Small Businesses, Big Opportunities: How SMB Lending Secures the Future for Credit Unions
As credit unions reflect on 90 years since the Federal Credit Union Act, the question arises: What strategic focus will propel them into the next era of financial services? Should they return to their cooperative roots, or step up to fill the void left by small community banks in serving local businesses?
In this episode of Grow Your Credit Union, hosts Joshua Barclay and Becky Reed welcome Mina Worthington, President and CEO of Solarity Credit Union, to explore the future path for credit unions. They discuss the potential of embracing small business community banking, the importance of reinforcing the cooperative difference, and how credit unions can remain relevant and successful in a rapidly changing financial landscape.
Plus, we discuss how credit unions can balance fee eliminations while staying financially sustainable and examine how reimagining the in-branch experience is driving innovation across the industry.
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FULL TRANSCRIPT
Intro
Joshua Barclay: Hey, credit union community. Here's what we've got lined up for today.
First up, we're diving into the big debate: How are credit unions going to handle the end of fees, and what's the game plan to replace that lost revenue? Then we're throwing a party for the Federal Credit Union Act's 90th birthday, and we're asking, what do credit union leaders need to focus on to keep credit unions thriving for another 90 years?
And finally, we're talking about the in-branch experience: How are credit union leaders shaking things up to make visiting the branch better than ever?
Welcome to "Grow Your Credit Union." This is the podcast where credit union leaders gather, learn, and grow. I am your host, Joshua Barclay, and with me is my cohost, the queen of DeFi, Becky Reed. Howdy, Becky.
Becky Reed: Howdy, y'all.
Joshua Barclay: Becky, let's kick things off. I know that your Dallas Cowboys suffered a pretty ugly loss yesterday. As somebody from Connecticut, the only thing I can relate to is UConn Huskies basketball. But I want to know, what is the rivalry like sports-wise there in Texas? Because you've got so many teams, right?
Becky Reed: Well, but most of the time, the teams don't compete against each other, right? They're in different leagues or different areas, so they don't generally play each other. Now, occasionally the Astros will play the Rangers, right? So that will happen, so that can kind of be fun. But here in Texas, of course, this is football country, right? We're in the South. But here in Texas, most of our rivalries are, frankly, out east by where you are, Josh.
Joshua Barclay: Sorry to hear that, Becky. Well, I'll tell you one thing, Becky. I don't know what's really going on with the NFL, but as far as college hoops are concerned, I don't think your Texas teams are touching my Connecticut Huskies. Let's jump into the show.
I want to introduce our guest today. We have the President and CEO of Solarity Credit Union, Mina Worthington. Mina, welcome to "Grow Your Credit Union."
Mina Worthington: Thank you for having me.
Segment 1
Joshua Barclay: Navigant Credit Union, Rhode Island's largest credit union with $3.7 billion in assets, announced significant fee eliminations and reductions for both consumer and business members, effective immediately. The key changes include the elimination of overdraft fees and insufficient uncollected fund fees, with reductions for various other fees.
Mina, it's kind of one of those weird things because this feels like Navigant Credit Union could just be trying to get ahead of the curve with this CFPB push for fee eliminations. What I want to know: If the CFPB's dreams come to fruition and fees are in fact eliminated, how do you think credit unions like yours will balance cutting fees while staying financially sustainable?
Mina Worthington: Well, I would agree with you, Joshua, to begin with, that the Navigant move is probably proactive, and they're just trying to get prepared and start to figure out how they're going to be able to sustain themselves without that additional revenue.
So I think that the way that we're going to have to sustain ourselves through this is by cutting costs and potentially even finding merger partnerships to gain scale economies. A $3.7 billion credit union probably has some pretty diversified revenue sources, so they have the scale to be able to do that. Whereas a credit union the size of Solarity—and many credit unions much smaller than I am—that have a lot of dependence on that fee revenue for not only in the last couple of years to cover income but to cover costs. So a lot of people are using fee revenue to even cover overhead expense, not just contribute to the bottom line.
