Nov 15 '16
Emerging Markets: The Credit Union Intersection of Potential and Philosophy
More than 50 million Americans are unbanked or underbanked. And for many others who already have access to traditional banking products, those offerings may not adequately meet the needs of their unique situations.
While our for-profit cousins working at banks will primarily see emerging markets as new opportunities for profit, credit unions can see emerging markets as opportunities to bring fairly-priced financial services to those who are traditionally marginalized or overlooked.
You’ve been in this situation before. You’re at a cocktail party and someone asks what you do for a living. When you mention you work at a credit union, the next question is nearly guaranteed.
“So … what exactly are credit unions?”
I’ve heard many responses over the years, and even tried a few of them myself. One of the best is that the credit union industry is “banking that puts people before profits.”
It's a description that is accurate and relatively understandable. And it's a maxim that we as a movement can apply to the opportunities that emerging markets present to us.
While our for-profit cousins working at banks will primarily see emerging markets as new opportunities for profit (as they should, in stewardship of their shareholders’ interests) credit unions can see emerging markets as opportunities to bring fairly-priced financial services to those who are traditionally marginalized or overlooked (as we should, in stewardship of our member-owners’ interests).
More than 50 million Americans are unbanked or underbanked. And for many others who already have access to traditional banking products, those offerings may not adequately meet the needs of their unique situations. These people are counting on credit unions to be there, and for credit unions, these are opportunities to step in and serve those who have been overlooked.
Domestic Violence Survivors
According to the Allstate Foundation, domestic abuse will affect one in four women in her lifetime. And while signs of physical and emotional abuse are often most obvious, financial abuse typically exists in the shadows of these relationships. In fact, financial abuse happens in 99% of all domestic violence cases.
Abusers often limit their partner's access to financial tools or information, leaving the victim reliant on the abuser for their very financial livelihood. This position of dependence often makes it difficult for survivors of domestic abuse to break free.
When they do escape an abusive relationship, survivors are often left without the tools or skills to manage their own financial needs. Many have credit scores that have suffered after years of exclusion from financial decision making.
Credit unions have an opportunity to help survivors of these relationships get back on their feet with empathy, financial counseling and appropriately flexible underwriting that accounts for the fact that the survivor's credit history may not reflect their ability or willingness to repay debt. In fact, the Center for Survivor Agency and Justice specifically recommends individuals consider joining a credit union due to the flexibility and variety of products our industry traditionally offers.
Nearly 50% of African-American and Hispanic households are financially underserved. Many minority households rely upon fringe providers of costly financial products such as payday loans and buy-here-pay-here car financing. The products these nontraditional providers offer solve short-term needs at a high cost and rarely position the consumer for long-term financial success.
Some credit unions have made it their focus to address the needs of this emerging population in a way that not only benefits minority households but also contributes to the financial sustainability of the cooperative. A variety of initiatives including financial literacy, multilingual services, thoughtful product design and pricing have been used by credit unions to serve minority households. In recent Filene research, we found that 70% of minority credit unions identified targeted products as having the greatest potential for meeting the needs of minority households.
The population needing these well-designed credit union products is significant. While roughly 30% of U.S. households are headed by minorities, they hold only 10% of all household wealth. Drilling down into broad product categories, only 13% of deposits and 24% of home mortgage balances are held by minorities. These product gaps can be addressed successfully by credit unions.
And while credit unions in our study successfully met the needs of minority households, our research found they were able to do so while supporting the cooperative's financial sustainability targets. In fact, the average return on assets of large minority credit unions in 2014 stood at 0.71% compared to an ROA of 0.72% for all large credit unions. Overall, financial sustainability is possible when focused on the needs of this market.
While the approximately 8.5 million Americans who identify as lesbian, gay, bisexual or transgender have made great strides toward equality in recent years, data show that this group's unique needs continue to be broadly underserved by traditional financial services offerings.
Poverty rates are generally higher among LGBT Americans compared to the country as a whole. Homeownership rates are lower, with 8% of same-sex couples owning their homes outright versus 13% of heterosexual couples. Fifty-two percent of same-sex couples hold mortgages compared to 62% of opposite-sex couples.
For many LGBT Americans, discrimination in financial services is both perceived and real. In 29 states it remains legal for financial institutions to consider sexual orientation a credit risk. For credit unions, which have traditionally held a perspective that all members should be served equally, an opportunity exists to step in and serve the needs of this group.
Awareness, language and service were found to be three key pillars to effective LBGT outreach in a recent Filene report. It is critical that credit unions reassure these consumers they will receive the same high-quality, personalized service that every member expects. Credit unions should explore initiatives to train their staff to understand and emphasize with the needs of these consumers and consider including LGBT families in marketing materials to reflect inclusion. As LGBT members become increasingly comfortable with credit unions, they are likely to increase their patronage.
Approximately 10,000 baby boomers will retire each day between now and the end of the next decade. And while many credit unions focus on investment management and wealth transfer opportunities that exist, older Americans face another, darker trend – elder financial abuse.
This financial abuse can be at the hands of unscrupulous merchants, fraudsters, or increasingly at the hands of the elder member's own family. The losses can be significant. In fact, one report estimated elder Americans lose $36 billion annually due to financial abuse.
Credit unions have an opportunity to address this need on behalf of these elder members. By establishing automated or employee-assisted monitoring services, such as the Senior Sentry concept created by a Filene i3 innovation team, credit unions can identify unusual transaction patterns on an elder member's account and bring them to the attention of the member or law enforcement. During the Senior Sentry pilot, one credit union discovered a son who made frequent unauthorized ATM withdrawals out of the account of his 90-year-old parent who was in an assisted living facility.
Services such as True Link Financial, which proactively prevents payment card transactions on elder members’ accounts from merchants with a track record of fraudulent activity, can be offered by credit unions to demonstrate their desire to protect their members. Ultimately an opportunity exists for credit unions to build relationships with the families of these elder members who see the protection credit unions have offered their parents.
Our common philosophy of putting the financial needs of people ahead of profit generation gives us a unique chance to serve these emerging markets in the unique way that only credit unions can.