CU 2.0 Podcast Episode 411 Travis Credit Union CEO Kevin Miller on Why Bankers Make Good CU CEOs

Speaker A: Welcome to the CU 2.0 podcast.

Speaker B: Hi, and welcome to the CU 2.0 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 C: Can a banker successfully transition into a senior role in a credit union? Can a credit union deploy a financial wellness initiative that also works as a competitive edge in marketing? Kevin Miller, CEO of, uh, $5.7 billion Travis Credit Union in Northern California is on the show today. And he's guilty of that banking background. But now he's logged four plus years as Travis CEO. Uh, this is a man who enjoys his job. Miller also strongly believes that not only are financial wellness initiatives a key part of a credit union's doing good in its communities, they also are a competitive edge against both mega banks and community banks. As for Miller's past work experience, he logged four plus years at regional bank TCF as EVP of retail banking, two years at Santander, four years at BMO, and six years at bank of America. A stint at a fintech rounded out his background. In the show, he explains why he jumped into a credit union and why hiring bankers just might be good business for a credit union. Listen up.

Speaker D: You know, um, I'm delighted to talk to you for two reasons. I'm sure there are many more that you'll undisclose as we go on. But the two reasons are all senior credit union people want to talk to me about these days is AI AI AI and mergers. You want to talk about an oldie but goodie? This, this is, yeah, you know, uh, you probably radio. Radio stations would have oldies but goodies hours. This is an oldie but a goodie. Financial literacy. I haven't heard anybody talk about this in some time, so I'm delighted to do that because you also see it not just as a be nice, do good thing, but as a possible strategic lever for you, which is fascinating. Secondly, um, you're the Antichrist. Your background is entirely big banks, B of A BMO and fintechs. Okay. Uh, you're the Antichrist. So how did you get hired at. Ah, Travis. Sure.

Speaker E: So when Travis, when my predecessor was retiring, the board conducted a nationwide search through a search firm. And so they interviewed candidates from across the US And I came through that process. The board, you know, really was looking for a couple of Things, one of which was this need to make sure that the credit union, with all of its good history and great capital, was really in a position to succeed going into the future. And so ultimately, you know, I was the person they selected, which I was very fortunate to be able to do so well.

Speaker D: See, a question I've been throwing out at people recently is, and you're a big credit union, you're what, 5 billion or something in assets? Yep, yep.

Speaker E: Coming up. Uh, 5.7. Yeah.

Speaker D: And I've been talking recently with credit union CEOs, uh, whose institutions are a billion, and they refer to themselves as small credit unions.

Speaker A: Small.

Speaker D: And at 5 billion, 5.7 billion, you're big. But B of A, you're like a, uh, morsel on an hors d' oeuvre plate. You know what I mean?

Speaker E: Yes. Yeah. In the banking world, you'll hear the term de. Uh, minimis is a common use in the financial services world, in the finance world. So we would be, for B of A, de minimis in terms of, you know, an impact for them, obviously a big deal for the communities we serve. But for B of A, we're not a concern.

Speaker D: Well, it's like many years ago when remote deposit capture was just coming out, a big bank had a problem with a bunch of fraud happening on it. And I talked to a very senior guy at the big bank, and he said, this is like $25,000. Why are you talking to me? Is it a credit union? 25 grand is serious money.

Speaker E: Absolutely.

Speaker D: Uh, whereas to him, and he wasn't kidding around, he's saying this is. Come on, man, don't waste my time.

Speaker E: Yeah, yeah, yeah. Uh, they're slower to move generally, but when they do, they have a larger impact. Right. So that's kind of the. The scale gives you the ability when you do the thing to have a ripple across, you know, markets, states, territories, countries. But it's for them the hardest part is getting the thing into motion and then getting it executed. Whereas the credit unions have the opposite opportunity, which is you can move much faster so that it's you. What's your quality of execution? Are you delivering on those key promises to your member? And so that's kind of the. You. You operate kind of in between those two worlds.

Speaker D: Now, let's put the recruitment shoe on the other foot, which is what interested you about this job. I mean, you know, here I am, sitting here, a credit union guy, pondering, is there a future for credit unions and what might that be? Is there a future that's it, that's a scary question to even raise. So you must have had the same thought, wait, am I signing my death warrant here or what?