So we started in 2021 some cost-cutting measures because of wage inflation and just general inflation across the board—vendor contracts coming in 15 to 20 percent higher because their wage costs are up as well as all costs. So we launched an actual project, a year-long project, to really closely examine IT as a starting point because they have the highest budget outside of the compensation budget in the organization. And we assessed our needs through that discovery and began to eliminate and streamline systems and processes that had been overcomplicated in the name of digital transformation. And so we were able to find hundreds of thousands of dollars of really waste in our IT budget. Some systems we implement—and I know this is not much different at other credit unions—we use 30 percent of the system. Is there something else out there that costs less that we can implement instead of that?
So DocuSign is a good example. You know, we just automatically got on the DocuSign wagon. Well, there are a lot better solutions out there now that are a lot cheaper than a solution like DocuSign.
And then compensation, you know, being the largest budget at this credit union—and I'm sure the largest budget at every credit union. When I first became a CEO, the comp budget was 48 percent of every dollar we spent. At our last budget, it was 78 cents of every dollar we spend is compensation, and that includes benefits, right? So healthcare has just gone out the roof, wage inflation, etc.
So we've always assessed positions when they've become open to determine need. And we are a pretty big mortgage lender in our markets. We decided years ago strategically that we wanted to become a force to reckon with in the mortgage lending brand. There was a refinance boom happening 2021, 2022; the staff were very busy, working a lot of overtime. But when the volume started falling off—and it fell off quick, like awful, off like a ledge—we were like, when the Fed started raising rates throughout '22 and '23, we redeployed those mortgage lending staff to other areas throughout the credit union—contact center always has openings, branch in a few cases.
And we continue to further evaluate every opening to determine if there isn't a need there or if we can further automate, because comp costs have gotten so expensive that you really have to assess every position and determine your need. I think a lot of credit unions have a lot of fat in them. I believe that credit unions are probably some of the worst offenders of carrying excess expenses because we are slow to change as an industry, and we can sometimes place the preservation of our people over the preservation of our institutions. And so, in order for us to be sustainable in an environment where we can no longer rely on fees to cover that overhead, I think that's going to have to stop.
Joshua Barclay: Becky, couple things. One, obviously I want to ask you how you would address the reduction of fees. But before I do that, I've seen various data points about how reliant credit unions are on these fees, and I haven't been able to make heads or tails of the big picture, meaning how truly dependent on the fee revenue are credit unions as a whole. So, in your experience, from what you've seen as a credit union leader, Becky, how dependent are we on these fees, really?
Becky Reed: Well, I'm going to go back to how we got ourselves into this predicament in the first place. And I started in credit unions in the '90s when our dividend expense and our compensation expense were almost the same. So interest rates back then, what we were paying on deposits in the '90s, were closer to what we were paying our people than they are today.
Credit unions became reliant on fee income because interest rates were so low, they couldn't make money on loans anymore. So generally you want to have a three to four hundred basis point spread between what you pay for deposits and what you charge on a loan. And because of what happened in the 2000s after the Great Recession and 2022, right, interest rates on loans—you could get a car loan for half a percent, you could get a car loan for 1 percent, and the Fed overnight rate was a quarter, 25 basis points. So the cost of funds no longer even came close to rivaling the cost of compensation. And so in an effort to try to figure out how to get more revenue—because we weren't making it on loans—we had to start implementing fees.
Then we ushered in the whole overdraft issue, right? Oh, guess what? Now our systems are such where we can charge money. Instead of sending the check back, now we can charge to pay it. And so then I remember in the early 2000s, there was a huge effort in the credit union space to tell credit unions: Stop over-relying on fee income. Stop it.
There is a ratio that tells you, as a credit union on your financial performance report, what percentage of your total revenue is fee revenue. And guys, there are some credit unions out there that that's upward of 5 percent.
So, Joshua, what I'm going to tell you is we never should have been relying on that income in the first place. But over the last 20 years—two decades—we have become over-reliant on it. And frankly, we've forgotten how to make money any other way.
Joshua Barclay: Mina, when I'm thinking about the overdraft stuff—and I know that these are punitive, right? Like, I overdraft, so you hit me with a fee, right? But bottom line, Mina, does this really benefit the member to eliminate fees?
