Big banks have the resources, capital and expertise to swamp credit unions with less than $500 million in assets as they battle for customers. New NCUA data shows the toll that took in 2020.

Credit unions across the U.S. lost members last year, and only one other state saw membership decline at a higher rate than Massachusetts. 

As member-owned not-for-profit institutions, credit unions often offer better deposit and loan rates compared to banks. Yet they can also lack the resources, capital and expertise needed to provide services that will attract customers.  

But many of these smaller institutions continue to compete for customers – and grow. Often specializing in products that benefit targeted industries or communities, leaders at these lenders see a place in the future for their institutions. 

“I think the way you compete is by – especially as a smaller institution – understanding who you are, understanding what you are, understanding what your mission really is, staying true to that mission, staying focused on the people that you really want to serve and doing a better job servicing those people than the competition,” said Bernie Winne, president and CEO of Boston Firefighters Credit Union. 

Memberships on the Decline 

Massachusetts has around 150 credit unions, and roughly 80 percent have less than $500 million in total assets. Only about a dozen have $1 billion or more in assets, while the state has almost 50 community banks with assets over $1 billion. 

The National Credit Union Administration reported earlier this year that 31 states lost credit union members in 2020, and Massachusetts’ decline of 1.4 percent was the second-worst in the U.S.  

Some credit unions lost members because the institutions faced challenges navigating the pandemic, said Jim Perry, a community bank and credit union consultant with Market Insights. He said many credit unions were less prepared than banks for the shift to remote work and digital banking.  

And most credit unions did not participate in the Paycheck Protection Program. This cost them opportunities to assist members, Perry said, and some CUs damaged relationships with members who had to turn to other institutions or fintechs for loans.  

Credit unions will likely see more challenges as consumers emerge from the pandemic with new expectations, he said. 

“People are in that mode of saying, ‘What have you done for me lately? How can you meet the needs that I have and the new expectations I have for convenience and for access?’” Perry said. “If the smallest credit unions aren’t able to meet some of those demands, I expect they’re going to see quite a bit of continued churn throughout this year.” 

Core Provider Changes Help CUs 

Not all credit unions saw memberships fall last year, and three Massachusetts credit unions even made S&P Global Market Intelligence’s 2020 list of the top 100 U.S. credit unions. The rankings are based on several metrics, including membership growth, and Boston Firefighters Credit Union, Greater Springfield Credit Union and Webster First Federal Credit Union all made the cut. 

The same expectations that could see consumers turn away from credit unions might also affect banks, Perry said, giving credit unions opportunities to communicate what their institutions have to offer, especially as people deal with the aftereffect of the pandemic.  

“If [credit unions] can break out of thinking about the relationship as being strictly transactional, they’re going to have a much greater opportunity to be seen as that financial partner for people who are struggling in these first months – and even the next couple of years – as the pandemic finally abates,” Perry said. 

Greenfield-based Franklin First Federal Credit Union, which has about $81 million in assets, saw membership remain steady during the pandemic and has already seen some growth in 2021, according to NCUA data.   

Michelle Dwyer, Franklin First’s president and CEO, said the credit union did not participate in the PPP because it did not have the business lending expertise of other institutions in Franklin County that did participate. Instead, Franklin First has helped members with consumer lending products, which Dwyer described as the credit union’s strongest suit. 

Thanks to the business challenges created by the pandemic, small credit unions have found an easier process for upgrading technology to keep pace with consumers’ growing expectations, Dwyer said. 

Franklin First invested in upgrading its digital offerings before the pandemic, but contactless payments were not a priority because many merchants in mostly rural Franklin County did not have payment systems to support those cards. Now, because of the demand core technology providers faced from all financial institutions during the pandemic, they have streamlined their processes for adopting new technologies. Franklin Federal is having an easier time adding contactless bank cards compared to what they would have faced before the pandemic, Dwyer said. 

Dwyer, a Millennial herself, acknowledged that small credit unions face competition from fintechs and other institutions in attracting younger members. But she also said credit unions have an advantage. 

“Even to Millennials and Gen Z, I think it’s an important factor to be able to have a connection with somebody, especially after COVID – that’s all you want, that’s all you crave is personal connections,” Dwyer said. “I think that is a huge advantage that small credit unions have.” 

Niche Knowledge an Advantage 

Winne, with Boston Firefighters Credit Union, said his institution’s deep knowledge of its niche membership, which includes several local fire and police departments and other first responder groups, gives it an edge.  

With studies in recent years showing higher rates of certain cancers for firefighters and heart attacks for police officers, Boston Firefighters Credit Union recently began offering an insurance product that pays out a cash benefit to members who receive a cancer diagnosis or have a heart attack to help pay their expenses. 

In addition to insurance benefits, the $373 million-asset BFCU offers products and services for military veterans, many of whom become firefighters when they leave the armed forces.  

Diane McLaughlin

Winne said military members sometimes experience credit problems and in response, the credit union offers veteran-focused mortgage products and, a few times a year, offers specials to give veterans better pricing for car loans than their credit would typically allow. 

Staff approach members with an understanding of the challenges they face at their jobs, Winne said, and BFCU makes service and processes as simple as possible. This approach can help smaller credit unions compete with larger institutions, he said, but added that all community-based institutions need to focus on the challenges ahead, including technology. 

“I think we all need to be careful that we don’t underestimate the potential role of fintech,” Winne said. “We’re sitting in a world of constant change; we’re sitting in a world where the pace of change of technology is so fast.”