CONTINUOUS LEARNING. INDUSTRY ENGAGEMENT.
Coast Capital Savings - Strategy: 'Good Morning Canada!'
In the movie ‘Good Morning Vietman!’ then Robin Williams encouraged troops and energized betterment. Coast Capital Savings Credit Union CEO, Don Coulter, may have executed a similar feat. Though the recent member approval of its federal credit union strategy then Coast Capital Savings has arguably broadcasted ‘Good Morning Canada!’ to the national financial services industry. It seems that industry is listening to the broadcast. A battle may loom, even if the troops wear business attire rather than army uniform. To the victor goes the right to serve members, a group that may be the primary beneficiaries of forthcoming phase of industry evolution.
In the movie ‘Good Morning Vietman!’ then Robin Williams encouraged troops and energized betterment. Coast Capital Savings Credit Union CEO, Don Coulter, may have executed a similar feat. Though the recent member approval of its federal credit union strategy then Coast Capital Savings has arguably broadcasted ‘Good Morning Canada!’ to the national financial services industry. It seems that industry is listening to the broadcast. A battle may loom, even if the troops wear business attire rather than army uniform. To the victor goes the right to serve members, a group that may be the primary beneficiaries of forthcoming phase of industry evolution.
INTRODUCTION
In October 2016, the author published a Linkedin article that considered the B.C. system implications - of a potential federal Coast Capital Savings - with the lens of centrals, treasury and regulation. Aside from unexpectedly high volume of interest then it seemed notable that over half of readers, mostly executive and board persons, were located outside of B.C. This followup article - published after member approval of the special resolution - takes a national view from a lens of strategy, growth and implications.
CREDIT UNION INDUSTRY: PROVINCIAL STRUCTURE
Canadian credit unions are provincial creatures. Their organizations were born from provincial legislation. Their retail branches and member marketing are limited to a single province. Regulation, prudential supervision and deposit insurance are provided by entities that report to a provincial government.
Credit unions are friendly local organizations. Their members, and Board members, reside in the community local to retail branches. Their cultures are inherently cooperative. They are proactively engaged with, and often provide financial contribution to, local community priorities.
Credit unions face two national-level matters. Proactive choice for collaborative shared services, such as payments, across financial cooperatives. Reactive competition, in terms of products and services, from national banks and selected service providers.
Or so it was.
Federal credit unions could change industry accepted norms. One or more large federal credit unions may, in time, transform the industry altogether. The next generation of MBA students may review forthcoming developments of the Canadian credit union industry. They may identify a ‘tipping point’ or ‘pressure for change’ event by an aspiring organization with ‘strategic intent’. But a 2004 London Business School concept and a 1979 Harvard Business School framework, both in regards strategy, may provide current insight.
COSTAS MARKIDES (LBS): STRATEGY & COMPETITIVE TACTICS
Costas Markides is a prominent professor of strategic management at London Business School. Indeed my professor when studying at LBS - thanks again Costas. In 2004 then Costas Markides published a book ‘Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets’. The book presents a view that first-mover-advantage can sometimes be overrated as it typically takes extensive time, energy and expense to trailblaze a new value proposition. There may be inherent need for new legislation or regulation; technology development; customer education; value-chain assembly or otherwise. A first-mover strategy may undoubtedly secure strong competitive positioning and/or abnormal economic returns but it can be an exhausting experience. Second-mover can be a strategy that is faster, cheaper and easier to execute as the trail has already been broken. Such an organization may benefit significantly from various learnings of, and of any industry or market infrastructure that was devised by, the first-mover.
“Second-mover can be a strategy that is faster, cheaper and easier to execute as the trail has already been broken.”
