Statewide, credit unions in metro and rural areas may have very different markets. However, the top issues they’re facing are consistent when contrasted between credit unions and traditional banking, between Nevada and the rest of the U.S., and between metro and rural.
“Overall banking issues are relatively consistent across the state and the nation as technology continues to shrink the world and shrink the business landscape,” said John Bagnets, president and CEO, WestStar Credit Union. “Basically, the differences are not as pronounced. Different areas typically prioritize different aspects of service. We have locations in Las Vegas and in Reno and they’re definitely different markets but overall, the core tenets are pretty consistent.”
A credit union serving a rural area might need more branches in order to reach members. That said, more and more members aren’t using branches. They’re online. “One similarity [between credit unions] is all credit unions understand that we need to have a digital first strategy and a really good digital experience, but add that personal touch,” said Matt Kershaw, president and CEO, Clark County Credit Union.
“Nevada does have geographic uniqueness,” said Danny DeLaRosa, president and CEO, Greater Nevada Credit Union. “We have north and south and the rurals, and Nevadans in each of those areas have different wants and needs. Add to that, it’s not just the existing population. We have a lot of new people coming into the area. That adds to the uniqueness. I believe other states are facing similar issues, but they’re likely not facing them the same way we are.”
“We are all dealing with the interest rate environment right now,” said Theresa Lupori, president and CEO, Financial Horizons Credit Union. “We’re all looking for talent out there. With the high wages that everybody is paying and the flexibility [they’re offering], it’s a little bit tougher to find employees. It’s a tight labor market. Regulatory compliance is always a tough one for credit unions. Cybersecurity for us is an ongoing challenge we all face. Member engagement and keeping up with technology to satisfy member needs is costly and we have to stay ahead of the game. Those are things all credit unions have to deal with,” she explained.
“Where interest rates are a little concerning is from a membership perspective,” said Robert Wilson, senior vice president, state government affairs, Nevada Credit Union League. “The average mortgage rate for a 30-year fixed is around 8 percent nationwide and that just hurts the borrower’s ability to borrow—it’s really impacting the origination of loans, especially on the mortgage side because the vast majority of people have mortgage rates under 4 percent; everyone has refinanced over the last three years. So, folks aren’t really selling because you don’t want to sell and get out of your 4 percent and end up with an 8 percent.”
If those are the usual complexities for credit unions to navigate, there are others that rise in the course of events. Inflation began spiraling upward when stimulus funds were released during the pandemic. Interest rate hikes followed the rise in inflation. Consumer confidence in financial institutions was shaken by issues with Silicon Valley Bank and First Republic.
“The good news for consumers is that their individual deposit accounts at federally insured credit unions are insured up to $250,000 by the National Credit Union Share Insurance Fund, which is similar to the FDIC,” said Paul Parrish, president and CEO, One Nevada Credit Union. “A member’s interest in all joint accounts combined is insured up to $250,000 and the Share Insurance Fund also separately protects IRA and KEOGH retirement accounts up to $250,000. The fund is backed by the full faith and credit of the United States, and no one has lost a single penny of insured deposits at a federally insured credit union.”
The New Kids on the Block
Technology creates more challenges for credit unions than just the need to keep up with the latest digital banking trends. In addition to the need for dedicated cybersecurity teams, credit unions are also challenged by fintechs, firms using cutting-edge technology to deliver financial services. Not all of them are financial institutions.
“There’s a lot of new competitors, specifically fintechs that might not be fully regulated or regulated at all in the financial services industry,” said Bagnets. “The top issues for us as a credit union and member owned, not for profit cooperative are how [to] continue to provide the safest services for our members but remain competitive. [This is a concern] especially when some out there are not regulated the same, or are not regulated at all. They don’t have to report to the state or the federal regulators. They just continue to provide services at the same scale.”
How can a company operate unregulated in financial matters? Essentially there’s just no place for them yet, no category they fit in. They’re not classified as financial institutions; they’re involved in other businesses. For example: “Starbucks is actually a relatively large warehouse of money, ” said Bagnets. “I think the last time I saw [a number], they have somewhere around $3 billion in customer cash on deposit.
People are able to store money through the Starbucks app. Facebook can send money, do electronic payment services similar to banks, while banks and credit unions have specific regulations around our ACH’s and our wire transfers, etc. Some of the others, the new entrants, the smaller ones that are coming in under the fintech umbrella, do not have to be federally chartered or state chartered to operate as a financial institution.”
But are such uses of non-financial institutions competition for credit unions? Not directly, Bagnets said, but they are in terms of payment services. “Non-insured, under-regulated institutions do have competing services whether payment services or money transfer services, things that are similar, even deposit services.”
If it’s hard to imagine trusting an uninsured, unregulated industry with deposits, it seems to be a matter of convenience: it’s easy. It’s likely that the next big players to step into the ring will be Amazon and Apple.
According to information garnrered by Bagnets, “If they were to offer banking services, the percentage of consumers who would be willing to go with them regardless of regulatory status was, for our industry, shockingly high. But convenience tends to be king.”
For credit unions, which are regulated, that regulatory environment is very similar to traditional banks. “Credit unions have the option of being state or federally chartered. We refer to it as a dual-chartered system,” said Wilson. It’s up to credit union leadership and credit union board to decide which. Banks also choose whether to be federally or state chartered. While there’s some differences between the charters, from a consumer’s perspective, there’s nothing noticeably different.