Mina Worthington: Well, first of all, I don't necessarily see it as punitive. I recall actually, at least here on the West Coast, that some of these overdraft protection programs were a response to payday lenders. And so, when payday lenders came to the rise, we came to the rise with courtesy pay programs basically to save our members money, because our members were going to payday lenders and getting this money at much, much higher. So we were like, no, don't go to a payday lender. Just swipe your card and we'll cover it for you for 20 bucks or whatever it is, right? Much, much cheaper than what they'd pay for a payday lender.
So it's a service; it's a fee for a service that members want. They want it badly. And you can talk to members about, hey, you know, you spent $150 in overdraft fees this month. I mean, you know, and they don't want to hear about it, right? They don't want to hear about it because it's a service that they want.
And so it's not good for members necessarily to eliminate the fees, because you eliminate the fees, you eliminate the program. We can't have no fees on this program. We have to be able to cover the cost of—because there are losses that are taken. You know, there are accounts that overdraft and never get funded.
So it's basically interfering with a consumer request for a service. I also—Becky, to your point—what's going to happen is that there's going to be a tax on all consumers, and that's going to be in terms of your consumer loan rates. So just like Becky said, consumer loan rates are going to go up, and they're going to be a three or four hundred basis point margin. Currently, we look at a 200 basis point margin on consumer loans.
So, yeah, with the competition in indirect lending with the large players in the market, we're lucky to get a, you know, 100 basis point spread. So believe it, you're not going to be able to get a car loan for less than 10 or 12 percent if this, in fact, goes. Because, by and large, credit unions are doing the car loans out there, and banks that are doing them aren't going to do them anymore if they can't get margin. They're not gonna—they have—and they have really diversified revenue streams. We don't.
Becky Reed: 100 percent right. Of course, anytime there's any sort of government regulation, right, that eliminates any sort of cost or fee or whatever—I mean, look at the interchange regulation, right? It doesn't save consumers any money. Everybody just ends up paying more.
Segment 2
Joshua Barclay: Ninety years ago, President Franklin D. Roosevelt enacted the Federal Credit Union Act, which laid the foundation for a federal credit union system and broadened access to affordable financial services for Americans. In his reflection on the 90th anniversary of the Federal Credit Union Act, NCUA Chairman Todd Harper emphasized four key principles for the future: transparency, fairness, vigilance, and foresight.
Mina, looking ahead, what do you think credit unions need to focus on the most to ensure their success for the next 90 years?
Mina Worthington: I guess what I would say—I try to look out five years, you know, and I feel like that's pretty far out there. And honestly, for us, the answer is small business community banking. It is harder and harder for small community banks to get ahead and make it long term. In the Pacific Northwest, where I'm at—Washington State—we have a very, very strong credit union charter, which means we have very few small community banks, and the credit unions are taking up that space.
And I feel like the credit unions are in a position to fill that space where community banks used to fill, and that business transactions, business relationships tend to be far more profitable than retail or consumer banking, which is why a lot of small community banks don't do a lot of retail except for what their business customers want them to do. And so I think that we're going to have to use that small business commercial banking piece to supplement the consumer banking that we do.
Joshua Barclay: So what is the issue that has prevented or got in the way of credit unions making the proactive move to be more entrenched in small business?
Mina Worthington: So we don't really—we kind of give it lip service. What we do is we do real estate, commercial real estate lending. We don't really do small business banking, most credit unions—even some of the very largest credit unions. So you may assume that that's been done, but that's not really being done. I think it really needs to be done the right way, the way a community bank does it.
And I've learned a lot from the community bankers I've known and what relationship means to them. And I'm telling you, when it comes to relations, they're relationship-oriented folks, and we could take a lesson from them in terms of what that relationship orientation looks like as far as small businesses are concerned. So I think we need to really, truly do small business banking, which means we need to do SBA lending, which means we need to do equipment purchases with lines of credit. We need to be in small business checking accounts for liquidity, for fees. So I think that's the answer for—at least for the credit unions in the Pacific Northwest. That's what I'm seeing, and that's where we're going.
