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Keeping the Ball Rolling: How Credit Unions Can Adapt to Rapid Growth

October 23, 2024

The credit union industry has seen rapid inorganic growth stemming from mergers and acquisitions in recent years. In fact, we’ve seen more than 400 credit union mergers since 2022¹, with total credit union membership growing by 8 million members², causing more institutions to find themselves with a sudden increase in their member and deposit bases. Post-merger, credit unions find themselves at a critical juncture: How can we adapt to accommodate our new members while maintaining continued growth?

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Growing Pains

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Rapid growth is a natural and often desirable outcome of consolidations, creating new access to funds, lending opportunities, and resources for the purchasing institution. In addition, the average asset size of credit unions being acquired reached a record high of $67 million in 2023³, meaning the complexity of these deals has increased significantly from previous years. More and more, purchasing institutions who fail to prepare for the demands of both their new and prospective members will find themselves facing significant challenges in balancing the retention of these new funds while achieving their liquidity and balance sheet goals.

Specifically, credit unions face four challenges following periods of rapid inorganic growth:

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  • Retaining Newly Transitioned Members: Given their previous relationships with their former institution and the staff who served them, newly transitioned members may experience some uncertainty during the transition. It’s essential to provide a high level of service during and after consolidation to ensure their satisfaction.
  • Higher Expectations Due to Rapid Growth: A larger size and presence means current and prospective members expect more robust products and experiences. Differentiating your offering to accommodate a variety of individual and institutional member types is key to ensuring ongoing member growth and satisfaction.
  • Combining Balance Sheets: Managing and consolidating multiple balance sheets to meet liquidity and diversification goals can be daunting and operationally complex. Precise balance sheet management is no longer optional, but required for credit unions experiencing accelerated growth.
  • Continuing Organic Growth: Institutions who acquire must develop strategies to leverage their new capabilities and define innovative avenues for continued organic growth. Without these strategies in place to keep a steady drumbeat, credit unions risk missing the opportunity to use consolidations as launching pads for new, innovative growth strategies.

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Complementary Growth Strategies

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While rapid inorganic growth can pose a number of challenges, it also increases a credit union’s capacity to incorporate more sophisticated balance sheet management practices and engage in new high-value opportunities. In support of these opportunities, deposit networks enable newly consolidated credit unions to:

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  • Precisely Manage the Newly Combined Balance Sheet: With the ability to source deposits on-demand and sweep excess deposits through the network, credit unions can effectively manage their newly consolidated balance sheet to quickly achieve desired liquidity levels and ratios.
  • Power Growth and Retention with Extended Insurance Accounts: Members, both existing and prospective, expect a broader range of services from a now-larger credit union. Many high-value depositors, especially public funds and institutions, view extended insurance as indispensable. Whether their previous institution offered extended insurance or they’re looking for a new credit union to safekeep their funds, insuring deposits above the standard $250K limit is a valuable proposition for larger depositors. To that end, offering accounts with millions in extended NCUA insurance* provides a powerful new avenue to retain transitioned members and continue driving organic deposit growth.

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As credit unions experience rapid growth on the deposits and members side, they need more sophisticated tools to manage their balance sheet and more robust product offerings for members. The team at ModernFi CUSO is here to support a growing, more sustainable credit union ecosystem.

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Best,

The ModernFi CUSO Team

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Get in touch to learn more about how ModernFi can help your financial institution grow and retain high-value depositors:

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Contact Us

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* Deposit insurance provided through program institutions (subject to meeting certain conditions)

Sources:

1: Financial Trends in Federally Insured Credit Unions (June 2024) - NCUA

2: Credit Union Merger Results Through 2023 - Wilary Winn

3: Quarterly Credit Union Data Summary (Q2 2024) - NCUA

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