Merging Forward: Key Considerations for Credit Unions Planning to Consolidate

Facing a competitive landscape and evolving member needs, credit unions have embraced consolidation as a strategic catalyst for growth. This trend is expected to continue, prompting the question: Should your credit union consider a merger? While advantages like expanded offerings and economies of scale exist, potential challenges like member disengagement and cultural clashes require careful navigation and planning.

Expanded Member Value: The gap between member needs and the products and services smaller credit unions are able to offer is growing - which could lead to members seeking services elsewhere. Consolidation can help credit unions expand their offerings and better meet the needs of their members - for example a wider variety of loan products, higher interest rates on savings accounts, and wider more convenient access to physical branches. For larger credit unions considering a merger of peers, consolidation can not only expand the existing market share, but also open up new geographies and communities and offer more competitive rates and member services. 

Achieve Economies of Scale: One of the most significant benefits of consolidation at any size is to manage costs more effectively and to achieve economies of scale. Mergers can help credit unions reduce their operating costs, improve their profitability, and become more financially stable through a larger asset base and more diversified loan portfolio. Consolidation also allows for a healthier fixed cost to member ratio because costs will decrease while membership rises. Economies of scale will allow credit unions of any size to reinvest in member education, staff retention, and enhancing technology.    

Access to Talent and Succession Planning: Mergers unlock wider talent pools and boost competitiveness in an increasingly challenging employment market. Larger credit unions have stronger buying power with benefit brokers, stronger negotiating power with labor unions, and a deeper bench of talent to consider for succession. For credit unions who are struggling to attract and retain future leaders, consolidation provides an opportunity to access and develop the talent of tomorrow. 

Consolidation is a valuable strategy for credit unions to consider as they envision their future success, but it's also important to consider the challenges of consolidation and create a plan to mitigate any that arise. 

Member Experience and Engagement: Mergers can significantly impact members' trust, satisfaction, and loyalty. As the boundaries of the community expand, it can become increasingly difficult for members to feel like they have a say in how the credit union is managed. If a single state credit union expands to a multi-state charter it may become more difficult for members to access their local branches or the headquarters may change. Members may also be disrupted by changes to their account numbers or banking habits. To mitigate evolving risk and maintain a seamless member experience, credit unions can adopt a digital-first strategy and engage in open communication about potential changes.

Culture Change or Clash: Finding the right partner is paramount for any successful credit union merger. It’s important that the cultures of the credit unions are complimentary in order to ensure success. Any successful merger starts with an introductory period. Make sure to do your due diligence when it comes to relationship building to ensure you understand the priorities and personalities of your counterpart. If not managed properly, cultural integration can lead to employee and member dissatisfaction.   

Regulatory Scrutiny: Credit union mergers face scrutiny from state and or federal regulatory bodies which can create an additional execution risk. Engaging actively and early with the National Credit Union Administration (NCUA) or your local regulators is crucial for a smooth and successful merger. Proactively partnering with regulators throughout the merger process, can ensure the best interests of your members are protected while working collaboratively to achieve a smooth and successful outcome. A thorough due diligence and integration plan is critical to anticipating any regulatory risks. If not executed successfully, failed consolidation can lead to reputational damage, operational disruption, and financial losses. 

Credit union mergers are complex and require thoughtful analysis of both the benefits and challenges. While each merger is unique, these considerations can help credit unions set the stage for a successful partnership. When thoroughly evaluated, consolidation can be a win-win strategy for credit unions to expand, streamline operations, and better serve their members.