Speaker E: So the good news is great opportunity, great future for the credit unions. I have no question about that. So let me answer your question in kind of two parts. So let's talk a little about the landscape, then I'll talk about kind of how I made my decision. If you think about the banking system over the last, call it 20 years, you can go 30 if you'd like. Generally there were two phases. Pre fintech, it was basically the national players getting bigger, the regionals having to get bigger to compete with the nationals, and the small community banks feeling their world getting more and more constricted. So that was kind of phase one. And that led to a lot of M and A, which is kind of a repeatable process in the, uh, banking system in particular, whether it's in the US or globally. Then came the fintechs and the fintechs, you know, which is a healthy thing, right? Competition is healthy. It drives each institution to up their game and rightfully so. We want to make sure, of course, there's fair rules and fair playing standards, but outside of that, the competition piece is healthy. Fintech show up and they start doing wedges to pick off a particular population, a segment, a member base. And that caused another ripple effect, which is in essence, if you're a national bank, your target audience, your entry point, you'll welcome everybody. But the economics only work for the upper mass market, really into the emerging mass of fluid and the community banks, what they're left with is basically business banking and wealth management and some specialty finance. So Chime has picked up part of the mass market SoFi, the upper kind of more emerging mass affluent. But the great news is that most of them have abandoned that core everyday person. And especially if you want that core everyday person to be served by an institution that is involved in their community, invests in their community, and still has some version of presence, whether that's one branch, 100 branches, whatever your definition of success is. So from my perspective then, to answer your actual question, so my last banking role before I went to a fintech was I ran a retail bank. So I was very fortunate. I led a team of 3,000 people across as far west as Arizona and as far east as Ohio. And what I loved about that job is I knew exactly why I came to work every single day. It was very clear. I could literally, you could feel and see the impact of what we were doing. So I uh, was thinking about my career but what looks a lot like that, it's a credit union. So it took me a while to find the right opportunity. But once I got the call and I got to meet the board and learn about the institution and the opportunity, it was a no brainer for me and my family.

Speaker D: Well, if you go back to the history of credit unions, credit unions were created to serve people whom banks didn't want as customers. It's that simple. It would be an IBM factory and factory workers would say let's form a crowd. I read about this in Reader's Digest. That's actually exactly what happened at Boeing. Yeah, guys read a Reader's Digest story. So hey, we could do this too. And they did grew pretty big over the years. Yeah.

Speaker E: And uh, Travis, right came about because we had individuals, ah, who were serving at Travis Air Force Base and staff and they didn't feel like that there was the right financial capability or services available to service members. And so that's how we got our starting point. And then we evolved and grew with them. We grew their families and then we grew to the community. So it always starts with you know, kind of this, this core identity and then you're evolving really. We've been evolving with our members for now we're turning 75, doing that for 75 years. And so it's an absolutely winnable space. Is it harder? Of course it is. But that's the nature of business. Like you know, it's always going to, there's going to be more competition, there's new capabilities, new technology, higher consumer demands. That is the nature of running a business. Whether you're a small business owner and you're self employed or you've got five employees or team members. Like that's always been the name of the game is you just got to, you got to figure out where you want to play and you got to be relentless about focusing on that.

Speaker D: Well I think and uh, you certainly have more experience, I know better than I do that if you credit unions are making a mistake going after the Chase bank personal banking customer and they're doing that in my opinion because Chase does that better than you're going to do. It's uh, now Chase has a lot of customers that have you come and take them, they'll just say goodbye guys, don't slam the door on the way out. They're not going to fight you for them. These are the traditional founding type credit union customers, members. And so many credit unions spend their time dreaming up products to get The Chase personal banking customer. And you can't do that as well. You really just can't.

Speaker E: Yeah. I mean what's interesting is so you think about, and I'm going to overly simplify this, but you think about the landscapes, you think about your everyday banking member in the banking world that's called mass market. And there's varying degrees. There's entry, middle and upper mass and then there's the mass affluent bucket which is, you know, emerging mass affluent. Then they're moving into the wealth category. The interesting dynamic is, to your point, across multiple of those member types, there are places where the banks which do a lot of good in the world, I've seen where they do great and where they don't do great, but there are multiple areas where a credit union, um, better serves that member need hands down. So if you focus on that, you win.

Speaker D: Right.

