How Do Top Performers’ Strategic Choices Differ?

By examining how top-performing credit unions’ strategic choices differ from other credit unions, much be can learned about strategies that lead to growth. Before examining these differences, let’s review how top performing credit unions were defined. For purposes of this research, top performers had to:

• Have a positive change in their Return on Assets between 2018 and 2020 OR
• Be in the top third of credit unions in terms of 2020 Return on Assets OR
• Be in the top third of credit unions in terms of 2020 Membership Growth OR
• Be in the top third of credit unions in terms of 2020 Loan Growth

Now let’s see how top performers “Playing to Win” choices differ.

Geographical Expansion / Mergers

Top performers tended to be much more active in expanding their addressable market, or pool of potential members, during the pre-pandemic period. One of the ways they did this was by expanding into new geographies through a charter change or merger. As shown in Figure 14, top performers in terms of ROA, membership growth and loan growth were significantly more likely to have expanded into new counties or states during the pre-pandemic period. By contrast, the share of credit unions planning to expand into new geographies by 2020 did not vary significantly between top performers and other credit unions.

Top performers were also more likely to have merged in the pre-pandemic period. More specifically, top performers whose ROA improved between 2018 and 2020, or whose membership growth and loan growth in 2020 fell within the top one-third of all credit unions were significantly more likely to have merged. (see Figure 15)

Merger plans for 2022 were more mixed. Top performers in terms of membership growth and loan growth were significantly more likely to have plans merge by 2022. However, top performers in terms of 2020 ROA performance were significantly less likely to have plans to merge by 2022 compared to credit unions whose 2020 ROA fell in the lowest one-third of all credit unions.

Distribution Channels

Top performers also anticipated major shifts in distribution channels prior to the pandemic (see Figure 16). For example, top performers in terms of 2020 loan growth were significantly more likely to report Mobile Apps and Fintech Lending Platforms as one of their Top 3 distribution channels in the pre-pandemic period. Dealerships / indirect lending and fintech lending platforms were significantly more likely to be mentioned as Top 3 distribution channels by top performers as defined by their 2020 ROA performance. Top performers in terms of 2020 membership growth were also significantly more likely to say fintech lending platforms were one of their Top 3 distribution platforms.

Top performing credit unions, regardless of which of the four performance criteria was used to define them, were significantly less likely to say online via a computer (online banking) was a Top 3 distribution channel prior to the pandemic. These credit unions appear to have recognized that members are increasingly conducting their financial business outside their credit unions’ branches and online banking platform. Top performers were more likely to ensure their products and services could be accessed through these alternative distribution channels.

In terms of future expectations, top performers were more likely to say they expect branches and call centers to be one of their Top 3 distribution channels in 2022 (see Figure 17). More specifically, top performers in terms of 2020 membership growth were significantly more likely to expect branches to be a Top 3 distribution channel in 2022. Top performers whose ROA improved between 2018 and 2020 were significantly more likely to expect call centers to be a Top 3 distribution channel in 2022. These results are particularly interesting considering the well-documented shift towards digital channels during the pandemic.

As in the pre-pandemic period, top performers were generally less likely to expect online via a computer (online banking) to be a Top 3 distribution channel in 2022. Also, top performers, specifically in terms of 2020 ROA, were more likely to expect fintech lending platforms to be a Top 3 distribution channel next year. This latter result is not shown in the table above since this analysis combined the lower and middle third of credit unions in terms of 2020 ROA performance.

Revenue Drivers

Top performers whose ROA improved between 2018 and 2020 were significantly more likely to indicate that refi mortgage loans and debit card interchange income were Top 3 revenue drivers in the pre-pandemic period (See Figure 18). Top performers in terms of 2020 ROA performance were also more likely to consider debit card interchange income a Top 3 revenue driver over this same timeframe. Used vehicle loans were more likely to be considered a Top 3 revenue driver by top performers in terms of their 2020 membership growth.

Top performers as defined by their 2020 ROA performance or 2020 membership growth were less likely to identify investment income as a Top 3 revenue driver during the pre-pandemic period. Top performers in terms of their 2020 ROA performance were also less likely to say unsecured personal loans were a Top 3 revenue driver. Finally, home equity / HELOCs were less likely to be considered a Top 3 revenue driver by top performers that achieved a positive improvement in ROA between 2018 and 2020.

In 2022, top performers whose ROA improved between 2018 and 2020 were significantly more likely to expect debit card interchange income and unsecured personal loans to be Top 3 revenue drivers (see Figure 19). Top performers in terms of 2020 ROA performance were also more likely to expect debit card interchange income to be a Top 3 revenue driver in 2022. Used vehicle loans were more likely to be considered a Top 3 revenue driver in 2022 by top performers as defined by their 2020 membership growth.

Top performers as defined by having a positive improvement in ROA between 2018 and 2020, by their 2020 ROA performance or by their 2020 membership growth were less likely to expect home equity loans / HELOCs to be a Top 3 revenue driver in 2022. Top performers in terms of their 2020 ROA performance or 2020 membership growth were also less likely to say investment income would be a Top 3 revenue driver in 2022.

