The Association of British Credit Unions (Abcul) held its annual conference in Leeds last month, with the movement pondering opportunities for growth on one hand and the pressures of a seemingly endless cost-of-living crisis on the other.
Credit unions are included in the government’s pledge to double the size of the country’s co-op and mutuals sector, but economic pressures in the UK remain, alongside the challenges to the sector of regulatory reform and the rise of new technology.
These pressures are helping to shape the credit union world, with discussion over the two days touching on issues such as the trend for mergers, the need to engage younger members, the importance of financial education, and the potential for more collaboration between credit unions – for instance in developing credit union service organisations.
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One way forward for the sector – in terms of growth and supporting those affected by the economic crisis – is the community development credit union (CDCU) model. This model, which sees credit unions dedicated to underserved communities, is well-established in the USA and Abcul, following several years of discussion with its Stateside counterparts, launched a UK version last year following trials by a group of pathfinder credit unions.
For UK credit unions considering switching to the CDCU model, US practitioners shared their experiences, including Kathy Chartier, president and CEO of the North Carolina-based Members Credit Union. Founded in 1935 to serve teachers, it left its profession-based roots in 2002, becoming state-chartered and looking to work with underserved communities.
Its area it is marked by huge inequality with areas of poverty, and the credit union developed a long-term plan to become a CDCU, earning crucial accreditations demonstrating its ability to serve Hispanic people. It’s an approach that has paid off, delivering assets growth from $28m in 2016 to $45m today, and boosting membership from 3,016 to 8,838.
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Hank Hubbard, former CEO of One Detroit, a former newspaper workers’ credit union launched in 1935 which began its transition to CDCU in 2000, told a similar story of growth. Designations like CDCU, he said, can bring access to partnerships – for instance with local government, commercial banks, money advice charities and employer groups. This “offsets being a small fish in a big pond”.
To gain CDCU accreditation, and to attract valuable partners, it is crucial to gather the right data – something the credit unions on the UK pathfinder project worked at. Ian Goodliffe, data analyst on the project, said it was important to demonstrate that a credit union looking for CDCU status draws at least 50% of its membership from the poorest groups in its area. Pathfinder credit unions averaged at 68%, he added.
These underserved groups, rejected by conventional banks, range from young private tenants to financially constrained pensioners. Credit unions need to work harder to attract such members, said Goodliffe, with take-up usually focused closer to their offices and tailing off further away within the common bond area. Within four miles of the office, take up is one in nine people; further away it is one in 81, meaning there is scope for growth.
This is not just a case of improved marketing; Katie Hurrell, CEO of Bradford Credit Union, one of the pathfinders, said it also means a new attitude to risk. Before the pathfinder scheme, Bradford was turning away 90% of people, but it started working with the West Yorkshire Combined Authority on a poverty reduction. This meant a riskier approach, she said, but results beat expectations in terms of write-offs and helped people to fix their credit profiles.
The CDCU model is not the only way to pursue partnerships and drive growth. John Haslam, from Stockport Credit Union, led a session on grant applications. Stockport – with 4,500 members, £3m in assets and £2m in loans – has picked up £125,000 in grants since August 2023.
The trick to such success, said Haslam, is “recognising what’s important to the funder”. And a credit union needs a good business plan, built around an agreed, measurable mission and vision. They should align their grant bids to this vision, he said: it is important to find an appropriate funder.
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For instance, Stockport, with a mission to offer the community access to affordable, reliable and self-sustainable financial services, focuses on savings habits and affordable loans. This, said Haslam, chimes with the mission of Fair4All, a key backer of the credit union sector which launched a resilience fund last year. And crucially, it has measurable targets in terms of membership and savings growth, affordable loan books, the decrease in percentage of top-up loans, and member dividends.
And he reiterated the lesson of the CDCU session that data is vital. “Start generating data you know funder will be interested in,” he added.
When recording data, Haslam copied categories used by Fair4All. “Funds are always oversubscribed,” he said. “I have to convince them I am a good bet. I want the money so I need to bend more than funder – if I don’t supply the data, someone else will have done.”
In turn, Fair4All’s own data can also be used to drive credit union growth, helping a credit union identify vulnerable residents in its area.
Meanwhile, delegates heard, there are other grant opportunities to pursue, including local authorities and new community rebuilding schemes announced by the Labour government.