Speaker E: You don't have to be everything to everybody. You should be clear on who is it you want to serve, what are their needs and what matters. And you go after that. You have a successful business model.

Speaker D: You worked at bank, so you'll be able to answer this question. Where can you beat bank of America? Where can you beat a bank that size?

Speaker E: Yeah. So I uh, think there's three capabilities. When I think about our kind of the Venn diagram analogy, I think there's three areas where we win. Um, and they're in no particular order but I would keep them probably in this order. The first is we offer better value. By definition of a credit union, we have to offer better value. We measure that in a variety of ways. One is the most quintessential way, which is basically we offer better rates, lower fees, hands down, no question, avas Travis member as of the benchmark from last year, got $300 more in value by being a Travis member than by being a national bank member or, or customer. So that's easy. Second, where credit unions have been upping their game is you have to have capabilities that are at least equal to national bank capabilities and the right capabilities, what does that really mean, digital banking? If your mobile app stinks like you're not, you don't have a long term successful business model in my humble opinion. So. But there are, through FinTechs, through QSOs, there are ways to make sure that you punch above your appropriate weight in those areas. We've absolutely living proof of the ability to do that. And then the third element, uniquely to credit unions and what used to be the MO of the community banks is the community piece. Right. So we educate Thousands of youth every single year in financial literacy. No one else can do that. So you take the three things better value, you have national competing capabilities and you deliver local value in the communities. To me that's a great business model.

Speaker D: Now a lot of big banks are very active in their communities and ah, doing good things like supporting youth sports leagues, all kinds of stuff. Mhm. It's many respects. I see more activity by them than I do credit unions.

Speaker E: Yeah. And I think it does depend on the credit union model. What we see is they again back to the how do you deliver? So yes, they can always write a bigger check. So philosophically, we're not in the large check writing business.

Speaker D: You're not going to win. Right.

Speaker E: If I do a dollar, they do a million. But where I. Here's how I think about it. For us, every chamber of commerce in the core cities we operate in or rotaries were involved. So what you find is that local presence and integration into the community, being there when it matters, that is the game. So to your point, B of A or Chase can do that, but not to the degree we can. And it's part of our core DNA. Uh, you know, based on our, our model. Right. So if you're a national digital credit union, you have a different model. You're delivering it through segs, business development officers and specific employers. Nothing wrong with that. That works just as well for our model. A community based charter. We deliver it locally.

Speaker D: Now since you've been CEO, have you brought in more people in senior positions at Travis with a banking background?

Speaker C: I have.

Speaker E: So one of the challenges the credit union system is facing and it's not about credit union people, right skillset, not right skill set. It has to do with the competitive nature of the capabilities we have to offer. And so you know, I made the decision. We have a great mix of long tenured and newer, but we found a nice complementary mix of folks that have deep expertise in their domain, which means we can go faster, to me, faster with great controls and thoughtfulness enables us to deliver more value to our members and our communities. And so we have a great mix. Now in addition, outside of just my direct reports, last year 45% of Travis was in a new role or promoted. So we're also seeing significant career progression within the organization. So that's a teller going from Teller 1 to Teller 2. We call them FSRS, but same idea. So our goal is it is not about new is better and old is out. It is, it's always the right mix. What's capability Gaps or what services do our members need? Do we have the right expertise? Do we want to own that directly? Do we want to use a partner? And then how do we get that complimentary mix of somebody who has great experience in a certain, certain area to complement someone who understands our history, our culture, a go to market. Like it's the combination of those two things that makes you successful as an organization.

Speaker D: From my perspective, I know some credit union people really do view bankers as the Antichrist. I don't. In fact, two of my favorite CEOs in credit unions are people, guys who made a ton of money in more traditional financial services and one day woke up and said, hell, I don't like myself anymore, want to do something else. And they did. And they're CEOs, they're very senior people, but they run nice shops and they, they're, they're credit union people despite their tainted history.