Joshua Barclay: Becky, let's go back to the top. Ninety years—I think Mina made a good point. I may have gotten carried away; Todd Harper himself may have gotten carried away with his moves for the next 90 years. Let's just talk about what credit unions need to do today to even have a chance to get to the 90-year mark. So if you're thinking about the most important things, Becky, for the success of the credit union movement headed forward, what is our number one focus in the land of Becky Reed?
Becky Reed: Well, I don't think this would surprise you, Joshua, to hear me say we have to go back to our roots. Our cooperative roots is what is going to carry us into the future. It's what got us over the last 90 years to be where we are today. But the financial cooperative difference, the credit union difference, is something that is important to not only the consumers of the past but also the consumers of today and the consumers into the future.
Owning your own financial institution is a concept that is going to become more important as we move into the Web3 ownership economy. And so people having control over their own finances, over their own data, over their own financial choices, and also having an inclusive relationship—meaning I can choose to bank wherever I want to bank. I'm not excluded from doing that because of whatever reason.
And some of that has to do with access, right? If I have access to the internet, I should have access to be able to manage my finances. And so I think that credit unions should double down on our cooperative difference, our grassroots difference, because the banks are going to continue to come after our tax status, and unless we can demonstrably show that we are different and we treat members differently because they are owners, then eventually we'll just become a bank. There will be no longer a material difference between a not-for-profit financial cooperative and a for-profit financial institution.
Joshua Barclay: So it's about that mission and that messaging that we've largely, I think, failed—if I'm being completely honest—on our unique differentiator.
Becky Reed: We didn't always. We didn't always. I think that we did a fantastic job from the time FDR signed that bill into existence up until—I'm going to say—the mid-'70s. I think we did a fantastic job. There were thousands of credit unions created in the '70s. Thousands. Every day.
That differentiation stopped once we started telling people that we're like a bank, only better.
Joshua Barclay: Mina, I want to double down on what she said about this small business lending one more time, because this is something that I've heard a lot of folks in the credit union movement talking about as well. As you said, it sounds to me like lip service at this point, but I want to ask you: Are there any moves that you've initiated already to get that type of focus moving, actually moving it into action, whether that's the digital infrastructure needed to do this or the staffing? Talk to me a little bit about your game plan for approaching that small business lending strategy.
Mina Worthington: I mean, we've been doing business lending for many years, and we have about a portfolio of about $200 million. So you would think we do it, right, if you looked at our call report. But I'm telling you, you know, we have—and we have small business checking accounts, but we really haven't invested the time and the resources into understanding it and making sure that everybody in the organization is behind the effort.
So last year we implemented an organizational-wide strategic objective that was an 18-month objective to really build the small business community banking division within Solarity Credit Union. And so we've been working on it since mid-2023, and we're finalizing some things right now in terms of training and getting staff in the back office and the front office spun up. We're going to start to kind of slowly roll that out next year and then learn our way into it.
But we are one of the only local institutions left in our community—one of two, actually; one is a thrift and one is us. And so we need to be able to walk down the street to Joe's Trucking and look Joe in the eye and go, you know, "Hey, Joe, how's it going today? You know, we're here to do your banking for you." And so I really think we have an opportunity as a local lender to do that in our community, and it's a community service that I think we should offer.
And it sounds a little counter to actually what Becky's saying, and it might be a little counter because, you know, that's not how credit unions started out. I mean, shoot, we didn't do share drafts back in the day, right? We didn't do checking accounts; that was too bank-like. But our members call us a bank; they see us like a bank. We've done a terrible job of differentiating what a credit union is. I don't disagree with Becky at this point.
And, you know, I'm not sure that I'm in the camp that we need to try to reinvigorate the idea that we're a financial cooperative, because I'm not sure that anybody cares anymore.
Segment 3
Joshua Barclay: One of the things we like to do on this show is we like to ask credit union leaders what they're doing so they can share their experience and their insight to hopefully help you level up as a leader yourself.
Mina, under your leadership, Solarity has seen some bold transformations, but one that really stood out to me is how you reimagined the in-branch experience. You shifted from the traditional lots of people behind the counter to a model that's more open, personalized, and consultative. So what I'm wondering is, like, what inspired the decision to move away from the old-school in-branch model to this new way, and then how has that changed the way members interact with your team?
