Credit Union SWOT Analysis

The primary goal of advancing their service goal is to encourage members to save money.

SWOT is an acronym for Strengths, Weaknesses, Opportunities, and Threats. Internal to the company, strengths and weaknesses are things you have some control over and can change. Examples include your team members, patents and intellectual property, and location.

The primary goal of advancing their service goal is to encourage members to save money. Another goal is to provide loans to members. Credit unions (CUs) have traditionally made loans to people with average incomes.

The most severe risks, according to the company, are vendor flaws, a lack of email security, and out-of-date computer systems.

According to the report, cyberattacks on CUs could result in financial losses ranging from $190,000 for small credit unions to more than $1.2 million for larger institutions.

These are exempt from state and federal taxes because they are non-profit organizations. In 2020, there were 4949 CUs in the United States, with nearly 126.6 million members.

They play an essential role in consumer banking in the United States, where roughly one-third of the population is a member.

Since 2013, the number of CUs has decreased each year. Still, the total assets of CUs in the country have increased annually, indicating that the size of CUs has grown during this time.

Unions and cooperatives are examples of financial institutions in this industry. CUs are member-owned organizations that provide banking services to their members, primarily deposit-taking and lending.

Credit Union differentiation from other financial institutions

These unions are different from banks and other financial institutions. Those with accounts in the CU are its members and owners, and they elect their board of directors on a one-person-one-vote basis regardless of the amount invested.

These distinguish themselves from traditional banks by focusing on community and serving people rather than profit. Unions provide many of the same financial services as banks, but their terminology is often different.

Examples of typical services include savings accounts, share draft accounts, credit cards, share term certificates, and online banking. Usually, only union members can deposit or take funds.

Surveys of bank and union customers consistently show that unions have significant client satisfaction rates with service quality.

CUs have long claimed to provide superior member service and to be dedicated to assisting members in improving their financial situations.

Regarding financial inclusion, unions claim to offer their members a broader range of loan and savings products at a lower cost than most microfinance institutions.

CUs are not the same as modern micro-finance.

The cooperative model differs from modern micro-finance because members control financial resources.

The current dominant model of micro-finance, whether provided by non-profit or for-profit institutions, concentrates control of financial resources and their distribution in the hands of a small number of microfinance providers who profit from a highly profitable sector.

Do you prefer mobile banking to traditional branch banking when choosing between a  union and a bank? Is making the most of your savings a top priority? Determine what you need and want from a financial institution before deciding whether to join a union or a bank.

Once you've determined what you're looking for, make a short list of your favorites, then compare the features and products that are most important to you.

Risks and stability

Since the Great Financial Crisis (GFC) of 2007, the financial system in which unions operate to serve their communities has undergone a significant transformation that presents several challenges for the union and its contribution to socially helpful finance.

This is ironic because, since the global financial crisis of 2007, governments, regulators, and society at large have all expressed a great desire to create a banking system that is both inclusive and socially responsible.

The Basel capital adequacy framework represents a significant technological investment by banking regulators, and institutions worldwide have made systems investments to put it into practice.

The Basel risk rationale may be expanded to manage credit risk for fossil fuel industries in light of the new worries about the financial risks associated with moving to a net-zero economy.

CUs have a long history of offering their members non-profit, essential banking services and have found themselves suffering.

They suffer due to the unintended consequences of central banks' quantitative easing programs and the evolving global capital adequacy standards applied to unions without considering their unique risk and business model characteristics.

The dysfunctionalities in the financial system are brought on by the combined forces of a central bank's quantitative easing policies.

Instituted after the 2007 financial crisis and have further expanded after the 2020 Covid-19, they pose a threat to unions as socially beneficial community-based financial institutions.

SWOT Analysis in CU

There will be a day when your credit union will be stuck, with no results or change-a time to step back and assess your situation to be creative and think outside the box.