COAST CAPITAL SAVINGS: SECOND-MOVER ADVANTAGE
In some regards the Coast Capital Savings is a ‘second-mover’. In July 2016 then Caisse populaire acadienne ltée (“UNI Financial Cooperative”) became the first federal credit union. UNI Financial Cooperative is a credit union, headquartered in New Brunswick, that has C$3.5 billion assets; 155,000 members; and 1,000 employees. To achieve its federal charter then UNI Financial Cooperative required approval from provincial and federal authorities. The approval process took 18 months. Coast Capital Savings may reasonably benefit from the now familiarity of OSFI and the federal Ministry of Finance with federal credit union matters. But Coast Capital Savings will still be a ‘first’ for both provincial BC authorities and for Central 1 Credit Union. Coast Capital Savings is also significantly larger in size than UNI Financial Cooperative and its process may raise incremental issues. But by being the second rather than first aspiring federal credit union then Coast Capital Savings could be ‘fast second’.
Coast Capital Savings is unlikely to be the last. For example, Innovation Credit Union recently announced to its members that it was “thrilled to announce the commencement of an initiative to pursue becoming a federally- regulated credit union by 2020.” With each federal charter then the trail may become more trodden and easier to follow.
MICHAEL PORTER (HBS): STRATEGY & INDUSTRY STRUCTURE
Michael Porter is a legendary professor of strategic management at Harvard Business School. Over decades then his thought leadership has likely influenced many corporate executives and educated countless aspiring business professionals. In 1979 then Michael Porter wrote the landmark research paper ‘How Competitive Forces Shape Strategy’ that considers the sources and strengths of power within an industry. Many an MBA student has been taught the ‘Five Forces’ model of rivals; suppliers; customers; substitutes and new entrants. The strength of each force can vary significantly by specific circumstance.
Credit unions have faced industry threats from rivals and substitutes. While cooperative in nature then competition from rival provincial credit unions is unavoidable and likely increasing. For example, industry executives recently described to me the credit union market in Winnipeg as ‘fiercely competitive’. For example then residents of Kelowna, BC, now have access to four credit unions - Coast Capital Savings and Prospera alongside incumbents First West and Interior Savings. Michael Porter notes that “Rivalry among existing competitors takes the familiar form of jockeying for position - using tactics like price competition, product introduction, and advertising slugfests”. National banks represent a substitute value proposition to provincial credit unions.
“New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources.”
COAST CAPITAL SAVINGS: STRATEGIC NEW ENTRANT
Coast Capital Savings may be regarded as a ‘new entrant’. Few, if any, non-BC credit unions may have historically considered Coast Capital Savings as a competitor. And yet, subject to regulatory approvals, Coast Capital Savings intends to launch a digital-first product offering outside of B.C. in 2018.
This new competitive threat may be disruptive to provincial credit unions. Michael Porter notes that “new entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources.” Just so. Coast Capital Savings has approximately C$14 billion assets and over half a million members. This scale enables a member service offering and organizational cost efficiency that may, arguably should, trigger a meaningful executive/Board threat assessment and inclusion within ERM reporting.
But let’s be specific. According to a 2016 report by nofeebanking.ca then 14 of 42 BC credit unions offer no fee chequing accounts to their members. Coast Capital Savings related product is the ‘Free Chequing, Free Debit, and More Account’ and includes, at no cost, selected deposits and withdrawals online and in-branch. Many credit unions across Canada may rely on revenues from monthly account fees, of perhaps C$10 per member chequing account. These revenues help to fund fixed costs, such as a retail branch network and corporate staff. But a national digital-first strategy of Coast Capital Savings may materially leverage its prior infrastructure investments to effectively operate on a marginal cost basis, perhaps with modest French language or province specific needs. And Coast Capital Savings could choose to cherry-pick marketing to geographic areas or market segments of particular competitive advantage or member appeal.
So Coast Capital Savings may enjoy some benefits of first-mover (scale execution) and of second-mover (charter approval) with its national digital-first ambitions. Corporate strategy and marketing enthusiasts may be forgiven for drooling.
IMPLICATIONS: CREDIT UNIONS & MEMBERSHIP
One or more federal credit unions will, in time, impact the Canadian financial services industry. My instinctive guess - perhaps entirely inaccurate - suggests that there may be one key winner and one key loser.