Sources Of Competitive Advantage

Top performers tend to rely on sources of competitive advantage that are harder for competitors to copy. For example, top performers that experienced a positive improvement in ROA between 2018 and 2020 were significantly more likely to say organizational culture, strong community presence and financial guidance to help members achieve their goals as one of their Top 3 sources of competitive advantage (see Figure 20). These same credit unions were much less likely to choose member service and low fees as one of their Top 3 sources of competitive advantage. This result runs contrary to the full sample results — you will recall that member service was cited by the highest percentage of respondents as a Top 3 source of competitive advantage.

Top performers in terms of their 2020 ROA performance were significantly more likely to say being easy to do business with and relationships with auto dealers, real estate agents, etc. were Top 3 sources of competitive advantage. These same credit unions were much less likely to indicate low fees and good relationships with SEG groups were one of their Top 3 sources of competitive advantage.

Relationships with auto dealers, real estate agents, etc. and the size of their branch network were significantly more likely to be mentioned as a Top 3 source of competitive advantage by top performers as defined by their 2020 membership growth. These same credit unions were significantly less likely to say the ability to serve members in the channel of their choice was one of their Top 3 sources of competitive advantage.

Finally, top performers in terms of the 2020 loan growth were significantly more likely to say relationships with auto dealers, real estate agents, etc. and innovative solutions to meet members’ financial needs were Top 3 sources of competitive advantage.

Digital Capabilities

Top performing credit unions tend to adopt digital capabilities earlier than other credit unions. Prior to the pandemic, for example, top performers that experienced a positive improvement in ROA between 2018 and 2020 were significantly more likely to have adopted digital personal loans, digital auto loans and digital mortgage loans (see Figure 21). Digital mortgage loans, advanced data and analytics and APIs were more likely to have been adopted by top performers as defined by their 2020 ROA performance. Top performing credit unions as defined by their 2020 membership growth were more likely to have adopted digital mortgage loans and robotic process automation (RPA). Finally, APIs were more likely to have been adopted by top performers defined by their 2020 loan growth. By adopting some of these digital capabilities earlier than other credit unions, top performing credit unions strengthened their ability to handle the abrupt shift to digital channels brought on by the pandemic.

In terms of future adoption of digital technologies, top performing credit unions that experienced a positive improvement in ROA between 2018 and 2020 were significantly more likely to say they will acquire an end-to-end digital new account opening capability by 2022 (see Figure 22). Top performers as defined by their 2020 membership growth were also significantly more likely to say they will add a digital personal loan capability next year.

By contrast, top performers in terms of their 2020 ROA performance were less likely to say they plan to adopt advanced data and analytics and APIs in 2022. Given that adoption rates for these capabilities are already high, it’s no surprise that these top performing credit unions will be less likely to acquire these capabilities next year.

Non-Digital Capabilities

Top performers in terms of their 2020 ROA performance or their 2020 membership growth were more likely to consider partnering capabilities a Top 3 non-digital capability prior to the pandemic (see Figure 23). Top performers as defined by their 2020 loan growth more likely to say their strategic planning process was a Top 3 non-digital capability, but less likely to consider investment management a Top 3 capability, in the pre-pandemic period.

Top performers in terms of their 2020 loan growth were also significantly more likely to expect their strategic planning process and new product development to be Top 3 digital capabilities in 2022 (see Figure 24).

Top performers that were defined by having a positive improvement in ROA between 2018 and 2020 or by their 2020 loan growth were significantly less likely to expect user (member) experience design and in-branch sales skills to be a Top 3 non-digital capability next year. Top performers in terms of their 2020 loan growth were also significantly less likely to expect in-branch sales skills to be a Top 3 non-digital capability next year.

Agreement With Various Statements Regarding Strategy & Culture

CUNA Mutual’s research also asked credit union executives to rate their level of agreement with various statements related to their strategy and culture (see Figure 25). Top performers in terms of their 2020 ROA performance were significantly more likely to agree with “Leadership always says ‘no’ to opportunities that don’t clearly support our strategy”.

Additionally, top performers in terms of their 2020 membership growth were more likely to agree with:

• “Our leadership team fosters a positive culture that helps differentiate us in the marketplace”
• “My credit union has a well-established digital transformation roadmap”
• “Leadership always says ‘no’ to opportunities that don’t clearly support our strategy”

Top performers in terms of their 2020 loan growth were significantly more likely to agree with:

• “I believe our strategy will ensure my credit union will grow and thrive after the pandemic”
• “Our leadership team fosters a positive culture that helps differentiate us in the marketplace”
• “Leaders and employees at my credit union are aligned on our strategy and how it will be executed”
• “My credit union has a rigorous strategic planning process”
• “My credit union has a well-established digital transformation roadmap”
• “Leadership always says ‘no’ to opportunities that don’t clearly support our strategy”

Top performers, defined as having a positive improvement in ROA between 2018 and 2020 or by their 2020 ROA performance or by their 2020 loan growth, were less likely to agree that “my credit union has missed opportunities because we have been too conservative / risk averse”.

As seen earlier, top performers’ “Playing to Win” choices differ in important ways from other credit unions. However, making the right choices may not be enough. Their level of agreement with the above statements suggests that strategic alignment, discipline and organizational culture (core values, norms [e.g., how employees act / behave when no one is looking], accountability systems, talent management, etc.) are also very important for success.