YOUR BUSINESS AUTHORITY

Springfield, MO

Log in Subscribe

Judy Hadsall and Craig Tabor say credit union survival is dependent on blockchain technology.
Judy Hadsall and Craig Tabor say credit union survival is dependent on blockchain technology.

CEO Roundtable: Credit Unions

Posted online
Are commercial banks and credit unions still at odds? How is technology changing the industry? To find out, Springfield Business Journal Editorial Director Eric Olson sat down with credit union presidents Judy Hadsall with CU Community Credit, Craig Tabor with BluCurrent, Michele Sechlar with Foundation Credit Union and Bruce Webb with Assemblies of God Credit Union.
 
Eric Olson: How would you describe credit unions in one word?
Judy Hadsall: Relevant, because when it started back in 1934 (the country) had a hard time making ends meet and I think we’re in that environment again.
Craig Tabor: Important. I think we play a very definite role in the American culture and society today in terms of what we offer and how we offer that.
Bruce Webb: Mission driven. That’s two words, but I think credit unions that know who they are and how best they can serve the members, who can truly provide that value, will experience yields in membership.
Michele Sechlar: Personally, I think credit unions can have that personal touch to really seek out their needs.

Olson: When looking at the history of credit unions there was a time when membership was very restricted. Today, it seems most credit unions have moved beyond a lot of those membership restrictions. Could you expand on that at all?
Tabor: Believe it or not, one of the things that began to bring credit unions together was innovation, specifically the refrigerator. People could not get loans for refrigerators, so they started pooling their money together to be able to purchase things like refrigerators, but then moved onto bigger things like cars. It was based on common bonds between who people were. So what did that credit union do? They started expanding their field of membership. By the 1990s, in order to survive, credit unions had to become more community based than by membership.

Olson: What were the triggers to that change?
Tabor: I believe the triggers were companies going out of business.
Hadsall: The credit union across the street is a good example – TelComm (Credit Union). When they split up Bell, they were in a tight spot. All of the jobs left. So this credit union was left to decide what they would need to do in order to survive.

Olson: So what does membership look like today?
Webb: I only have eight months in the credit union world and 30 years in banking. Membership in the Assemblies of God Credit Union is probably the most restrictive. We are faith based, you have to be Assemblies of God, you have to have some connection. Out of the 6,100 credit unions, about 350 are faith based. What makes us a little different is that we have 10,000 members in Missouri and 7,000-8,000 in other states. We can go into five states and do anything for people, and we can do things for pastors and churches and help missionaries.
Tabor: On the flip-side of that, you are not going to find another financial institution – including the big national banks, the pay day lenders – where they are restricted to who they can serve. We are the only ones who are actually restricted, so you can imagine how that is trying to compete on what you can and can’t do in regard to opening accounts.

Olson: Some of those restrictions are self-imposed though, right?
Tabor: The Federal Credit Union Act that was proposed in 1934 was designed specifically for the purpose of being able to support the common bond. And now today, chartering a credit union, you have to have a specifically defined group of people that you’re going to serve.

Olson: From what I’m seeing, there is some government regulation, but a lot of it is self-designed based on who you were designed to initially serve.
Tabor: It wasn’t really self-designed. The Federal Credit Union Act established it. There was some input from the National Credit Union Association, but it started going from state to state where you had to get approval from your state to charter credit unions. You can say we had input, but it wasn’t self designed.

Olson: So do you guys see your own institutions broadening any further?
Tabor: For survival purposes, yes, we’ve expanded, but no I don’t see that continuing in the future. The regulator is not going to allow us to expand any further.

Olson: So you might request it, but you don’t expect approval?
Tabor: That’s correct. We won’t get it.
Hadsall: We are already limited in Missouri because if we choose to take in other counties it has to be contiguous to our home office.
Tabor: The other thing is that it prevents larger credit unions, from Kansas City or St. Louis, from merging into local credit unions.

Olson: I don’t think we’ve seen that here, have we?
Everyone: No.
Tabor: The way the laws are established, you have one of two choices as to the path you can take as a credit union. You can either be a geographic credit union, or a special employee group credit union.
Hadsall: Well, 1998 is when we started the [expansion] battle, but it didn’t get over until 2000. It was bad, but the other thing is, we can’t just say we want the counties. If we want to expand, we have to justify it because they are all about safety and soundness. You may be ready to expand, but they may think otherwise and we have been told no before.

Olson: Is that why you described it as a battle?
Hadsall: No, that was a battle with banks back in the 1990s.
Tabor: In 1992, AT&T credit union in North Carolina, got authority to expand its field of membership and the community banks association in North Carolina filed a lawsuit against the credit union. It ultimately went to the Supreme Court, which ruled in the banks’ favor. Credit unions were limited, though in a matter of months President (Bill) Clinton and Congress rewrote the laws so that expansion of membership could take place.

Olson: So would you say you lost that battle?
Tabor: No, and here’s why. The banks said we can’t do commercial loans because it is their bread and butter, that’s how they phrased it. The lobbyists basically said if we were limited on the commercial side, they’d allow the expansion.