Speaker E: So yeah, yeah, yeah, I mean, you know, I, I mean here I will tell you, it is the easiest conversation. If you've been in the banking world for a while, there's lots of great things, there are downsides, right. Each business model exists for a reason. That's what makes the America, uh, experience unique. Right. Our entrepreneurial nature. I will tell you, when you get to somebody who's at the right point in their career from a financial services perspective, they're coming out of a bank and, or a fintech. Having uh, a conversation about why a credit union is a great career move is in my opinion, a really easy conversation. It goes something like this. Do you want to know why you come to work every single day? Do you want to feel that you make an impact? Do you want to shift spending your time from PowerPoint presentations to actually doing work and delivering value? If you like those three things, you will love a credit union. It's really easy. The work is exorbitantly hard. But uh, if you know what you're solving for, for the bank people that we've brought in as well as the leg, uh, the long tenure team members of Travis, or more short term team members who have been promoted like that winning combination, that's a great, that's a great career move.

Speaker D: What institutions do you compete with?

Speaker E: So interestingly enough, and you know this based on your network, the reality is predominantly in the Northern California footprint. Our primary competition is in this market. Wells Fargo, B of A and Chime.

Speaker D: Wow, that's some big dogs you're running with. And how are you doing against these guys? Good.

Speaker E: We've grown the last four years I've been here, so I have a couple of thoughts. We've grown our membership base. Uh, this year will be probably four and a half percent, maybe five, depending on how the world moves. Uh, we've shifted our mix to focus on more direct members versus indirect. We've seen a 10 percentage point shift over the last four years to direct members, which is our core mission and philosophy. Our net promoter score is at a company record high. And we're growing. So, like, what's not to like about that? Doesn't mean it's easy. But nothing worth doing is easy. So I, from my perspective, I mean, I always want better, don't get me wrong. But if you take a look back and say, are we growing in the right way? Are we doing the right things? Are we delivering the mission? Are we showing up in the communities? You bet, 100%.

Speaker D: Do you have the advantage that neither Chase nor B of A, the CEO, uh, doesn't wake up in the morning saying, what the hell did Travis do yesterday? Whereas he might say, what the hell did Wells Fargo do yesterday? I've talked to people at very big credit unions in New York and New Jersey and I said, Jamie Dimon does not wake up thinking about you. It doesn't matter how big you are. But I see that as a potential advantage.

Speaker E: 100%.

Speaker D: Right.

Speaker E: I mean, I, you know, as I think back to my banking days, as I alluded to, I ran a really large group in a retail bank across the Midwest. The only time I thought about a credit union was when they ran some abnormally high CD rate. That was it. Otherwise didn't spend a lot of energy. Not. And I think historically the perception is that there's a lot. Here's what you'll see in the press versus the reality. What I would tell you as a general statement is the banking system does not spend. The, uh, traditional banks don't spend a lot of time thinking about the credit unions. Where you do hear about it is when it comes to certain trade organization, when it comes to lobbying Congress about certain rules. But as a general rule of thumb, the banking people I worked with had no animosity to the credit unions, nor did they spend a lot of time worrying about them. So this is a little bit of this. It has turned into more of a thing that it is. It's a way more rhetoric than reality from my perspective.

Speaker D: Yeah, I've said for years that Jamie Dimon doesn't give a hoot about the credit union tax exemption. He's not going to come out against it, because there are a lot of people at small banks who really think this is important. But he don't give a hoot. It don't matter to him. And I know there is at least one trade association that beats that drum pretty much every year. And I've always also also said that maybe 10% of credit unions would pay a little federal tax. The others, if they hired a good accountant, wouldn't pay anything. So.

Speaker C: Right.

Speaker E: And that's the, you know, to your point, it ends up being, you know, for credit unions, that the tax exemption is a, you know, it's a legal structure, it's part of identity. And to your point, there are models in other countries, I prefer we keep our tax exemption, but, you know, there are other way, other models in the world. We stand behind a tax exemption, we're able to prove the math of the value we deliver. I'm, um, very confident standing behind that. Uh, but your point, like it really is a good lobbying point for a specific audience. Outside of that, it's not really a pressing issue when it comes to the banks.

Speaker D: From my experience, and I believe the biggest credit unions also, at least last year, worked up scenarios about how they would survive even if taxes came into effect.

Speaker E: You have to, if you're not, I mean, it's like business 101. If you're not running scenarios to think about the following, whether it's macroeconomic or political implications, then you're not doing your job right. This is kind of the nature of the thing. And so they understand the trade offs. And uh, we again will fight very hard to make sure the credit union system keeps their tax exemption. And we will continue to deliver what we've committed to deliver from a mission.