Mina Worthington: Well, the way it started was that we survey our members on a transaction-by-transaction basis, and when we would survey teller transactions, the number one complaint was long wait times. And it didn't matter—I mean, we have some pretty busy branches—it didn't matter how many tellers we had, you know, five, seven, eight—God forbid somebody call in sick, which is a normal occurrence these days—we always had long wait lines, especially at certain times of the month. And so always the number one complaint, and it actually damaged our MSAT score, right?
And so we thought and thought and thought about how we could get members to do transactions other ways. We had people stand in the lobby, stand in the line with an iPad, you know, teach members about mobile banking, remote deposit capture, you know, issue members debit cards that didn't have them, show them the ATMs out in the drive-up lanes and the lobby—just could not get people to transition necessarily to that behavior.
Now then COVID happened, and people were forced to. And so when our lobbies closed for that first three or four months, I found—I'm kind of an opportunist, and I like to find opportunity in sort of a crisis like that—and so I was like, what is the opportunity? What are we going to do moving forward that we can change now?
And so we decided at that point, through some planning sessions with the board, that we were going to basically go tellerless in our lobbies. And so we kept our lobbies closed for an extended period of time to do the transformation of our lobbies from teller lines to smart ATMs. And I don't mean ITMs—we don't have people on screens. We have ATMs that do the—we call them smart ATMs because it implies that there's somebody in a contact center on a screen. There's not somebody in a contact center on a screen. There's an ATM that can do deposits, withdrawals, loan payments, transfers—most anything that a teller can do.
And so what we've really found is that—and also, when you survey members, when you survey consumers, you know, nobody looks at their banker and says, yeah, they're my consultant, right? And so people don't necessarily see us in the branches as consultants to them. And I've always kind of had a problem with that. Like, why wouldn't we be consultative, right?
And so we've really always worked on keeping our employees trained up and able to have those consultative conversations and really sort of dig deeper and find value for members beyond the transaction, because the value to our membership is not derived from our ability to process their deposit or their withdrawal or their loan payment. Regular day-to-day banking is rote process; it's an errand, right? And people want to get it done quickly and easily as it's an errand.
And so doing these things in a branch or in a drive-up between the hours that we choose to be open—from nine to five or whatever it is when most people aren't working—is not the quickest and easiest way for members to get those errands done. So when a machine is capable of doing a rote task much faster than a human, it's time to rethink what we're doing.
And our people are well compensated and well trained, and we want to hire people who want to help people the credit union way. And tellers with a line out the door—they're not helping people, right? They're just trying to work as fast as they can to get the next person so that they can shorten that line because everybody looks grumpy in that line. And I've been there. I have been that teller, you know, with that line out the door. I know how it feels.
And so our branch employees who see our members face to face and our contact center employees who talk to our members most are by far our most valuable asset, and we choose to allocate that asset to not doing things that are rote process that a machine is perfectly capable of doing.
And the other thing about that is employee satisfaction. You know, when you hire people who want to help people, they don't find teller work very satisfying. And so, you know, they derive high levels of job satisfaction by engaging with members in dialogue, digging deeper to uncover needs, serving members, saving members money, putting them in a more comfortable financial position—oftentimes these days saving them from scammers, because that's happening a lot in our branches.
And so, frankly, we believe that this model is a competitive advantage over the traditional branch model, and we think that it's going to give members—new and potential members—a compelling reason to come to Solarity over other banks and credit unions.
Joshua Barclay: You mentioned MSAT scores, Mina. Have you seen an uptick in member satisfaction since you've implemented that sort of renewed in-branch experience?
Mina Worthington: Well, I said MSAT scores. We do do NPS, but we do member satisfaction scores as well. And so we, on the transaction-by-transaction basis, we will measure member satisfaction with the transaction. But we do a relationship-based NPS survey. And so what we've seen is, yes, the transaction scores for the machines are much higher than the transaction scores were for our tellers. And not because our people weren't great, but because the first thing that they thought of when they got that survey was, I had to wait a long time.
