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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Journalist Frank Diekmann on the Credit Union Future
No one has a richer background in credit union journalism than Frank Diekmann. Over the past 35 years he has been co-founder and editor at Credit Union Times, publisher at Credit Union Journal, co-founder at CUToday, and now he is the founder of The CU Daily, a new publication that is the liveliest credit union pub in my opinion.
Nobody has written more published words about credit unions than Diekmann.
Diekmann has opinions.
Longtime listeners probably think I’m opinionated.
I am.
But Direkmann can and does go toe-to-toe with me on a range of topics - credit union mergers, the future of small credit unions, the credit union federal tax exemption, the future of NCUA and lots more. There are even glimpses into the very future of credit unions - if there is one.
This is a lively show and, remember, Diekmann has years of reporting experience that back up the opinions you’ll hear.
Listen up.
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Welcome to the CU2.0 podcast.
SPEAKER_00:Hi, and welcome to the CU2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillo, the real-time loan syndication network for credit unions, and by your host, longtime credit union and financial technology journalist, Robert McGarvey. And now... The CU 2.0 podcast with Robert McGarvey.
SPEAKER_02:No one has a richer background in credit union journalism than Frank Diekmann. Over the past 35 years, he has been co-founder and editor at Credit Union Times, publisher at Credit Union Journal, co-founder at CU Today, and now is the founder of the CU Daily, a new publication that, in my opinion, is the liveliest credit union publication. Nobody has written more published words about credit unions than Diekmann. Nobody. Diekmann has opinions. Long-time listeners probably think I'm opinionated. I am. But Diekmann can and does go toe-to-toe with me on a range of topics. Credit union mergers, future of small credit unions, the credit union federal tax exemption, the future of NCUA, and lots more. There are glimpses into the very future of credit unions, if there is a future. This is a lively show, and remember, Diekmann has years of reporting experience that back up the opinions you'll hear. Years of experience, years of hearing facts. Listen up. You know, you have the most distinguished credit union journalism resume of anybody on the planet, I think, don't you?
SPEAKER_01:Well, I appreciate that, but let's keep in mind that the bar is pretty low.
SPEAKER_02:But that's about what we're going to get into next.
SPEAKER_01:I've probably written, it was actually Terry Young, who used to be in credit unions, who said something to me once. He said, you've probably written more words about credit unions than anyone in history. And that's probably true. Only technology and time have allowed me to do that.
SPEAKER_02:Yeah, it's interesting, though. You've really developed significant journalistic expertise in a field that Very few people, very few journalists have any expertise in.
SPEAKER_01:Yeah, well, I appreciate it. It's the old riches and niches philosophy.
SPEAKER_02:No, cool. Glad it's working for you.
SPEAKER_01:Yeah, fell into accidentally like so many things.
SPEAKER_02:Tell me what your sense of the state of credit union journalism today is.
SPEAKER_01:The state of credit union journalism? Yep. I mean, I would say that that's a pretty mixed bag, which is reflective of journalism in general. I don't think it's terrific. I think one of the reasons it started the CU Daily is that obviously we didn't see the void there, would not have launched it. There wouldn't be any market opportunity, but it's been embraced pretty darn quickly. I think that the one thing that is missing in, let's broadly say, journalism and credit unions is a willingness to be skeptical and to question things and Because you have a belief that there is a better picture available, a better future available, which is what any journalist is doing. That sometimes journalism gets such a bad rap as being about negativity when it's really, most journalists are pretty positive. It's just that they believe in the three steps forward, but they're reporting on the two steps back. And I think that that's what I've tried to do. Certainly, I'm a believer in the potential of credit unions, but that doesn't mean that you can't be skeptical of what's taking place.
SPEAKER_02:Yeah, and I think this is widely true of trade publications. There's a serious reluctance to be critical of the entities and people that you're writing about.
SPEAKER_01:Right. And having worked... Having worked for companies I've owned and for publications I have sold and then ended up working for larger organizations, the bottom line drives an awful lot of the decision making.
SPEAKER_02:But yeah, there is a reluctance. I mean, so if I were writing about that recent America's Credit Union webinar, I would have said you would have more fun taking a few sleeping pills and maybe having a little sip of scotch than watching this webinar. So don't waste your time. Wouldn't have made a lot of friends.