Speaker D: Bait and switch. I'm actually going to switch to the bait that interested you in talking about.

Speaker E: Sure.

Speaker D: Which is financial literacy and A, what you're doing and B, how you see this not just as a good thing for your members and for the community, but as a potential competitive strategic advantage for Travis. That's the part that intrigues me because I always hear, oh, we're doing this because we're nice people. You're saying we're doing this because we're nice people. And also I see a strategic advantage here. So go.

Speaker E: Yeah, 100%. So as I mentioned, ah, our history, our foundation came from serving those who serve. And so as you know, they have a unique set of needs because they're often deployed, they're on rotation. And so I think the credit union had a unique perspective on how impactful Financial literacy is. That isn't just a good headline.

Speaker D: Right.

Speaker E: Which, uh, is particularly in other discussions, oftentimes kind of how it comes across. So our strategic approach over the years has been we focused on youth education because it is the building block of our community. So it does two things. One, it does the right thing, which is make sure that if you're right, now we focus on high school. We may do some additional work on middle school. We're working through that. We put students through, in partnership with the school system, a live simulation of living a life. And they get educated, and they get to live a life for an hour and get to experience surprise events. And it brings at home the reality of what life is really like, particularly for their parents, which is actually pretty interesting. Most walk away with a better appreciation for mom and dad. So that's the right thing to do. In addition, what we find is it's building great brand awareness in the marketplace about who we are and what we do. And so what I find is that you can't spend enough marketing dollars to build that positive brand awareness and brand affinity in a way that is positive in terms of how it's perceived. Then you get to build on that. Through the grants we do for college, we've now introduced free credit scores for all of our members. And so what we've been doing is we've been systematically building on capabilities that would support the broader needs of our member base. But we're leveraging this great history of serving those both in the youth. And then we also partner, uh, with a series of nonprofits, both at the credit union level. And we have a foundation enabling nonprofit partners to educate their members, particularly those that are most vulnerable. And we find we have a program right now going on where a small cohort of folks are going through a program. They're getting free, uh, financial counseling. That financial counseling enables them to get their life back on track. Those people have seen a material decrease. They've already saved $400,000 in debt. They've reduced their debt load, and they're already experiencing improvements in their credit scores. Like that business model builds goodwill, no matter how you think about it. And our focus has been really building on that. Everything's about education. You build off education. You build products, services, and capabilities. You deliver them to the communities. And to me, it's, you know, kind of it's a winning proposition for how we go to market. And it isn't just good pr, which is oftentimes what you kind of find. So that's how we've Been thinking about it. We've been building everything against that capability and we're seeing great results of it. And you know, that's kind of the journey we've been on.

Speaker D: What percentage of your members are military or employees of military bases and what percentage are community? Because you have, you also a community charter where you have X number of California counties, correct?

Speaker E: We serve, ah, the 12 county footprint in Northern California. And I would say let me start with new members. How about that? Because the, uh, obviously we have a long history, I would say of our new members, less than 10% of new members are coming through the military. Wow. We are a community chartered institution. But because of our history and because we're very fortunate that we live in a community that still has a very, very active Air Force base. For those that don't know, Travis Air Force base, based about 15 minutes away from us, is they do a lot of things, but they're basically the FedEx for the air Force. So they have all the large cargo planes, they have all the large refuelers, they have David Grant Medical Center. They have a variety of capabilities that they serve the globe, but particularly the western theater. So anything going on in Asia, the Middle east, often happens through Travis. So we have these two worlds. They both exist and there's a lot of kind of connectivity between them. And so both are really powerful tools that we're able to deliver our mission to the military and we're also able to deliver the mission to the communities that surround our 12 county footprint.

Speaker D: I imagine a number of those people have been deployed to the Middle East.

Speaker E: That is correct. We had our actual. The state of the. Every year the base has a state of the base kind of a annual report. And we were there and there was a significant fewer number of cargo planes and refueling planes there because they are deployed.

Speaker D: So are you getting good word of mouth in the community? Is that attracting new members, particularly regarding this financial literacy stuff? It is.