Credit unions also face a fast-changing tech landscape. Matt Haworth, from Reason Digital – a social enterprise working with charities and co-ops on tech development – delivered a plenary on AI which, he said, has the potential to save time, speed customer interactions, refine marketing techniques and improve data analysis. This can even extend to designing the names, logos and messaging for publicity campaigns.
But there are also ethical considerations around the use of data – and credit unions need to be aware of AU’s vulnerability to bias and ability to hallucinate data. This means human supervision is needed to ensure members are sent the right information at the right time, said Haworth.
“Another area that I think is really pertinent to co operatives and credit unions in terms of using their kind of member data is around data rights,” he added. “Please do not drag and drop financial information on your customers and members into Chat GPT, because it will be stored by Chat GPT, and it will be used to train future models of the AI. We absolutely shouldn’t be doing that.”
On this issue, credit unions should seek guidance from the Information Commissioner’s Office, he said.
For a regulator’s view of the opportunities facing the credit union sector, delegates heard from Helen Ainsworth, senior manager of the credit union team at the Prudential Regulation Authority. With the government looking to grow the sector, the PRA is developing its engagement and approach to the sector, she said.
The regulator has been carrying out consultation with the sector to identify its regulatory needs, she said, and the sector should pay special attention to SS2/23, the PRA’s supervisory statement on credit unions published in June 2023. “No matter who you are and what your size you should be increasingly thinking about what our expectations in it are for you,” she warned. For bigger credit unions, that can mean extra duties and individual supervision; for smaller ones, “our supervision is really helping you to make secure and viable for the long run, in a way that is sensible and possible for you”.
Data on the sector, she added, shows that “all size credit unions are valuable and make a difference to the lives of their members.” Another positive is that – despite gloomy expectations at the PRA – the picture on arrears at credit unions has not worsened.
Returning to a constant theme of the conference, she urged credit unions to collect data, asking: “Do you have timely and fortunate information to support your risk management and decision making?”
Credit unions should also have work-arounds ready in case they lose a third party partner, Ainsworth said. And with the sector pushing for more clarity on the rules around credit union service organisations, she promised fresh consultations and guidance from the PRA on regulation and risk mitigation.
Next up was Dominic Cashman , director of authorisations at the Financial Conduct Authority, who conceded that the regulator’s understanding of the sector could be greater and its decision making quicker.
He said the FCA was working to streamline its processes, with new data collection projects and work to bring in common data standards alongside a new portal, My FCA, which “will allow you to navigate all of the systems by just signing in once”.
In terms of Labour’s pledge to double the co-op sector, Cashman said: “I have spoken to Treasury about what doubling means, and I don’t think we actually need to get hung up on that. It’s really a statement of intent to grow to greater sector and to grow it productively.”
He added: “For each of you, growth will look different, and it is for you to determine what growth looks like. It is not the government that is going to that is going to grow the co-operative sector. It is not the regulators who are going to grow the co-operative sector. It is you who are going to grow the sector.”
However, the FCA has a facilitating role and to that end – following instructions from ministers – is preparing a report on the sector, including a look at impediments to its growth. Changes already taken to reduce regulatory burdens on credit unions, he said, include the recent removal of the requirement to have a consumer duty champion.
Matt Bland, the new CEO of Abcul, took a positive view of developments in his inaugural speech to the conference. He noted how the credit union sector had weathered previous crises – most recently, the pandemic – and said that alongside the government’s pledge to grow the co-op sector, there is a new financial inclusion strategy, and “transformational ideas coming forward, like opt out savings through payroll” and an “enormous gap in the credit market” to fill, with potentially millions of consumers “getting nothing at all when they’re looking for fair credit”.
But if there are enormous opportunities, credit unions need to step up to take advantage of them, warned Bland. He noted that it is two years since legislation was passed to enable credit unions to enter the car finance market – “but, as far as I know, so far, none of us have.
“We’re asking the government to do more for us, to create more opportunities, but we haven’t taken advantage of the opportunity they gave us two years ago. So I want to challenge you in this role, challenge us all, to raise our aspirations, to be to be better for society, to realise some of these opportunities, and to really think about whether we’re using the new technology that’s coming along to be the best that we can be.”