SPEAKER_01:I would certainly refrain from doing that myself because you do need to work with America's credit unions again. Yeah, yeah, yeah,
SPEAKER_02:yeah. Now, are you doing most of the writing for CU Daily?
SPEAKER_01:I do all the writing for CU Daily.
SPEAKER_02:I didn't see any of the bylines, but
SPEAKER_01:I was just wondering. Well, that is a reflection of our back-end system. It only reflects who posts the item. So even if you wrote something for us, if I posted it, it would show my name on it, which is on my to-do list to address.
SPEAKER_02:But you do have a distinct voice, I think. And it's somewhat skeptical and very slightly cranky, just slightly. I'm more obviously cranky.
SPEAKER_01:I have no objection to being labeled a curmudgeon. That's fine.
SPEAKER_02:What do you think is going to happen with NCUA?
SPEAKER_01:I wish I could offer a more solid forecast there. It certainly appears. The fear is that the trend line consolidation. But given what would be required legally with the Federal Credit Union Act and given Treasury support so far and the fact that credit unions do have substantial capital in Washington, I'm inclined to lean toward it remains an independent agency. There's a good argument that I've heard made that the bankers really don't want NCUA folded underneath the FDIC either. So, you know, that is a darn good question, but I lean 60-40 that it remains independent. Watch that come back to haunt me, but that's my thought right now.
SPEAKER_02:I think that, and credit union people often muddle this, The independent bankers are obsessed about credit unions. If you ask Jamie Dimon, what do you think about credit unions? He'd probably say, what?
SPEAKER_01:Well, given that JPMorgan Chase is bigger than the credit union community in the United States combined. Exactly. I
SPEAKER_02:actually at one point added up the assets of all credit unions. This was some years ago. And JPMorgan Chase was bigger than all of them combined. JPMorgan Chase has grown at a more brisk rate in recent years in credit unions. So the gap, I'm sure, is even bigger. Jamie Dimon does not wake up in the morning saying, what's Navy Federal doing today? He does say, what's Bank of America doing today? So does Jamie Dimon want credit unions in his regulatory agency? I seriously doubt that he does. But again, he might say it's so small, who cares?
SPEAKER_01:I seriously doubt he pays any attention to it at all.
SPEAKER_02:That's pretty much how I would assess it too. Tax exemption. What do you think about that? I
SPEAKER_01:think the tax exemption, to me, the critical issue with the tax exemption has always been that it is not a financial issue. that more importantly, it forces credit unions to think of themselves as being different. And whether you're doing it consciously or unconsciously, it forces you to think of the member benefit and are we driving that value back? And I think that that's a question credit unions should be forced to ask themselves all the time. And it should be a constant presence in the thinking of every member of management. But the real value of the tax exemption lies in forcing that differentiation and thinking that we're not like a bank. And it's not something that appears on the balance sheet, but it is the most important asset I believe credit unions have.
SPEAKER_02:I'm having a conversation tomorrow with Jim Blaine. On that very topic, have credit unions lost their way? Is there still a credit union difference? What do you think on that topic?
SPEAKER_01:When I'm asked this question about credit unions, my response, when I'm asked broad questions, what do you think about credit unions? My response increasingly is, I think it often depends on which movement you're talking about. We've seen a little bifurcation in credit unions. And it's not just asset sizes because certainly state employees is the second largest credit union in the world and is strongly philosophically driven in large part because of the seeds planted by Jim Blaine. But the issue with credit unions is To me, there's the asset issue. You'll have any credit union over a billion dollars is almost a completely different entity than a credit union under 100 million, which is the majority of credit unions. But there's also this bifurcation of dedication to being a credit union rather than being a bank and thinking like a credit union. And I do have some concerns over credit unions that are credit union in name only. But I think this is a terrific debate. I think it's healthy and it's good for credit unions to have it. In any cause, you should constantly be going through a process of self-examination. I don't think it happens enough in credit unions. It most certainly does not come from the trade associations. So it's forced, credit unions are really forced to look in the mirror themselves. But I think it's a good debate and it's one that should be had.
SPEAKER_02:Hey, I agree with you totally in regard to, this is very bifurcated where, yes, there still is something that looks like a credit union movement, a big credit union difference among most of the members of, say, Inclusive. Most CDFIs reflect that. And some very big credit unions are very good about that stuff. I often admire what Navy Federal has done because Navy Federal is aware that quite a few of their enlisted people who are Navy federal members aren't terribly affluent at all. And they're cognizant of that and try to create programs to assist. And that's the biggest of all. So you can't say all credit unions over a billion or all credit unions over 10 billion are just banks. That's not fair. Some are banks. in practice, but quite a few of them aren't. But I do think Blaine's right that there's reasons to be concerned. Is there really a future of this? And probably there is, but it's hard to be super optimistic.