Olson: Bruce, you were pretty quiet through all that about the commercial banking.
Webb: Well, we were never really playing in the same box as the credit unions on the commercial banking. So credit unions chasing commercial banking only began in the past 10 years.
Tabor: I’m not attacking community banks, but there is an adversarial side to this. We, as a credit union, did not market commercial loans at 12.25 percent, but there was such a pent up demand that the banks were not meeting, that the credit unions were willing to meet that need. Which goes back to that original demand in the 1920s.
Hadsall: So far, we’re getting the leftovers.
Group laughter
Hadsall: I’m just kidding.
Tabor: I don’t think it’s that, we’re just filling a need.
Webb: I think as the banks merged and got bigger, they were short-changing small business and the credit unions started filling that need.
Tabor: And now it has become another contention point because we are doing commercial loans that would not otherwise be done.

Olson: What technology would you like to employ next?
Hadsall: I know what he’s going to say.
Tabor: (chuckling) Yeah …
Hadsall: Blockchain.
Tabor: If we don’t go along with the blockchain technology, we don’t think we will exist in 15 to 20 years. I talked about how banks used to not take care of what credit unions could, but now the roles have reversed and it’s large banks versus credit unions and community banks. The six largest banks in 1992 went from having the smallest percent of the market share, to having 70 percent, whereas the community banks used to have 60 percent in 1992, now they only have 18 percent.
Hadsall: And we have 6 [percent].
Tabor: We have stayed fairly consistent with six for 25 years.

Olson: So what exactly is blockchain?
Tabor: It’s distributed ledger technology. I’m sure you’ve heard of Bitcoin. Bitcoin operates off of blockchain technology. There’s private blockchain and public blockchain. Bitcoin operates off of public blockchain at this point. The Fed is trying to figure out how to work through the private blockchain.

Olson: When you say you want blockchain technology, is that for self preservation?
Tabor: Blockchain technology is the next innovation like the internet was in 1992.

Olson: So what are some trends in brick and mortar that are happening today?
Hadsall: So the trends that we’re seeing is (interactive teller machines). That’s what I think is next in brick and mortars. If they’re not coming in, you can’t have people standing around inside those branches. You’re paying salary and benefits just like lights. So the ITMs are what everybody is going to invest in because those are machines that have people somewhere else. There may still be humans, but there is a reduced number.
Tabor: The branch we’re looking to design is probably going to be our busiest branch. We’re looking to go on Glenstone or Battlefield on the southeast side of town. In the 1990s, it probably would’ve taken 20 employees to staff a branch that size, but I think we’ll be able to only have three or four employees due to that technology component.
Sechlar: We’re not as far forward on the technology and all of things that you guys are talking about. My membership is older, so when we moved into our new location, we were probably looking at a client base with 65 percent over 60. They came in wanting that personal service. We have that heritage so we’ve probably got four people staffing each location.

Olson: Who is that core membership?
Sechlar: Primarily teachers.

Olson: So you aren’t looking to change that?
Sechlar: No, we’re not looking to change that. To all of the people who still want interaction, we get that. I think they all get the tech savvy client base.
Tabor: Who do you think is the quickest to adopt video technology, age wise?  I know for a fact for our credit union who it is.
Sechlar: It’s probably the older people.
Tabor: That’s right. They were so accustomed to Skyping with their grandkids that it was no issue for them to go to the video piece with the technology. It was actually those in their 20s and 30s who didn’t want to go through the video piece.

Olson: Is anybody else pursuing new branches?
Tabor: Ours is more of a relocation, I think than anything else.
Hadsall: We invested in technology for the time being, but we know we need to expand at some point.
Tabor: We are limited on how many branches we can operate. For our credit union, a branch costs us $300,000 to $350,000 to operate each year.

Olson: How much are the ITMs?
Tabor: $70,000 to $100,000 depending on what you get and how you want to configure it.

Olson: What are the chances the federal income tax exemption for credit unions is removed?
Tabor: Credit unions save consumers $7.1 billion in fees that otherwise would have been charged if credit unions hadn’t existed. If that tax shelter is removed, you can rest assured fees will go up automatically. We will have no choice but to increase our fees because we have to generate income some way in this low rate environment. It would be so counterproductive to the consumer that I can’t imagine many lawmakers taking on that mantle, but then again, it is D.C. and D.C. doesn’t always make a whole lot of sense.

Olson: So that would be your answer to someone who says the industry has out grown that tax exempt status?
Hadsall: But we’re still only 6 percent.

Olson: Yes, but they would say you’re worth $1 trillion in total assets.
Tabor: No, we’ve been told this because we have competitive advantage. When you go to Washington or Jeff City, just about every lawmaker says it’s an unfair competitive advantage. It’s nothing to do with the size. If you look at the whole market since 1992, we’re half as big now. So to say we have a competitive advantage is the wrong answer. It’s false.

Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net and editorial assistant Barrett Young.

Comments

No comments on this story |
Please log in to add your comment
Editors' Pick
From the Ground Up: Republic Intermediate School

The Republic School District is on track to open its Intermediate School for fifth- and sixth-grade students for the 2025-26 academic year.

Most Read
Update cookies preferences