Federally chartered are insured by the National Credit Union Administration (NCUA), an independent federal agency that insures deposits, charters and regulates federal credit unions, and operates very similarly to FDIC.
State-chartered credit unions can be privately insured. “They can also offer excess share insurance, so if a NCUA would have their limit of $250,000, some credit unions can purchase excess share insurance for their membership to say ‘Okay, now your dollars are insured up to $350,000,’ for example,” said Wilson.
“Financial Horizons Credit Union is a state-chartered credit union,” said Lupori. “As such we’re privately insured by American Share Insurance, we’re also regulated by the State of Nevada Financial Institutions Division. Those two come in and do examinations about once a year. We also contract with a third-party auditor that comes in quarterly to do audits.”
“We are always undergoing an audit or review of our procedures and policies. We’ve got to be regulated in order to be insured,” said Kershaw. “We have private insurance and it’s very good, it offers more coverage per member than federally insured banks or credit unions.” Clark County Credit Union provides insurance based on account and not per individual. “Per account we can have up to $500,000 of coverage, so we almost have unlimited coverage if you want to set up your accounts that way with us.” Regulation allows them to monitor the risk, their insurers to monitor the risk, and the State of Nevada monitors the risk.
As for the insurance on deposits, members have about 99 percent of their deposits insured. Which sounds normal, but Silicon Valley Bank only had 6 percent of their customer deposits insured.
“Banks and credit unions are floating around in the same boat when it comes to regulations,” said Parrish. “Compared to other sectors, I think we’ve reached the realm of ‘bizarre’ in terms of being over-regulated.
Most of this has resulted from politics over the years. The “big, bad banks” are always low-hanging fruit for politicians looking for targets to throw shade on. Credit unions will usually end up getting bruised and battered along with them.”
A matter of balance
“I would say today all financial institutions are facing liquidity concerns,” said Kershaw. “A couple credit unions in Las Vegas in particular had a lot of liquidity from all the government stimulus. We all got deposits that came in over COVID because of the government stimulus, but some credit unions are more lent out today than they were when we all got those monies in. So, some credit unions are in pretty good liquidity positions because they didn’t get as lent out.” For those that did, there’s the need to look at where to invest resources. “Liquidity concerns are largely because interest rates have risen so dramatically and it’s really put a pinch on consumers, who have drawn down their savings.”
Credit unions are actively promoting deposit rates and checking account benefits. “As a credit union, we really strive to be competitive and fair for the members on both sides of it because we understand that some of our members are in a position where they have excess funds and need a fair deposit rate. Others need funds for different things, whether buying a car or a home or just to meet daily needs, so having fair loan rates are more important to them.”
Credit unions are focused on both deposits and loans. Deposits are needed in order to make loans, and loans are growing. “We’ve grown about 18 percent in our loans over the last 10 months,” Lupori said. “We’re starting to see loans taper off just a bit with the higher real estate loan rates. There isn’t as much available on the market for members to purchase, and they’re not refinancing as much. There’s just not that much available in our smaller communities and the high cost of homes is keeping a lot of people from purchasing.”
People are still buying cars, though. Higher rates don’t seem to deter purchases of new cars and recreational vehicles.
Credit unions are concerned with the impact of interest rates on membership. As rates go up and stay up, purchasing power decreases.
“And as consumers across the communities that we serve are paying more for loans, more for commodities, essentially it drives down the quality of life,” said Bagnets.
Cyberattacks are a concern for every industry, and they’re on the rise. Financial institutions are mandated to have robust cybersecurity measures.
“This is the number one thing that keeps me up at night,” said Bagnets. “We talk about economy, and we talk about interest rates, but at the end of the day, cyber issues and financial fraud across the board are our number one priority. Safety has to be number one. It doesn’t really matter what products or services we offer if we’re not keeping our members’ information and finances secure.”
Today credit unions have dedicated fraud teams internally along with their tech teams and relationships with external parties to help provide cybersecurity and protect member assets. Education is the first line of defense against fraud, through information given when accounts are opened, through regular newsletters, alerts sent out if a group is targeting a community with a certain type of threat.
Multifactor authentication has become a standard response to cyber attacks—making sure digital transactions are handled by people who are who they say they are.
Financial institutions use advanced encryption tools to protect information. “Zero-day threats are one thing we talk about, and we put a lot of systems in place to prevent that,” said Kershaw. “We also have cybersecurity experts who work tirelessly to monitor and enhance our security infrastructure. They’re looking at our firewalls and other devices that need to be monitored and making sure there’s nothing that can penetrate it and take our members’ information.”
“We’ve blocked several countries as recommended by the Office of Foreign Asset Control, so if a card is trying to be used in one of those countries, it’s blocked automatically to deny that transaction,” Lupori said.
“The thing I love about credit unions is that they truly are cooperatives,” said DeLaRosa. “They’re not-for-profits designed to be a collective of members who together can provide benefits to one another, low costs of services, lower interest rates on loans, higher interest rates on deposits, and they know that the financial institution is invested in the community that they live and work in. Things that we believe makes us unique, is we walk right alongside our members, we live in these communities, and are part of these communities. We believe in helping them have a lot of success.”