SPEAKER_01:What makes me optimistic is the fact is you ask whether or not there's a future. There's never, and I speak a lot to credit union audiences, and, you know, I know they're all questioning their futures. Do we have a future? Do I have a career? One of the points I frequently make is there's never, never been greater need for what the concept of a credit union is than right now. There have never been more Americans struggling financially. So the idea that, you know, credit unions were... were made for the times in 1909 when these employees at a mill in Manchester, New Hampshire, who didn't speak English, they needed some access to retail financial services. But some people suggest, well, that's back in the day. That's over. Those times have passed. Those times have not passed. There's never, never been greater need for what credit unions represent than right now. And all you have to do is look at on what thin ice a huge number of Americans are skating financially, and that is if they haven't fallen through. And so when I hear people get pessimistic, and it's easy to be pessimistic, and as a journalist, certainly, you know, it's in my blood to be pessimistic, I assume, but I remain optimistic and a firm believer that that the future is there if credit unions seize it. When I see credit unions running away from the name credit union or running away from the business model, nobody's looking for more banks. You never hear that. You've never been at a party when anyone's ever said, I'm really disappointed there aren't more banks in the world. But there is this huge need, whether it's waste or not, for someone to help. Who can help me up? You know, you mentioned Navy Federal. Yes, they're such a statistical outlier in credit unions when it comes to their assets. Yet I recall speaking to them years ago when they were sharing with me that they still did loans to young enlisted for under$100 just so someone could turn on, they get their utilities turned on. You know, a bank's not going to do that. I've talked to numerous CEOs who've shared with me members who've come in their branches and into their facilities who are just deeply in debt because they got such bad deals on credit cars and car loans. So, you know, Robert, the To me, the market has never been more ripe for credit unions. And, you know, there's this exercise you often hear at events and conferences where you hear people say, well, if you were inventing the credit union right now, you know, what would it be? If credit unions didn't exist right now, it would be the ideal thing to invent. They might be a fintech, and you don't need to look any further than SoFi, which uses all the messaging of credit unions, this person-to-person finance, and They talk about members, et cetera. So I'm pretty optimistic that the future is there and has never been more robustly evident, but it is discouraging to see people just completely miss that.
SPEAKER_02:Yeah, I live in a reasonably affluent part of Phoenix. I could take you on a walk of two miles and we would go buy multiple pawn shops, a couple of title loan shops, things that, are providing financial services at, generally speaking, usurious rates. Is there a place for a credit union that wants to help some of these people that are going in those places? You betcha.
SPEAKER_01:And there's credit unions who have filled that niche, have been very aggressive about responding to those kind of pawn shops and payday lenders. You see them outside military bases. So you see military credit unions trying to attack that issue. You know, you can't you can lead a horse to water, as it's said, and still people will get a bad loan and credit unions can only work to help refi those. But the demand is clearly there. Well, years ago at a credit union publication, I had an employee and I learned that he would go and cash his check at a payday lender at a pretty ridiculous rate. He was carrying cash on him. And we finally was this was this Washington, D.C.?
UNKNOWN:?
SPEAKER_01:this person was based in West Palm Beach at the time.
SPEAKER_02:Oh, all right. I was going to say, walking around with cash years ago in Washington, D.C. was an interesting
SPEAKER_01:thing. Well, walking around anywhere with cash. But You know, he just, it was convenient and it was just easy. And the payday lenders really take advantage of that. They're very quick and convenient. And, you know, I went through credit union development education training. I think I'm the only journalist who ever did. And I recall that some of the other students, one of their projects was they went to a payday lender in Madison, Wisconsin, and came back and said, boy, it's really easy to do. And that's part of the, that's a big part of the attraction.
SPEAKER_02:Yeah, if I remember correctly, how QCash was birthed was that Washington State Employees Credit Union noticed they were processing a lot of transactions involving payday lenders. That is correct. And somebody said, hey, let's run some numbers. Why don't we offer a much better alternative to that, which they did. That
SPEAKER_01:is correct. You know, the biggest reason people don't go into financial institutions, you're probably aware, is they're embarrassed by their finances. They don't want to go into a formal financial institution and feel like they were judged. It's just easier to go into a payday loan store where probably everyone's in the same situation, not feel judged, get your cash and get out.