Speaker E: So what's interesting when I go out in the community, so each year I meet with, I typically am invited to speak with our local rotaries for many of our, uh, towns or communities we operate in. And the number one piece of feedback I hear from our local leaders is, is that youth education. There's two reasons. One, they appreciate that someone's helping the youth in their community. The second is we allow local citizens and members to volunteer at the program. So there is nothing more fun than being able, whether you're a Travis member. Most are. And they come and volunteer, uh, at the high school with us to help deliver that uh, service to the local schools. And they really get a lot of joy out of connecting. Hey, I'm part of the credit union, but I also get to volunteer some to the credit union. That's a pretty unique experience. And they find the ability to connect that emotionally with the value we bring. That's a direct way to connect. So when I give a presentation, inevitably someone will make a point of commenting unprovoked by me about the work we do in youth education in our Communities now program.

Speaker D: I heard about some years ago and I believe this is at Navy Federal, or was it Navy Federal? But don't hold me to that was an institution like that. If you applied for a car loan and they rejected you, they didn't just send you a rejection letter, they said, hey, why don't you come work with us? And uh, if you do what we say you do, we're 99% sure we'll approve your application a year from now. Do you have a program like that?

Speaker E: We do. We have a first time car buying program. In addition, I have dozens of examples. Last year we had a team member, uh, one of our employees, we call them team members, who worked with one of our members for over a year to make sure they got their credit in the right place for them to be able to buy their first car. So we have example after example. So we have programs and then we have incredibly talented team members who then bring that to life. And as you know, part of what you hear in this day and age is this interesting mix of day to day transactions. 100% are moving more digital. But when it comes to starting in your relationship, complex situations, or maybe you got, you're a little bit stuck the over and over, whether you're Chase B of A Wells or Travis, what your members tell you is they want a human that could be voice to voice, it could be video or it can be in person. They 100% want a human to help them for a couple of reasons. One, they want to be reassured it's going to be okay. Two, they want to be treated like a human and not like they made a bad mistake and they're not smart because there's a lot of shame when people get into financial difficulty. And three, they want someone to help them through the journey. They can read all the stuff, you can google search and do an AI search on a topic. But at the end of the day, somebody wants to be led through a journey that helps them work through this issue. We have example after example. This uh, is what the team's able to do. And to your point, people don't forget that. Think about a life event that you went through and involved money, Whether it's a parent, relative, your financial institution, if they helped you, you almost never forget that someone helped you through that. That builds loyalty, that builds word of mouth. That's how you grow an organization. It's particularly ripe for credit unions.

Speaker D: Do banks have programs where, um, you apply for a car loan, you get rejected and they tell you you've been rejected, but they also say, we have a program that might help you buy a car in a year. Do they have programs like that?

Speaker E: Some do, some don't. It's harder. They mostly have to use partnerships to do that. And that's not a knock on them. It's just. It's the scalability. So I would say it varies a bit, but not to the degree that credit unions have them. Most credit unions have developed capabilities that when you get the no, it isn't a no. Don't get the hell out of here

Speaker D: and never darken our door again. By the way, we're closed your account, you bum.

Speaker E: Right. Like, you know, we. No one wants to have to say no.

Speaker D: Right.

Speaker E: But that's the reality in certain situations. So whether it's our first time, a car buying program or another interesting one is a credit builder program, right? Very common. Which is. And there are three types of situations where you need to do credit building. The first is you're young. You and I basically at the beginning didn't have a credit score, so you have to establish one. Second is somebody who is new to the country, less so now with some of the immigration changes. But historically, it's a really hard challenge if you're new to the country, you're here on a student visa, really hard to establish credit. And then third is the one you most often think about, which is, I've had something happen, I made a mistake, or life happened to me, and I need to get myself back on track. As you know better than anyone else, the impact of not having a great credit score impacts employment opportunities, impacts your ability to borrow, and impacts how much your monthly expenses are, whether it be rent, whether it be a loan. It is such an impactful component of things. So, you know, for us, it's education, it's providing free credit scores, and then it's working with individuals to make sure that they have a path to improve

Speaker D: their credit with your members. What percentage of wallet do you think you usually have? And I ask because you go back in the history of credit unions say, I don't know, 30 years ago percentage of wallet was probably close to 100%. Mhm. Now in many cases they're lucky if they have 50%.