The winner, I suspect, may be membership. A new entrant to a provincial credit union system may bring fresh products or services; new or elevated channels; and/or may stimulate betterment in innovation, operations and other practices. Member choice and market competition can be powerful market forces. Over time then members may enjoy improved products, enhanced service access and/or better pricing.
The loser, I suspect, may be any currently struggling provincial credit union. In the short term then any new federal entrant may increase total credit union membership through incremental marketing programs. But, in time, it may also represent potentially life-threatening competition to any uneconomically small or uncompetitively operated credit unions. In most industries then it is difficult to compete, on a cost-basis, with a rival of materially larger scale. Differentiated excellence may be key. This could further strengthen credit union relationships with its local community. Or it could yield focussed services and expertise in a specific target market, say local agriculture. Or in wallet-share rather than market-share focus. Or increased collaboration, perhaps merger, with local peers.
Federal credit unions may impact banks, in the medium term. In Canada then the largest credit union is a tiny fraction the assets size of the smallest major bank. This gap may narrow in time.
“In most industries then it is difficult to compete, on a cost-basis, with a rival of materially larger scale. Differentiated excellence may be key.”
Millenials may be most temptable to join an out-of-province federal credit union. A Filene Research Institute publication on millenials highlights a demographic challenge that faces US credit unions. One-third of Americans are members of a credit union. But membership is dominated by older generations while only 9% of US millenials are credit union members. For credit unions then millenials may represent a challenging bunch. They demand more service for lower cost; prefer digital, not retail branch, service channels; may be brand-attracted; relish social media marketing; and likely have lesser relationship tenure with a provincial credit union.
Any material loss of relatively young members may present longer term demographic challenges for provincial credit unions. But this may be the prime target market of Coast Capital Savings digital-first national strategy.
As in the movie-represented streets of Vietnam then the offices of Coast Capital Savings may hear booming renditions of ‘I feel good’ or ‘I get around’ by James Brown and the Beach Boys respectively. But in credit union boardrooms across Canada then the broadcast may sound more like ‘Nowhere to Run’.
REFERENCES
Author Reference
Linkedin, Ross McDonald, ‘Coast Capital Savings: Federal credit union implications for the B.C. system’ - https://www.linkedin.com/pulse/coast-capital-savings-federal-credit-union-bc-system-ross-mcdonald
Academic References
Harvard Business School, ‘How Competitive Forces Shape Strategy’ - https://hbr.org/1979/03/how-competitive-forces-shape-strategy
Wiley ‘Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets’ - https://hbr.org/2008/02/fast-second - http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0787971545.html
Harvard Business School,’Strategic Intent’ - https://hbr.org/2005/07/strategic-intent
Credit Union References
Coast Capital Savings Credit Union - https://www.coastcapitalsavings.com/DayToDayBanking/ChequingAccounts/
Innovation Credit Union, Press release - https://www.innovationcu.ca/SharedContent/documents/Vision2020/MemberAnnouncementLetter.pdf
Filene Research Institute, ‘What Millennials Want: The Future of Millennials in the Credit Union System’ - https://filene.org/assets/pdf-reports/368_Youngest_Millennials.pdf
No Fee Banking - http://www.nofeebanking.ca/forum/content.php?190-Credit-Unions-in-British-Columbia-No-Fee-Account-Information-and-More
Other References
Internet Movie Database, ‘Good Morning Vietnam (1987)’ - http://www.imdb.com/title/tt0093105/soundtrack
Malcolm Gladwell, ‘The Tipping Point’ - http://gladwell.com/the-tipping-point/
DISCLAIMER & COPYRIGHT
This article reflects the personal comments of the author, Ross McDonald. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. Comments are wholly based on information that is in the public domain.
Although the author has made every effort to ensure that the information in this article was correct at press time, the author does not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.
Coast Capital Savings: Federal credit union implications for the B.C. system
One member one vote. A core principle of cooperative organizations.
Coast Capital Savings Credit Union is currently conducting an important member vote. Its management and Board seek member approval to submit, and to progress, an application to the federal government for Coast Capital Savings to become a federal credit union.