SPEAKER_02:Well, that's why kids, i.e. people under 30, are using things like SoFi. I've talked to them and they say, well, you know, I'll bounce checks and I'm not really good at really keeping track of my money. And no, I don't want to go in and talk to a teller. They'll just scold me. And I say, probably the teller wouldn't do that, but they don't listen. You know, they'd rather just deal with an anonymous computer.
SPEAKER_01:Which brings us back to the point of that demand is there. It just takes a little extra effort and it takes that constant education.
SPEAKER_02:Now, And CU Daily, you've been bashing the Entwings merger.
SPEAKER_01:Why? I would not say that we have bashed the Entwings. I would actually challenge that statement. I've not bashed it in any way, as far as I know. We've tried to be pretty balanced in our reporting on the merger. What we did share were comments that were made by other people in response to our reporting.
SPEAKER_02:You're absolutely right. I misspoke. You're framing this more properly.
SPEAKER_01:Yeah, so we did cover the response to that, but we tried to be pretty non-judgmental on those sorts of mergers. And I mean, challenging them or questioning them is not being judgmental. But in this case, that was just response from throughout the credit union community.
SPEAKER_02:What do you think of the First Tech-DCU merger, which makes the The end merger seemed like pocket change.
SPEAKER_01:It does. You know, I think in all these mergers, the question, every one of these, and I could write the press releases myself, they all talk about returning more member value. I hear that constantly. We're returning more member value. I would like to see some of these credit unions talking about member value, say here in a dollar and cents way, here are the numbers. Here's where we returned greater value to our members as a result of this merger. Because when you talk to people who really drive down into the spreadsheets of these organizations, typically, you see they're really not generating the efficiencies they thought they were. But if they do, then they need to return that to the members. And I'd like to see them demonstrate that and say, look, as a result of this merger, we've returned X number of dollars back to our membership that we otherwise would not have. If you can't do that, then you shouldn't be merging.
SPEAKER_02:The most successful credit union in the time that I've been writing about credit unions, say 15 or 20 years, no argument whatsoever is Navy Federal, which has grown through internal growth. Did they do an odd small merger here or there to satisfy the regulator? Maybe. I don't know. But it was trivial, whereas Pentagon Federal was hoovering up any credit union they could. But Navy Federal has grown riskily. And apparently profitably, too. So there are ways to grow that don't involve merging. And I think you're right. Statistically, a lot of mergers just don't produce the benefits that folks think they're going to produce.
SPEAKER_01:I would say that in many cases that the folks who are involved in a lot of mergers that occur don't think they know they're not going to produce the benefits they are claiming. that there are other reasons driving some of those mergers. What
SPEAKER_02:other reasons?
SPEAKER_01:Well, other reasons. We've reported these extensively, and it is something that I have taken a position on. We see mergers really driven an awful lot by insiders cashing out. It used to be just members of management, but now you see members of the board cashing in on these, on credit unions that have a lot of net worth. And that's, you know, it's money that belongs to the members. The members just aren't aware of it. And I think it's sinful in many cases what occurs, even though it's disclosed to members. Yeah, let's face it. They're not going to go into the NCUA website and drive down into a member disclosure form and go six pages into it and find out what people are getting on the inside. But, you know, many of these smaller credit unions where you have CEOs who had no, they basically didn't. And I get it. They're a small credit union. They never had a lot of resources, but they do have a lot of capital. They never put together any sort of really retirement plan. Long comes a big credit union and says, listen, we'll give you a slice of that capital on the way out the door. And they take it. Those aren't mergers that were driven because they are in the best interest of the members. Those are mergers that were driven because they were the best interests of certain insiders. So that does bother me. That's no secret. I've written about it extensively, certainly more than anyone else. I can't imagine any other poor soul has read more disclosure forms than I have. And sometimes you just never cease to be surprised when you think you've seen it all and then you see– We had a credit union where all the members of the board took$9,999. So they, I assume, so they would stay under the$10,000 limit for some reason, a couple of reasons. When you see that sort of thing, that is discouraging to see. That's like a Rockets thing. It is. It is. And, you know, there are certainly consultants out there who are feasting on this sort of thing and willing to eat as many carcasses as they can before they're gone. So there are certainly negatives there and it requires, it's much like democracy. You've got to constantly be vigilant about it. And of course, with credit unions, a lot of members aren't aware of the member ownership model and they're kind of apathetic and that apathy is taken advantage of. And that's unfortunate.