Becky Reed: Well, I completely agree with Mina, and at Lone Star Credit Union we did something very similar. I think what's interesting is back in the day when we had tellers, it was typical to use a measurement of productivity for a teller. The average transaction per hour for a human teller was 17 transactions an hour. That is what you based your metrics on when you were hiring to figure out how many people you needed to hire.
Now the crazy thing is during the super busy times during lunchtime, you might have five people doing 50 transactions in an hour, but when you average that out—because there's hours during the day when maybe you'll only have one person come in—and so you're literally paying somebody to sit there and wait for somebody to walk in the door, but you can't staff it up enough—you can't scale it for during the busy times, right?
But you can do that with technology, with a computer. Whenever you ask members what they want, they will generally not tell you they want to replace a person with a machine. They'll tell you, I don't want to use a machine; I want to use a person. But when you don't give them an option, then they're perfectly fine using the machine, especially if they can access it 24/7, right? Like she was talking about, if I can just run by after work, the machine can do everything I need. We're very used to doing everything from our phone; why not do that?
However—and I know she's found this as well because she just talked about her employees being consultative—and we do spend a lot of time and effort training our employees because, frankly, there really is a lot of knowledge that you have to know in order to adequately help somebody who's having a problem. That's where the rubber meets the road. When somebody's having a problem, they certainly don't want to interact with the machine; they want to interact with somebody who's well versed in the credit union systems, who understands what is happening, who has access to information that is needed to help that person get through whatever trauma they're going through.
And so branches—I completely agree with Mina—branches are more about people helping people and letting the machines do the rote transactions, like she said, that don't require a lot of thought or skill.
Joshua Barclay: That brings us to the end of the show. Mina, I want to know if you have any final thoughts in regards to the conversation that we've had today.
Mina Worthington: I think it's really important that we think a lot about the future and how we grow our credit unions. I talk to a lot of people, and I know that it's been difficult to really grow our organizations and scale our organizations in recent years. It's been difficult with the liquidity situation that we've all been in. I think it's really important that we, like Becky said earlier, kind of get back to the basics.
So we're having conversations right now about growing membership and getting out in the community with ways that we used to do it—getting into high schools, you know, getting into job fairs, boots on the ground, sort of traditional stuff that I feel like we got away from in the name of digital transformation to some extent.
And so I really think it's important that we kind of assess what we need to do to be relevant and innovative but also what we've always done that used to work. And a connection with people is still a very, very important thing. We have found with our target persona that the thing that differentiates—and our target persona uses us digitally 95 percent of the time; they come into a branch less than 5 percent of the time, which means maybe once a year—but they still want that branch, right? They want that branch because they want a person; they want to know that there's a person there when they have an issue or have important business. And so it's about marrying the technical with the personal touch.
Joshua Barclay: And Mina, if anybody wants to get in touch with you—meaning they listened to this and they went like, wow, she is awesome, I would love to get ahold of her—what is the best way someone can contact you?
Mina Worthington: Sure. I think email would probably be best. That's mworthington@solaritycu.org.
Joshua Barclay: Excellent. And Becky, final thoughts about our convo today?
Becky Reed: Well, I really loved what Mina said about the small business community, because I think even banks really do a terrible job with small businesses. And while credit unions are certainly focused on the consumer side of the house and have been for those 90 years that we talked about being in existence, right, there are tons of entrepreneurs in the United States. And so by helping small businesses, we are actually helping our members—our individual consumer members who might have a small business or have started a small business or are running a small business that was inherited from their family.
And so I think small business community banking continues to be an important aspect, and I'm very glad that Solarity is doing that.
Mina Worthington: Thank you. Yeah, I mean, and think about the economic impact too, right?
Becky Reed: So important.
Joshua Barclay: Becky, I'll take this one for you. If you want to contact Becky: LinkedIn, LinkedIn, LinkedIn. Becky Reed on LinkedIn. She's already making a lot of noise; she posts often. You can find her there.
I want to thank you, Mina, for being our guest today. I want to thank you, Becky, for being my lovely cohost. And I want to thank you, our listeners, for continuing to support and listen to another episode of "Grow Your Credit Union."
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