek to bolster the sustainability of their business models.
There are 146 credit unions (CUs) in Northern Ireland, with 592,171 adult member accounts and 104,906 juvenile deposit accounts, according to the Bank of England’s Q2 2019 Credit Union Quarterly Statistics. In some communities, CUs are large, are open six days a week, and provide a range of sophisticated products and services. In others, CUs are small and offer simple products and services to a small number of members, sometimes opening for only a few hours each week. Irrespective of their size or sophistication, CUs have become increasingly important over the past decade, which has seen the flight of bank branches from small towns, for nurturing sustainable, healthy societies. Financial exclusion is a continuing problem and CUs are a solution.
In January 2020, Grant Thornton Northern Ireland and Ulster University hosted a workshop in Grant Thornton’s Belfast office to facilitate the exchange of knowledge between various stakeholders in the CU sector in Northern Ireland. The day focused on the themes of sustainability, corporate governance, diversity and regulation. The first of these themes, the sustainability of the credit union movement, is the focus of this article.
The workshop included short presentations by experts, round-table discussions, and question and answer sessions. The experts were: Patrick Darcy and Sinead O’Neill, Grant Thornton; Gordon Smyth, Ulster Federation of Credit Unions; Matthew Howse and Damien McElholm, Eversheds; Martin Fisher and Marianne Cushley, Irish League of Credit Unions (ILCU); and Nadine O’Kane and Prof. Anne Marie Ward, Ulster University.
Marianne Cushley from the ILCU’s Communications Department (Northern Ireland) began the workshop with a presentation on sustainability. Marianne works with individual CUs to develop marketing strategies and campaigns to help with their sustainability and growth. She explained how CUs are concerned about ageing memberships, a highly competitive lending market, reduced loan demand, high savings levels but with restricted investment opportunities, increased regulation and compliance, lack of electronic services, low returns on investments, and difficulties in attracting volunteers. In concluding her presentation, Marianne asked attendees to focus on challenges in three areas: accessibility, relevance, and competition. It was clear from the discussions that the challenges were not homogeneous across CUs.
Accessibility challenges
Loan application processes and policies
A major concern of attendees was that their loan application processes and policies needed to be quicker to meet the demands of today’s networked society. While representatives from the larger CUs explained that they have automated lending software systems enabling same-day and next-day lending, several of the smaller CUs do not. Their loan application processes need to be streamlined and made available and easily accessible online.
Another stumbling block noted by some CU representatives was the prerequisite 13-week saving period that some smaller CUs still enforce before allowing a new member to borrow. It was generally agreed that loans should be provided based on ability to repay, and not savings records.
Finally, some CUs noted that staff were reluctant to authorise loans. Therefore, loan requests had to go to the credit committee, which increased the time between a member making a loan inquiry and receiving the funds. It was advised that loan officers be appointed, trained, and delegated powers to lend money up to a certain threshold. This would allow the credit committee to focus on larger loans and problem accounts.
Opening hours and location
Most participants in the workshop concurred that the location of CU premises can be a challenge; the ideal scenario is where the CU is located within its community and where footfall is plentiful. In addition, free on-site car parking would improve access and be popular with members. Finally, all agreed that accessibility is improved with flexible opening hours, including Saturdays and evenings, though this may not be possible due to resource implications.
Digitalisation
It was generally felt that online services are important to each CU’s future sustainability, though cost is an issue. The larger CUs have sophisticated IT support systems and are more concerned with keeping up-to-date with the latest digital technology and applications. The smaller CUs, on the other hand, are concerned about their inability to provide even basic digital services. It was advised that CUs should work with their trade associations, IT providers, or with a neighbouring CU to obtain cost-effective solutions.
Several representatives from larger CUs flagged big data and data analytics as a challenge. In particular, they focused on how to use member information and publicly available data to drive strategy, operational activity, and marketing.
Readers should note that this workshop took place a few months before the onset of the COVID-19 pandemic, which accentuated the importance of online services and systems to cater for members’ needs when physical access is not possible. Most CUs provided phone support when premises closed due to pandemic restrictions.
Relevance challenges
Attracting new members
As well as increasing accessibility, it was agreed that engaging with online services and providing new services, such as debit cards, will increase the relevance of CUs. However, participants also felt that emphasising the unique characteristics of CUs was the best means of attracting new members. In that context, CUs:
- Specialise in non-business customers, although some are beginning to explore business lending to corporate members;
- Have a presence in many towns;
- Are community-based and provide social benefits for their communities; and
- Focus on member wellbeing.
The promotion of these attributes will differentiate CUs from other financial services providers.
Engaging with current members
In general, participants agreed that a formally structured survey of members every two or three years would enable the board of the CU to prioritise the development of certain products or services, knowing they are responding to members’ needs. Several CUs had undertaken surveys and argued that it demonstrates a willingness to engage with members, provides evidence for the regulators that the board is responding to members’ needs, and can also inform the business plan. However, it was noted that a survey should only ask about services that the CU can realistically deliver and that it is important to report to members on survey findings as it shows that the CU is listening.
Competitive challenges
CUs operate in a fiercely competitive lending market where they must compete with high street banks, challenger and online banks, doorstep lenders, and alternative lenders such as supermarkets, as well as each other. Two competitive challenges were discussed at the workshop: reaching non-members with their message, and differentiation from other lenders.
Reaching non-members
Participants shared their experience of the challenges in communicating the CU message to potential members and the comparative competitive advantage of other lenders with large marketing budgets. Suggestions for extending the reach to non-members included widening the ‘common bond’ (i.e. the range of people eligible for membership) and building on current relationships with primary schools to attract younger members. CUs should also engage with local groups and organisations, communicating the benefits of CUs and what they can do for people. In doing so, they could use several promotional activities and channels. Options include direct marketing, targeted outdoor advertising, social media and digital marketing, visits to local secondary schools and colleges, running personal financial management classes, raising funds for community events, and sponsorship of local initiatives, which would meet social objectives while gaining publicity.
Differentiation
It was noted that competitors can provide a wider range of products and services. Updating the specific legislation governing CUs would allow them to better compete in the marketplace. Examples of new services suggested to attract members and potential members include:
- An overdraft with a revolving credit facility; and
- Increasing loan interest rates to 3% per annum so that CUs can provide differentiated higher-risk, higher-return loans to people with poor credit ratings – for example, students with mobile phone debt (though this suggestion was controversial).
Conclusion
CUs face many challenges. It was generally agreed that trade associations and the wider CU family should focus more on CUs’ comparative advantages over other financial institutions and not try to label themselves as banks. They should focus on and communicate their unique attributes and offerings. CUs in Northern Ireland currently enjoy strong member loyalty and are seen as trustworthy. They have a skilled workforce and, due to high levels of savings, have readily available funds for lending. CUs focus on the welfare and sustainability of their members and respective communities. For example, capital retentions are used to improve a CU and ensure that it has strong capital and solvency ratios; office supplies and maintenance technicians are sourced locally; and excess surpluses are returned to members. This is a competitive advantage that should be exploited when promoting CU products and services.
Prof. Anne Marie Ward is Professor of Accounting at Ulster University, and Nadine O’Kane is a PhD Researcher at the Department of Accountancy, Finance and Economics at Ulster University.
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