SPEAKER_02:Now, can money legally go to a board member in a federally chartered credit union?
SPEAKER_01:Well, there's two things going on here. One is, can a federally chartered credit union pay its board? No, it cannot. But in a merger, can they get a payout on the way out the door? They can if nobody stops it. Yeah, they can take it. It wasn't– we weren't paid for being– we were just paid for years of service or something, or we– give it some other name. That happens quite often.
SPEAKER_02:That's disturbing, really.
SPEAKER_01:It used to happen even more often. And I did a lot– and I don't mean this to sound wrong– did a lot of reporting on it. And, I mean, there were credit union boards– giving themselves season tickets to sporting events for X number of years, signing up for consulting for X number of years. And, you know, the consulting gig was a, you know, we'll call you, don't call us sort of arrangement. Wrote about that a lot. And to their credit, I think the board members at the time were Mark McWaters and Rick Metzger. They enacted the rule that at least requires a credit union to disclose what events any insiders are getting, the top five people being paid, and then any members of the board. So to their credit, that rule was put in place. But we haven't, again, it comes back to does the member know to go look for that? Probably not.
SPEAKER_02:No. I mean, one of the ironies of credit unions is that technically I'm an owner, but, you know, I've never voted in a credit union election. Every year I get ballots from publicly held companies asking me to vote in their board elections. I've never gotten anything like that from a credit
SPEAKER_01:union. It's probably in an electronic disclosure somewhere, but some credit unions are, let's face it, for a lot of years, many credit unions sort of had the Cuban election model in place, where it was just the same slate of directors. They nominated each other, they voted for each other, and they didn't exactly publicize the elections. And that has certainly happened quite a bit. And when I read through all the merger forms, and it's like I've told other people, it's like reading a thousand sad short stories very often. If you read between the lines, you see a lot of different things when a credit union has come to the end of its life. But the one commonality, I would say most of them, is a board that has failed and a board that Maybe it was the one that they've never had any new blood. There's nobody new there since the Eisenhower administration. They never got outside the office. I met a board member once at a GAC. He was with a post office credit union. Told me that he wasn't unaware that there was even a credit union larger than$35 million. He had no idea. So they exist in sort of a silo that way. But when you read these disclosure forms, it is troubling to see I think really you can read between the lines and see this lack of new blood and this lack of new vision and just kind of a lack of effort. Things got stale. The board got tired. They grabbed some money on the way out the door. Probably think they did a decent job. And in many cases, they did not. And in many cases, look, I give them credit for all the hours of time they put in. But if you're merging because you have no CEO succession plan, And you've had the same CEO for the last 35 years. How does a light bulb not go off for somebody? Yeah, at some point, Elmer's going to retire. And so you see those sorts of things. And that's also kind of bothersome. So, you know, I know it's kind of a far-ranging answer to your point and to the question. But one thing that is true about credit unions, it is true about democracy. You know, you get out what you put into it. And this is true, very much true of credit unions, where you see some that are really vibrant, where members are really involved. You know, you see this in Summit Credit Union in Madison, Wisconsin. They draw 4,000 or 5,000 people to their annual meeting. They publicize it. But, you know, you get out of it what you put into it, and tragically, some don't put much into it.
SPEAKER_02:Well, and some SEGs are very active, like Disney is active with partners, of course, but
SPEAKER_01:Well, some credit unions have grown. If you look back, I've been around since credit unions were deregulated and since FOMs were allowed to be expanded. And certainly, certain fields of membership have advantages. Navy Federal has a great field of membership. It's steady. And combined with good management, they've grown. It used to be, government SEGs were pretty strong. Now with the federal government, things are a little bit more challenging. If you have a high-paid workforce or you're a pharmaceutical company or something, you can be a pretty successful credit union with that single SEG. And then, of course, as you mentioned, you know how partners or someone happens to have kind of a vibrant field of membership that is reflected in the credit union. You know, those are all positives for the credit union. But there's no reason, regardless of who your field of membership is, you cannot ever blame a lack of growth that maybe, hey, our field of membership's too dull. That's on you.