Speaker E: Great question. So my observation is it's going to depend on the member type. So and this is true by the way, would be the same member type and then what product and service you're talking about. So a little bit of nuance but I think you'll know where I'm going. I would say for everyday banking, so that's kind of money in, money out. You have a checking account, debit card, your core credit union member. I would say the credit unions have a significant part of that wallet share. So that's you know, 50 plus percent of that wallet share for the everyday credit union member. I think you have credit cards a little bit nuanced in this day and age ever since the massive focus on rewards and premium cards. So that becomes a bit more nuanced depending on your income level and affluence level. I would say then on your more affluent side or emerging affluent, very different, which is you have less of their wallet share, credit card becomes a little bit trickier, but you're probably winning on mortgage and home equity and uh, you're having their day to day banking relationship but a ton of opportunity there as well. In the youth space again you're getting predominantly a significant wallet share. One of the interesting phenomena that Filene would have demonstrated in their research that is credit union members, I think partially because they didn't have all the capabilities their members needed, Credit union members statistically have more financial services relationships than non credit union members. As credit unions work towards segmented capabilities, serve specific member needs, I think they'll, they'll tackle that and have less of that than historically in the past, but they do have a more fragmented experience across that. The last area it's not often talked about but it's becoming more of a topic in the credit union space is the small business environment. Credit unions, because of their local presence and commitment to being involved, end up with a series of small business relationships that they're typically underserving. And so we have a significant focus on making sure that those members. We've got over just about 7,000 small business members, they range predominantly in the micro into small and some medium. We're doing a significant amount of work to improve that experience for them to make sure that we're better serving them. What's interesting in the small business spaces, those individuals really want to have a financial services Partner, particularly a credit union that's local. And so for them, they over index on the fact that you're involved in their community, you're involved in things. They really want to bring the relationship there. And that's a great opportunity for credit unions that uh, puts you in direct

Speaker D: competition with community banks, which is not necessarily a bad thing.

Speaker E: Yep. And what you find is that market naturally kind of segments itself out a bit. So you know, we've grown our small business lending by 200% in the last four years. We've not bought a loan. We originated them through relationships. We built a whole new team and then we're so that, you know, we're growing that membership base and we're growing the lending to that population and we're picking specific niches to focus in areas where we can accelerate and deliver value to those folks. And we're building relationships with them. And so they're helping drive what capabilities we add. And so we're kind of working our way there. So the financial services pie is so large in the US that there is always opportunity to succeed. The competitive landscape is much more difficult, but make no mistake, you can absolutely be successful. It requires significant rigor and significant focus, but it's doable.

Speaker D: And credit unions keep offering free checking.

Speaker E: I think, yes, I think the, you have to think about, it's a little bit of the Amazon question. Is the intention of that thing to be the moneymaker or is the intention of that thing to build a relationship which then enables me to serve that individual with the ability to then win future, uh, business or relationship opportunity? So yes, the economics are very different than they were a couple of years ago. But I still think it's ah, an area you can focus on and do well in.

Speaker D: Well, it's one way that you beat the bejesus out of Chase. Most credit unions offer free checking with no minimum balance. Chase has a minimum balance of a couple thousand, I don't know, might even be 5,000. But otherwise you pay 12 bucks a month or something like that, that's $144 a year. Most credit unions you pay zero. So that's a selling advantage right there. Right.

Speaker E: The little banking secret, for what it's worth, a little inside baseball, since I have sat in kind of the three worlds, is that very small percentage of the banking clients actually at Chase pay the monthly fee.

Speaker D: Right.

Speaker E: There's a minimum balance and then there's an activity requirement, which is money in, money out, which is really what they honestly want. Is uh, really is it an active Account, Right. This is the big learning coming out of the great financial crisis is and one of the questions the fintechs are going to face is just having a very large TAM target, target market area, total addressable market. If those individuals, if you aren't delivering value and they're not interacting with you and I don't mean physically walking in but they're not using your service, you really don't have anything. And so what the banks learned out of the great financial crisis is usage matters a whole lot and so they've restructured their whole operating model to deliver on that. Credit unions are learning the same thing. The difference is they're going about it in a very different way. I'm not jacking up random fees to push people out. What I'm saying is everybody's welcome, let's figure out how we serve people in the right way that's true to our mission but also affordable for us as well. And so how do I think about delivering that value in the appropriate way? So two different ways to tackle the thing. I think the credit union way is a better way but both work.

Speaker D: Are you looking at merger opportunities?