This is a big deal for members of Coast Capital Savings. But it also has significant and diverse implications for the B.C. credit union industry.
One member one vote. A core principle of cooperative organizations.
Coast Capital Savings Credit Union is currently conducting an important member vote. Its management and Board seek member approval to submit, and to progress, an application to the federal government for Coast Capital Savings to become a federal credit union.
This is a big deal for members of Coast Capital Savings. But it also has significant and diverse implications for the B.C. credit union industry.
Federal Credit Unions
First, context. In 2012, the federal government enacted legislation that permitted federal credit unions. Federal credit unions are authorized to operate branches in any Canadian province. Therefore they are subject to federal legislation and federal regulation. For example then any federal credit union would be subject to OSFI Guidelines, including those on the adequacy of their liquidity and capital that are perhaps more stringent than current provincial regulations. In July 2016 then Caisse populaire acadienne ltée (“UNI Financial Cooperative”) became the first - and currently only - federal credit union. UNI Financial Cooperative is a credit union, headquartered in New Brunswick, that has C$3.5 billion assets; 155,000 members; and 1,000 employees.
Coast Capital Savings Credit Union
Second, Coast Capital Savings. Per CCUA then, at end 2015, Coast Capital Savings was the third largest Canadian credit union with C$13.7 billion assets and 532,000 members. Management and the Board of Coast Capital Savings support the federal credit union strategy. Under its own Rules then Coast Capital Savings must secure 66.7% member approval to execute this strategy. To that end then Coast Capital Savings has recently published documents and videos to educate its members on related matters. Coast Capital Savings has also scheduled two member information sessions. Any approval by members of Coast Capital Savings would represent an important, and necessary, first step. Subsequent consent would be required from CDIC (federal deposit guarantor); FICOM (provincial regulator); OSFI (federal regulator) and the federal Ministry of Finance.
B.C. Credit Union system
Third, the BC credit union system. Now it gets complicated. Credit unions, while distinct cooperative entities, significantly operate as a system. This is partly driven by legal regulations - for example, the B.C. Financial Institutions Act requirement that B.C. credit unions hold certain liquidity deposits at Central 1 Credit Union. It is partly driven by collective commercial benefit - for example, centralized clearing and settlement of payments - that enable product innovation and provide cost economies that would be unavailable to any single credit union. And it is partly driven by cooperative principles (“cooperation among cooperatives”).
The federalization of Coast Capital Savings would have numerous indirect implications for the B.C. credit union industry.
No stress event is likely. The press release of UNI Financial Cooperative noted that its federal charter was secured ‘nearly 18 months after having received a merger approval from its members’. Any similar schedule for Coast Capital Savings would likely allow significant time for members and stakeholders to consider implications and to execute actions.
Central 1 Credit Union would face broad and material impact. If federal then Coast Capital Savings would likely lose its class A membership of Central 1. Cascade effects include share capital, liquidity deposits, governance representation, and potentially profitability and service pricing. Any change in the level of utilization of cooperative centralized products - such as for payments, trade or treasury - by Coast Capital Savings may impact the scope and/or pricing such services, both to Coast Capital Savings and other credit unions.
The residual B.C. credit union industry would still have significant scale and be larger than in any other province. Per CCUA, at December 2015, Canadian credit unions collective reported assets of C$188 billion. B.C. credit unions represented 35% of this, with C$66.4 billion assets. A federal Coast Capital Savings would remove C$13.7 billion assets from the B.C. system. For context then Ontario credit unions held C$40.0 billion assets at end 2015.
Individual B.C. credit unions may receive a short-term boost. High-value member deposits, say amounts larger than the federal deposit guarantee, may migrate from Coast Capital Savings to other B.C. credit unions. Some current members of Coast Capital Savings may also seek an alternative credit union. There may also be medium-term benefits. In time then credit unions may have an incremental intermediary for securitization, through a debt-rated Coast Capital Savings. Residual credit unions may enjoy lower deposit insurance premiums - Frank Chong, Acting Superintendent FICOM, 7 October 2016 Public Accounts Committee draft minutes “A credit union opting to continue into the federal jurisdiction would not be able to bring their funds that were provided to CUDIC to the federal jurisdiction. Those funds would be retained by CUDIC.”