SPEAKER_02:What do you think about credit unions merging with banks? Is that anathema? Is that evil? Is that right? Is that
SPEAKER_01:who cares? Yeah, it's really credit union acquisitions of banks. It's a very difficult merge. But the... To me, this comes back to the point I made earlier. Can you show me the value? If this person was a customer of a bank, a year later after merging with the credit union, how are they better off? Are their loan rates lower? Are the fees lower? Are the rates on deposits higher? Then yes, it's worth it. If you did it, For any other reason than that, maybe you just wanted to branch into Florida for some reason so your board could fly to Florida once a year and have it be a company expense or something like that. I don't think that that's really a reason to drive a merger. But if you're driving value back and you have more credit union members, then that, at least in and of itself, ideally should be a positive.
SPEAKER_02:Do you have any... a sense of how many mergers have been rejected by members.
SPEAKER_01:Oh,
SPEAKER_02:relatively few. Yeah. There was that one in Virginia a couple of years ago. And that was written about like Jesus has crossed the Potomac. We saw him walking down.
SPEAKER_01:And I was probably one of the Jesus reporters.
SPEAKER_02:Yeah. Yeah. This was widespread reporting. It's like,
SPEAKER_01:yeah. Yeah. Yes. When you see that happen, it's pretty rare. And it's because it's so darn hard to oppose a merger anymore and to reach out to your fellow members. The NCUA does have a component in their disclosure forms and online where you can register your objection. But again, how many people see that? And who is going to... In these rare occasions, you do see typically... It's former management at Accredianian that may lead the objection to the merger. But yeah, it's relatively rare because it's so darn hard to pull off.
SPEAKER_02:Yeah, although you just kind of suggested state employees, which is in some sort of uproar with its membership because some former management is opposing policy changes.
SPEAKER_01:Yeah, that's been well documented. I've reported on that pretty extensively. State employees has always, certainly under Jim Blaine and then under Lord, who followed him, always opposed any tiered pricing. It was one price for everyone on loans. State employees' current management argument is that the world has changed. And they are missing out on a lot of A-grade loans because those members get better rates elsewhere. So those members, and they say their data shows that they've gone elsewhere. So you did have a slate of candidates who ran for that board. But what's important to note is these candidates ran and they won their seats because they were of the position that the credit union should not go to tiered pricing. And yet, once they were aboard, perhaps, and I wasn't privy to the meetings, but once they were aboard and on that board, state employees still went to tiered pricing and they have not backed away from it.
SPEAKER_02:What I find interesting there is the power of the retired executives to have influence on the organization.
SPEAKER_01:Yeah, Jim Blaine, and I really like Jim, known him for a long time, I've always admired his writing, and again, I've had a good relationship with him for a good long time. He's an outlier, and he's a very powerful personality at a credit union. And you don't see a lot of Jim Blaines. And, you know, he certainly, gosh, his record of overseeing growth there is as incredible as it's one of a kind while he was CEO. But he's a powerful personality. He's passionate and good for him. But he didn't go quietly into the night. He has his blog and he has people who really follow him and respect him and believe in him. But he's an outlier. Frankly, it may be uncomfortable that the world could use more Jim Blaines, more people who are dedicated to this concept of philosophy and don't think of it as some antiquated notion. He's good for credit. So
SPEAKER_02:do you think we're going to just see more and more mergers? Yes. Are we at peak merger? I mean, what's happening here?
SPEAKER_01:I think the pace of mergers is going to continue. To some degree, mergers beget mergers. And, you know, you see other credit unions merging and you begin to think maybe that's something we better do. And you get a little bit nervous, you know, whether you'd like to admit it or not. Again, you're thinking about this from your own personal employment point of view. in your own future. So we're certainly seeing a lot of the sub$10 million credit unions being sopped up. And in many cases, look, they're not viable. When I look at these credit unions and report on them, I mean, some of them, it's hard to believe it's 2025. Some of them don't even have a website. So they're not really competitive. I've long felt that what we'll eventually see, and I could be completely wrong, When I'm often asked, people say, well, the small credit unions are going to disappear. I think what's going to disappear is the middle class. I think we're going to have kind of a donut-shaped credit union community. Or you've got large credit unions and you have small credit unions. I used to hear them described as operating between the toes of the elephant or riches and niches, just filling a lot of niches. And then you have your larger credit unions that are emerging in this almost constant pursuit of efficiency. And We know why, we know what the expenses they face are, but that efficiency nut is a hard one. So yeah, I think we'll continue to see it for a lot of different reasons.
