Credit union mergers & acquisitions: Survival strategy or path to competitive advantage?

Mergers and acquisitions are nothing new to the credit union industry. In 2020, there were over 130 mergers throughout the year. While this is slightly down from the previous year, some of these mergers are particularly significant as they represent close to or above $1 billion in assets.

The merger trend has continued into 2021, but a question has emerged within the industry, which asks is this merely a survival strategy or does it provide credit unions with a competitive advantage against larger institutions?

How Big Do Credit Unions Need To Be To Survive?

Without a doubt, the size of a credit union does accurately predict its ability to remain competitive as a financial institution. The question of exactly how big has been floating around the industry with many professionals landing on the idea that the minimum size for long-term survival of a credit union is around $1-2 billion in asset size at this current time. As the world continues to get larger in financial terms, so will the requisite asset size.

While $1 billion in asset size is certainly enough to survive today, it might not be enough to survive tomorrow. Realistically, a threshold of at least $2 billion is required as a strong position for a credit union to remain relevant within the industry in any kind of forward-looking perspective.

However, it’s perhaps an oversimplification to simply consider a credit union’s asset size as the primary indicator of their ability to compete. While credit unions are referred to in asset size, it really boils down to the fact that there are more resources available for an organization to operate.

Credit union survival isn’t solely based on asset size, it’s based on how they deploy those resources to better serve their members and enhance their financial services. Ultimately, a credit union’s ability to support its community will be the strongest determining factor in its likelihood to survive in the long-run. 

It’s About More Than Immediate Asset Growth

As some of the smallest financial institutions in the industry, the asset size of a credit union is an important macro factor that shouldn’t be overlooked. There’s an inherent and obvious challenge for credit unions that compete against substantially larger financial institutions to provide similar services and this comes down to the differences in capacity as an organization. When asset size is ten times larger, team size is ten times larger, budgets are ten times larger, and the overall ability for an organization to operate is ten times stronger.

This commentary is understated as it is more of an exponential factor. With that said, technology is making this a decreasing concern at an increasing rate. A decade ago, credit unions were crossing the billion-dollar threshold with teams as large as 300 people. Currently, many credit unions are surpassing that mark with far smaller teams of under 100 people.

Mergers and acquisitions have strategic application beyond simply acquiring immediate asset growth by enveloping another institution, but it is mostly about what those assets allow the credit union to do to increase their competitive advantage.

Mergers and Acquisitions Help Credit Unions Serve More Members Better

Credit unions are member-first financial cooperatives. Mergers and acquisitions are one way that enhance their ability to serve their members better. The enhancement happens in a few ways.

Mergers can enhance the financial services available to members by ensuring that the right resources are behind that product or service. Whether it is increased staff or specialists for a particular role such as derivatives, wealth management or mortgages, mergers allow credit unions to combine their resources to support a common objective of improved member service.

Sometimes credit unions can be limited by infrastructure, but mergers and acquisitions help improve access to financial services by increasing digital capabilities and branch locations in key communities. The ability to meet the member where they prefer, whether physical or digital, enables more people to easily access a credit union’s services.

Mergers & Acquisitions Create Competitive Strength Through Technology

As COVID-19 has demonstrated, the ability for a credit union to provide financial services to its members through online or mobile banking is critical.

Many credit unions are at varying levels of technological sophistication throughout the industry, but mergers and acquisitions are one way organizations can quickly accelerate their ability to provide a better online experience or improved technological support for their members.

Also, it is important to note increased asset and member size make credit unions more appealing to innovative or larger fin-tech partnerships, significantly elevating an organization’s tech capabilities and services for members.

Increased Organizational Capacity Is The Best Propellant To Growth

While mergers and acquisitions do provide an immediate path to short-term asset growth, this is only significant to a credit union’s odds of survival if they properly invest those resources into their team and technology. The merger must produce synergies and cannot be a strategy of “growth for growth’s sake.”

Enhanced financial services, an ability to reach more members more effectively, and a strong team supported by the best technology is ultimately the best propellant to growth for a credit union. Credit unions can only remain relevant in the industry if they see beyond the immediate asset bump from an acquisition or merger and drive towards a strategy that maximizes the account value for their member-owners.