In conversation with Robert Kelly: How credit unions are adapting to new financial realities

Governance: struggles to attract board members

One of the more pressing challenges credit unions face today is governance, precisely the difficulty in recruiting and retaining board members. “Credit unions are finding it increasingly difficult to attract and retain directors,” Robert says. Many of these positions remain volunteer-based, which is less appealing in the post-COVID world, where work-life balance has become a priority for many.

But this challenge goes beyond recruitment. A modern credit union board needs to consist of more than passionate volunteers - it must consist of individuals who understand the complexities of today’s financial services environment.“Without strong leadership capable of navigating governance, regulatory, and technological changes, credit unions will struggle to grow sustainably,” Robert argues.

“The sector is resilient, but without strong leadership, it will struggle to grow sustainably.”

Creditworthiness: the delicate balance between risk and affordability

Another critical issue facing credit unions today is the balance between lending risk and affordability. Robert explains, “Many credit unions have tightened their creditworthiness assessments, and loan decline rates are higher than before.” This shift, while necessary, poses a challenge: how do credit unions continue to provide affordable, ethical loans while managing heightened financial risk?

Robert believes this is a pivotal moment for credit unions to rethink their risk models. “We must ensure that loans remain accessible to those who need them most, while also protecting the institution's financial stability.” It is a delicate balance, but one that Robert feels credit unions can manage with the right tools and frameworks in place.

Deposit outflows: a new financial challenge

One of the more unexpected developments in the past couple of years has been the outflow of member deposits. Credit unions, traditionally known for having sticky deposits – those that remain consistent even during economic shifts – have begun to see more money going out than coming in.

“We have seen deposits flow out for the first time in several cases,”says Robert. This shift is largely attributed to rising interest rates, which have drawn members to higher-yield savings products mainstream financial institutions offer. Credit unions, known for their community-based, service-first approach, now face a new challenge: maintaining their competitive edge in a market driven by returns.

“For the first time in decades, we have seen deposits flow out rather than come in, challenging credit unions’ ability to remain competitive.”

Post-COVID opportunities: product diversification and legislative reform

Despite these challenges, Robert sees growth opportunities, particularly in product diversification. ABCUL successfully pushed for legislative reforms in 2023 that allowed credit unions to expand their service offerings. “This was the most significant legislative change since the Credit Unions Act of 1979,” he notes.

Credit unions can now offer products like general insurance, car finance, and potentially even credit cards. This product expansion is crucial for attracting new members and serving a wider demographic. The reforms also position credit unions as more direct competitors to mainstream financial institutions, especially for consumers seeking ethical, community-driven banking options.

Collaboration and data analytics: the path forward

Another promising trend within the credit union sector is the rise of collaboration between credit unions. “Collaboration is key to unlocking economies of scale,” says Robert. Credit unions can share resources, reduce costs, and offer more comprehensive services by working together. This collaborative approach has already taken off in the U.S., where credit unions leverage partnerships to provide full-service banking options, even with limited assets.

Looking ahead, Robert also sees a timely opportunity for credit unions to align with a broader global focus on cooperation. “We expect next year to be internationally a year of cooperation. And so, I think we have got an opportunity to try and maybe piggyback on some of that,” he explained. By positioning themselves within this international movement, credit unions can gain more visibility and strengthen their cooperative models, both locally and globally.

Data analytics is also emerging as a game-changer. Credit unions are beginning to recognise the potential of the vast amounts of member data they hold. “Credit unions are data-rich, and we’re just starting to see them utilise that data for growth,” Robert explains. By analysing membership trends and identifying underserved markets, credit unions can make smarter business decisions, improve member outreach, and enhance their financial services.

Technology and innovation: bridging the gap

Technology is another area where credit unions must innovate to stay competitive. With younger, tech-savvy consumers expecting seamless digital experiences, credit unions are looking at ways to enhance their member interactions through technology. Robert emphasises the importance of adopting fintech solutions and improving user experiences. “We need to make the member onboarding experience smoother and more intuitive, especially for those unfamiliar with credit unions.”

This focus on digital transformation, coupled with collaborative efforts and data-driven insights, will likely be a key determinant of credit unions' success in the coming years.

Looking ahead: the future of credit unions

While credit unions face several significant challenges in the post-pandemic landscape – particularly around governance, lending, and deposit retention – there is also a wealth of opportunities. Credit unions are finding ways to adapt and thrive, from product diversification to technological innovation. Robert says, “The sector is resilient, but we must adapt quickly.”

For credit unions, the path forward is collaboration, innovation, and a renewed focus on sustainability. As they continue to evolve, credit unions will remain a vital part of the financial ecosystem, providing ethical, affordable financial services to the communities they serve.