The classic SWOT analysis is the best place to start if your CU is in this situation and wants to make changes and redirect marketing efforts.

It can continually be updated even if you have previously completed a credit union SWOT analysis. We want to examine the union SWOT Analysis relating to your credit union.

This tried-and-true exercise allows you to examine your union's internal and external environments by analyzing strengths, weaknesses, opportunities, and threats.

You can uncover many paths to promotional success by asking and answering questions about your union and your competition. To get you started, here are the four different breakdowns that will let you determine your strength and weakness.

Strength

Most union movements worldwide benefit from a committed workforce that finds great fulfillment in working for an organization that aims to better the lives of others.

While there is increasing disagreement over whether or not board members and other volunteers are paid for their work, unions' dedication to the union and its principles is a crucial advantage over other financial organizations.

CUs have an enormous privilege that they are exempt. Therefore, they do not surrender to federal and state taxes, which leads to the union having liquidity and cash flow more than other financial institutions, which allows spending on what is essential to the member.

Members' strong trust and the general belief that CUs look out for their best interests are statistically demonstrated in many of the sophisticated union systems. Therefore, they should capitalize on this critical asset. 

The appropriate goods, prices, programs, personnel, rules, regulations, and practices use the 3Cs of branding to spread your message: (Clear, Succinct, and Persuasive).

Weakness

A limited constrictive legislative and regulatory environment was identified as a difficulty the movement is confronting in almost every country questioned.

Most union movements have their historical roots in a religious organization's pursuit of social justice, despite being non-denominational and non-discriminatory. Because of this shared legal heritage, many activities today are still constrained by these archaic laws.

At credit union events worldwide, it is clear that the volunteer base and membership are getting older. Of course, we cannot ignore demographic trends, but these people have and still do serve as the credit unions' pillars of leadership.

The World Council reports modest membership growth and, in some cases, diminishing market share in more developed markets.

The World Council's statistics study showed significant asset growth, but we observe a clear trend of constrained membership expansion, which is frequently driven by population increase.

Many movements, but not all, are experiencing weak loan demand due to an aging membership. This appears to be a result of the requirements of the membership life cycle, competition from new market entrants, and poor CU product promotion.

Opportunities 

The potential to connect and draw in younger members is a benefit of having an older membership base. However, this may necessitate taking steps to provide young consumers with the new goods they need or want from their financial institutions.

Sending pre-programmed text messages to mobile phones if account balances fall below a predetermined monetary level might be one such instance.

Present yourself as a partner in education, providing services like a Credit Score Management Program.

These unions will work with your employees to help them manage, safeguard, and improve their credit scores so they may get better interest rates, lower monthly payments, and ultimately save hundreds of thousands of dollars in their lives.

In this regard, few CU movements have successfully reached 50% of their countries' populations.

The World Council continues to observe poor penetration rates of union members among economically engaged populations, especially in developing countries than in established ones.

Even though developed markets are in a far better situation, few union movements have spread to most of their respective nations' populations.

Although most union systems offer small business loans, they still make up a tiny portion of total loan portfolios. As a result, CUs may need to develop new skill sets to evaluate the hazards of such initiatives.

Threats

There is little doubt that CUs worldwide believe competition poses a severe danger. So it should be no surprise that this issue's main piece in Credit Union World is focused on this subject.

According to the World Council's polls of union movements and their regulators, competition is the top danger to unions.

Some described this as a battle between banks and unions, while others described it as a threat between non-bank financial institutions and credit unions.

Larger financial institutions record annual earnings in the billions of millions, enabling them to invest in new facilities, equipment, and technology.

It will be a genuine threat if the union maintains the same mindset and refuses to advance with new technological generations.

Bringing everything together:

SWOT Analysis
 StrengthsWeaknesses
OpportunitiesS-O StrategiesW-O Strategies
ThreatsS-T StrategiesW-T Strategies
  • S-O approaches look for opportunities that are a good fit for your skills.
  • W-O strategies exploit weaknesses to pursue opportunities.
  • S-T strategies identify ways to leverage your strengths to reduce your vulnerability to external threats.
  • W-T strategies enable you to protect yourself so that weaknesses do\snot make you vulnerable to external threats.