Speaker E: Ah, uh, the $1.1 million question. So I would say the our discussion with the board has been organic is our primary focus. We have done all of our work related to what are the criteria for Travis to consider a partnership, how we would think about it. And so we have an agreement on you know, kind of what that criteria we need look like. So I would say it's an opportunity, it's not our primary focus. Organic growth run the organization, deliver on the mission is the number one focus. So you next question might be what would it take for you to say yes to a uh, partnership or a merger? To us it's pretty straightforward. It has to a dramatically improve value to the member and that can be both in better presence. So better distribution could be the ability to scale the organization in a way so that have more resources to deliver new capabilities in a world that's changing fairly rapidly. And third the non negotiable is any of our community commitments must maintain or grow even better. So those are kind of the three variables that I, you know in alignment with the board we have agreement on and if we can deliver, if an opportunity comes our way that delivers on those three things, enhances the mission, delivers better value and makes sure that we only enhance our commitment to education and community then that's an opportunity the organization will look at.

Speaker D: I'm sure you know better than I do the first tech DCU merger really was a giant earthquake where everybody woke up and said what just happened? Why? And that there may be some very specific reasons for that merger that uh, aren't necessarily going to happen in all discussions. Even so, you see two healthy big credit unions, no problems saying, hey, let's get married. Wait, all the merger rules have changed? Correct.

Speaker E: Well, so why is that happening? And I happen to know both the retiring CEO who just retired and the new incoming CEO Shruti, who's a fantastic leader. So there's a couple of dynamics going on. One is because of, as you know, related to particularly legislation. So one is the Durbin amendment, which basically causes an arbitrary line in the sand, uh, at $10 billion that changes the economics of the game. And so financially the right thing to do for the membership base as you get closer to 10 billion is you can't go over a little bit. You have to go over by 4 to 5 billion dollars in asset size to make going over that worth your while. And so some institutions will decide to stay under and that's their philosophical decision based on their mission. Other are going to say the scale game, the ability to think about AI, whatever happens with stablecoins or all of the fun stuff in blockchain, hey, we can deliver more value and we need to do it at a bigger scale. And they're making that decision. So I can see both sides of the coin. I also want to be clear, you could also 100% make the decision to say small. However you define that is a winnable proposition. And it is, uh, it means that your model of going to market has to be very specific and very lean. So it doesn't mean you can't be a $100 million credit union and successful. But you have to be very clear on what are your aspirations and what are your expectations of your membership base. If you have a broader community focus, scale does become to matter because every day you come into the organization, every single year, the operating costs are skyrocketing up. Uh, just like every business, small business owner, probably for your business, what you are experiencing is a higher operating cost. And you have to think about what are the implications of delivering on the mission, delivering on the value, while also making sure you're prudently using the members money. And so sometimes the inorganic side is a logical way to go to get that haft very quickly.

Speaker D: The biggest credit union, Navy Federal in your particular niche has grown almost exclusively by organic growth. They have not done a lot of mergers. The mergers they've done, um, mainly have been acts of kindness to ncua and they've done their part in the community in that regard, but they have seen growth as something we're going to do internally, man. That's what we're going to do. And they've done it.

Speaker E: Yeah, yeah. And you know, so that goes back to business model. Right. They have a, they effectively have a national and global field of membership.

Speaker D: I talked to the CEO, um, of Navy Federal many years ago, not the current person, and I said, so who do you compete with? Pentagon? And he said, huh, huh, no, usaa.

Speaker C: Correct.

Speaker D: Right. Yeah. So it was like I asked him the dumbest question in the world.

Speaker E: Yeah, yeah, yeah. So you know, your charter type and how you're governed has a significant implication on growth trajectory. And that isn't. I don't mean that in a bad way. I mean that, uh, you have to think about how you bring the mission to life in different ways. If you have a national FoM field of membership, then you think about things in a different way. Whereas if you have a community charter, really, that community charter says yes, you can expand counties here and there and that's fine. And that's of course a path you can do if you demonstrate certain those communities. But more importantly, a certain size and scale does matter a whole lot. To make sure you're bringing that to market

Speaker A: 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 all be mega banks, can it? It's my hope it won't all be mega 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 rjmcgarveymail. Uh.com Robert McGarvey again, that's rjmcgarveymail. Uh.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.

Speaker D: The CU 2.0 podcast.