Credit Unions What Would You Do Differently
If you had to treat your Credit Union as a “startup,” what would you do differently? The global COVID-19 pandemic has thrust all businesses into uncertain times. How credit unions respond will carry tremendous weight in how they rebound from the pandemic. A balance between keeping operations afloat and managing member fears will be critical.
As the number of cases subsides and the gears of business begin to turn again, credit unions will emerge to find a different world. Marketing and technology will be the keys to the success of credit unions as we move further away from the pandemic.
By 2018, there were 260 million global consumers who were a part of a credit union. By the third quarter of 2019, there was $1.54 trillion held in federally insured credit unions. While the banking industry is in a better place today than it was before the financial crisis of 2008, credit unions will still need to be flexible as they confront the COVID-19 crisis.
Handling the COVID-19 Epidemic
By April 16, 2020, there were more than 650,000 confirmed cases of COVID-19 in the United States. Before the crisis emerged, the banking industry was preparing for an unprecedented period of prosperity. While credit unions faced competition from non-traditional financial institutions, they were generally stronger than they have been at any point since the 2008 recession.
Lately, the finance industry has been completely disrupted by COVID-19. On a physical level, this disruption has involved changes like social distancing, installing hand sanitizers in branches, and offering online options. Unfortunately, it has also been disruptive for collecting mortgage and loan payments.
Today's upheaval is fundamentally different than the 2008 crisis. This pandemic arrived suddenly, and it has shut down entire economies in an instant. In the United States, more than 22 million workers lost their jobs in just three weeks. The tourism, travel, and restaurant industries have vanished overnight. As consumers and companies lose their income sources, missed payments and widespread bankruptcies will become more common.
Credit union executives must figure out how to prepare for this unusual, fast-changing situation. Across the country, the national government has worked to give fiscal support to banks and credit unions. Central banks have created liquidity lines to make the banking system more resilient. Smart credit unions and financial institutions can adjust to this situation by adopting the following tips.
1. Communicate with Your Members and Stakeholders
This is a scary time for your members and stakeholders. As a credit union manager, you are responsible for calming down your customers and providing clear leadership. During this time, it is important to encourage constant communication between your leadership team, credit union branches, and customers.
2. Focus on Your Buffers
Under the international minimum standards for Basel III, credit unions must have a capital-assets ratio of 6 percent. Capital and liquidity buffers allow you to manage strains on liquidity. When loan repayments are missed, having a higher capital-assets ratio will help you make up for missed revenue.
3. Consider Balance Sheet Challenges
Over the new few weeks and months, your liquidity buffers will face pressure. Because of the slowdown, many businesses may arrive at the same time to get financing and loans. To navigate this changing situation, monitor deposit fluctuations as your clients remove risk from their portfolios. Many clients will also try to increase their cash positions. You will also need to look at your credit risk and accounting departments to see how an increase in expected losses impacts your earnings.
4. Offer Loan Modifications
Consumers and businesses may struggle to repay their loans. If they miss one payment, they may stop making payments altogether as it becomes increasingly harder for them to catch up. Instead of allowing this to happen, credit unions can help clients navigate this temporary shock by marketing their loan modification options and allowing features like payment deferrals while staying compliant with forms and disclosures regulations.
Running a Credit Union After COVID-19
We are only at the beginning of the COVID-19 crisis, so it is difficult to imagine what the future will be like right now. At some point, we will emerge from this crisis, but the damage to both the national and world economies will ripple on for years. While it may be difficult to focus on the future right now, your credit union will come out ahead if it starts planning for a post-crisis world.
1. Reinforce Online Banking
Many of the changes society makes during this crisis will remain because customers will become accustomed to them. Online banking preferences and behavioral changes will most likely be resilient. Members who may have normally visited physical locations may now shift their habits online. Make sure your online banking services are robust and built to meet the needs of today’s consumers. Make online banking a priority, especially during your credit union’s COVID-19 strategies.
2. Make Smart Marketing Moves
Marketing and brand awareness will also become more important than ever. The way you market your company today will determine your long-term brand loyalty. The lure to move to online banking competitors will be stronger than ever. Develop and deploy a long-term marketing strategy to communicate how your credit union will be able to serve members online.
3. Invest in New Technologies
High-performing websites and mobile applications are now standard technologies in the banking world. Look to stay ahead of the new emerging technology that can keep your credit union ahead of the competition. Telemedicine services have suddenly become acceptable means to receive medical advice. Credit unions need to take notice and adapt themselves to leverage telebanking services and other technologies yet to reach the market.
4. Prepare for the Next Crisis
The COVID-19 epidemic isn’t the first crisis, nor will it be the last. As your credit union emerges on the other side of this catastrophe, take stock of what your organization did well and what it didn’t. Evaluate your crisis management plan and strengthen it so you, your associates, and your members will be able to weather the next disaster with a disaster recovery program.
As the crisis unfolds and eventually ends, credit unions will have to stay relevant to consumers and businesses if they want to prosper once again. A startup credit union or a well-established credit union continues to support the community economically one way or another. How the world will look after the pandemic is anyone’s guess. But, remaining diligent, fluid, and adaptable will help buoy your credit union during these most uncertain of times. #staysafe