But B.C. credit unions, collectively and individually, would face negative impact too. Industry fragmentation - between large commercial and small community credit unions - may accelerate. Competitive forces could increase as a federal Coast Capital Savings could offer product types, funding sources and cost economies that could attract members from BC credit unions. But the B.C. credit union industry would lose the ideas; expertise; experience; and contributions of a major current stakeholder. B.C. system-level initiatives, such as the FIA review or liquidity stress test, would be have one fewer voice. But Coast Capital Savings may add its voice to federal-level credit union issues. Stronger together, perhaps, but at a federal rather than provincial level.
Were Coast Capital Savings a federal credit union then the BC provincial government would face lower deposit guarantee risk; a smaller mandatory liquidity pool; a lesser regulatory footprint; and the potential for consumer confusion, initially at least, in regards market conduct. Both the federal transition and residual circumstances may impact FICOM, CUDIC and other government entities.
One member one vote may be a compelling principle. But in practice then only a small proportion of members typically vote for credit union resolutions. This one is unprecedented. I encourage members of Coast Capital Savings to read the documentation, to attend an information session scheduled by Coast Capital Savings, and to vote.
http://www.coastcapitalsavings.com/vote
REFERENCES
Coast Capital Savings Credit Union
- Press release - https://www.coastcapitalsavings.com/lang/en/host/.coast.com/PressRoom/NewsReleases/20161017/
- Member vote information - http://www.coastcapitalsavings.com/vote
- Management/Board rationale - https://vote.coastcapitalsavings.com/why-go-national/
- Sept 2015 FIA response - http://www.fin.gov.bc.ca/pld/files/Coast%20Capital%20Savings%20Credit%20Union.pdf
OSFI - Federal Regulator
- Guidance on federal credit unions - http://www.osfi-bsif.gc.ca/eng/fi-if/app/aag-gad/Pages/CFCU.aspx
- List of OSFI Guidelines - http://www.osfi-bsif.gc.ca/eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/default.aspx
UNI Financial Cooperation - Federal Credit Union
- UNI Financial Cooperation (profile) - http://www.acadie.com/en/contenu.cfm?id=2057
- UNI Financial Cooperation (announcement) - http://www.acadie.com/en/communique2.cfm?id=144
- Federal Department of Finance - http://www.fin.gc.ca/n16/16-086-eng.asp
- CDIC - http://www.cdic.ca/en/newsroom/newsreleases/Pages/first-federal-credit-union.aspx
- CCUA - https://www.ccua.com/news/uni_financial_cooperation_first_credit_union_to_obtain_federal_charter
OTHER
- Central 1: Supporting Credit Union Success - https://www.central1.com/sites/default/files/uploads/files/Future%20State%20Discussion%20Paper%20with%20Letter.pdf
- CCUA: Canadian Credit Union System Brief - https://www.ccua.com/~/media/Public/About/facts_and_figures/documents/Quarterly%20National%20System%20Results/2016_03_15_4Q15_system_results.pdf
- CCUA: Top 100 credit unions - https://www.ccua.com/~/media/Public/About/facts_and_figures/documents/Largest%20100%20Credit%20Unions/2016_04_05_top100_4Q15.pdf
- Draft minutes of BC Select Standing Committee on Public Accounts, October 2016 - https://www.leg.bc.ca/documents-data/committees-transcripts/20161005am-PublicAccounts-Vancouver-Blues
- Vancouver Sun: http://vancouversun.com/business/local-business/surrey-based-coast-capital-savings-making-bid-to-go-national
DISCLAIMER & COPYRIGHT
This article reflects the personal comments of the author, Ross McDonald. This article does not represent the views of any financial cooperative, corporate organization, regulatory body or government ministry. Comments are wholly based on information that is in the public domain.
Although the author has made every effort to ensure that the information in this article was correct at press time, the author does not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
All rights reserved.