Advantages

Customers want more from a financial institution than just assistance with money management. They seek a location that not only looks out for its customers by offering affordable prices and enticing services but also promotes community welfare rather than the interests of its investors.

1. The union does not support the idea of customers; instead, your membership signifies a portion of ownership. Anyone with a union account is required to be a member. Typically, a stake in a savings account serves as a representation of membership.

2. For their members, CUs can lessen the requirements for getting a mortgage. For example, when banks reject you for a house loan due to your credit situation, a union may be able to assist you. 

This is so because CUs are more interested in fostering their members' financial progress and wellness than maximizing profits. Therefore, purchasing a property is a terrific method to achieve long-term financial stability.

In addition to the loan proceeds staying in the neighborhood when you obtain a mortgage through a credit union, you will deal with the same warm financial advisors throughout the loan.

3. Any profit made by them is returned to its members and shareholders in the form of low loan interest rates and higher-than-average rates on savings and other financial products like money market accounts (MMAs).

4. They frequently outperform banks when providing members with individualized services. This is crucial in the loan industry since aggressive lending practices and severe, impersonal lenders can cause a great deal of stress and dread in the borrower.

Disadvantages

CUs are an appealing alternative to traditional banking but are not without flaws. There are some disadvantages to consider before joining, as with any institution.

1. Difficult to join

According to the Federal Credit Union Act of 1934, these unions must have a defined membership. As a result, most unions are associated with a specific region, business, religious, or fraternal organization.

You may not be eligible to join if you do not live in that area or belong to that group.

2. Limited Services

They provide many of the same services as banks but are less diverse. Most local CUs, for example, offers two checking account options, three savings options, and three investment options. This pales in comparison to what the average bank provides.

3. Inconvenience

There aren't many CUs, and the number is shrinking. There were 6,424 in 2015, a 311 decrease from the previous year. Because most have only one location in a city, even doing something as simple as depositing or cashing a check can be difficult.

4. ATM accessibility

Not all CUs have ATMs. Access becomes a real issue when combined with a limited number of branches. A CO-OP ATM network serves approximately half of the country's 6,424 credit unions. However, to use it, you must first find one.

5. Technology is falling behind

Some medium-sized and small CUs cannot meet mobile banking and online services demands.

Millennials want to use their smartphones to check balances, pay bills, transfer funds, apply for credit cards, and make deposits. Unfortunately, smaller unions may lack the resources to meet those expectations.

6- Loyalty programs

Credit cards are becoming an essential part of the union business, but CUs are slow to adopt reward programs that are common with most bank cards. For example, only 19% of all union credit cards offer cash-back rewards.

Conclusion

These are financial cooperatives owned by their members that provide services equivalent to commercial banks. Their members are the only ones in charge of their non-profit activities.

The unions offer most services provided by retail banks, including deposit accounts, the extension of credit, and other financial services.

Although many CUs offer contemporary services like online banking and electronic bill paying, their modest size can limit the range of their services, technology, and accessibility.

It may be a good option if you want higher APYs, lower loan costs, and a closer relationship with a financial institution. 

Before committing to a union or a bank, investigate both and read the fine print associated with each product you're considering. 

Suppose a high level of personal service, better interest rates, and lower fees are more important to you than sophisticated technology, greater convenience, and an extensive menu of banking products. In that case, a union may be the right choice for you, or you could open accounts at both a bank and a  union to reap both benefits.

It operates under a very straightforward business model: members combine their funds (technically, they invest by buying shares) to offer loans and other financial services to one another.

The community and its residents will profit from the money produced by their activities.

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Researched and authored by Ranad Rashwan |  LinkedIn

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