SPEAKER_02:I pretty much agree with you. I would say that with the small credit unions, what I envision is it's kind of a variation on the Jim Blaine model where there is a big computer farm that does all the back office processing for all credit unions or most credit unions under$100 million. Then the credit union can go do its front end on its own. You can have people, faces, real life, human beings. But the technology is beyond the budgets and the skills of most small credit unions today. And it's just getting harder and harder. And that's not the essence of a credit union. The essence of a credit union is not computer coding. It's member interaction. So is anything lost in that? I don't think so.
SPEAKER_01:Well, that model... That idea of a common back office has been the holy grail for credit unions for a long time.
SPEAKER_02:Well, Maine has been doing that,
SPEAKER_01:though. Yeah, Maine does it, and you see it elsewhere with CUSOs trying to provide. And then there's been some success stories. Mitchell Stankovic is doing some really great work with their credit union shared services they call CUS initiative. They're trying to get off the ground and operating there. you see this effort that, yeah, exactly as you say, Gradient should be focused on serving members, not in the back office wondering what the heck's happening with our core. So that's been something that's been chased for a long time as a model that's been tried in other countries. You saw a big effort in Ireland for a while, too, everyone to operate off the same core system. And in Africa, I've seen some similar efforts there. So that is a... an objective that we've seen in place for some time and with varying levels of success.
SPEAKER_02:Well, I think one thing that's changed is that there's greater acceptance of doing computing in the sky. It doesn't have to be in your garage. 20 years ago, credit union CEOs were nervous about a core system that they couldn't hug at night, whereas now very few people care about that.
SPEAKER_01:That's correct. Right. There's an embrace of the cloud and you can buy FinTech technology cheaper in many cases, but then you don't know what you're buying. And then that can be challenging as well. And who's going to support it? And, you know, is there some alignment issues with your, perhaps with your core? So, yeah, the options that, again, that's another challenge to the leader of a small credit. You need so much on your plate. Where do you start?
SPEAKER_02:Yeah. Well, yeah, you mentioned that. a few minutes ago about the retirement of a CEO and say a 50 or a hundred million dollar credit union. And I agree with what you're saying, but I also think that's a hard job to fill because oftentimes the person's not paid that much money. They're putting in a lot of hours. If the teller is sick, you go do the teller shift on Saturday. Even if you were playing golf that day, you go do the teller shift because no one else is available to do it.
SPEAKER_01:Robert, you're absolutely right. It is a very difficult job. It does not pay great. There have been some efforts by some large credit unions to place maybe an up-and-coming executive into a smaller credit union and have him or her kind of really learn on the job there. We've seen some limited attempts at doing that so that that smaller credit union remains viable. The person leading the organization gains really valuable skills and probably something that would be terrific if we saw more of.
SPEAKER_02:Yeah, yeah. I'm certainly not sitting here saying, geez, I hope all small credit unions die. I'm quite the contrary. I'm not super optimistic about their future. And if I were on the board and I had to fill out a succession plan at a small credit union, NCUA now wants succession plans for the CEO, I'd write in that little box, I'd probably write, going to merge.
SPEAKER_01:Yeah. Well, unfortunately, as we know, that is the trend. But you should have a succession plan, not just for the retirement of your CEO, but what if something happens to him or her? Yeah. So you should have a plan in place for that anyway.
SPEAKER_02:Yep. There's no bench strength in small credit unions
SPEAKER_01:usually,
SPEAKER_02:and that's what's really troublesome, but how they don't have the money.
SPEAKER_01:That's a commonality with any small organization, any small company, any small business. Your bench is, you've got your starters and you have no bench.
SPEAKER_02:Before we go, think hard. about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we're trying to figure out here in these podcasts is what's next for credit unions. What can they do to really, really, really make a difference in the financial scene? Can't all be mega banks, can it? It's my hope it won't all be medical banks. It'll always be a place for credit unions. That's what we're discussing here. So figure out how you can help. Get in touch with me. This is rjmcgarvey at gmail.com. Robert McGarvey again. That's rjmcgarvey at gmail.com. Get in touch. We'll figure out a way that you can help. We need your support. We want your support. We thank you for your support. The CU 2.0 Podcast.