In the financial services space, bigger is often perceived as better.
Bigger can mean more resources and branches, more economies of scale and financial stability, and more products and digital tools—critical in an era when 78% of American adults say they prefer to bank via mobile app or website vs. in branch.
And research from Filene shows that small credit unions often suffer from a perception problem, being seen as financially vulnerable, poorly run, resource constrained, and understaffed.
But we’d argue that small credit unions, which the NCUA defines as federally insured credit unions with less than $100 million in assets, actually stack up quite well.
For instance, according to the 2021 State of Small Credit Unions white paper from America’s Credit Unions (formerly CUNA), in 2019 the average small credit union had an operating expense ratio of 3.58% vs. a 3.63% average for credit unions with more than $100 million in assets. In that same year, 25% of small credit unions reported loan growth that was at least 50% higher than that of the average large credit union.
Recent history also teaches us that size doesn’t always mean stability. The banks that went under in 2023 had $548.7 billion in combined assets, and during The Great Recession, it was the megabanks, like Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, that received the largest federal bailouts. According to research from Chicago Booth Review, there’s evidence to suggest that more assets benefit bankers more than consumers.
Small credit unions play a big role in the health and well-being of the credit union system—and the financial health and well-being of consumers too. Here’s why.
As credit unions merge, grow, and begin to look and feel more like banks, small credit unions play a valuable role in keeping the system connected to its original purpose and helping ensure its long-term strength.
The State of Small Credit Unions Today whitepaper uncovered three key reasons small credit unions impact the movement’s success:
Seattle-based Express Credit Union, which has about $22 million in assets, is a CDFI (Community Development Financial Institution) that focuses on meeting the needs of underserved members, especially those from the Hispanic community. In episode 97 of The Remarkable Credit Union podcast, Chief Business Officer Elizabeth Escobar discussed Express Credit Union’s partnership with $30 billion BECU. When BECU has members who don’t meet its underwriting criteria, they can send them to Express in search of a better fit loan, which ensures that BECU can serve more of its members and brings more right-fit members to Express. That’s a win-win!
Another credit union that plays a similarly vital role is the $4.5 million Toledo-based Nueva Esperanza Community Credit Union, also a CDFI. As CEO Sue Cuevas shared in episode 90 of The Remarkable Credit Union podcast, she originally ran the credit union out of the back of her car, traveling with a portable copy machine and hitting every church, festival, and community event in the greater Toledo area to connect with the local Hispanic community and uncover needs. Thanks to Cuevas’ hard work and determination, Nueva Esperanza has improved the financial stability of nearly 600 of the area’s most financially vulnerable consumers.
When it comes to agility in the face of the unexpected, small organizations are often seen as being able to pivot more rapidly and effectively than big players. Small organizations typically have less bureaucracy and red tape—which makes it easier to develop and test everything from new products and processes to new marketing tools—better communication and access between leadership and employees and fewer entrenched processes and procedures to navigate.
But small credit unions as innovators? Although that’s likely more of a stretch for most people, a recent research report from Filene found that thriving small credit unions “Embrace, cultivate, and take pride in their ability to be agile and bootstrap, experiment and innovate.”
Here are two great examples of the power of small credit union innovation.
The first is Linda Bodie, CEO + Innovator at $52 million Element Federal Credit Union. She took on the role with no previous credit union experience in 1998. Since then, Bodie and team have grown the credit union’s assets by nearly 2,000 percent and gained a reputation for bold innovation. For instance, Element was the country’s first financial institution (yes, financial institution, not just credit union) to offer remote check deposits, and under Bodie’s leadership the credit union beat out Chase Bank to win a medical cannabis banking contract—in largely conservative West Virginia.
These bold examples have cemented Element’s reputation for innovation and established the credit union as a place where those in need are likely to find the help they need—a laudable goal for credit unions of every size.
The second example comes from Santa Cruz Community Credit Union (SCCCU). With $195 million in assets, it may not qualify as “small,” but it is the smallest credit union in its area and was the first in the region to provide ITIN lending. Its guiding philosophies of humility, courage, and a willingness to take a leap helped it uncover and deliver innovation that aligned with its mission of economic justice and financial freedom for all.
ITIN lending—which allows those without a Social Security number to access loans—is often seen as too big of a lift for other financial institutions. In episode 79 of The Remarkable Credit Union podcast, Kerry Fulton, a marketing consultant who works closely with SCCCU, shared many other credit unions’ reaction to providing this service: “Oh no, no, no, no.” But SCCCU believes it’s imperative to make these loans available. Said Fulton, “That’s the market we’re in. So we want to reach out and … help them improve their life.”
In just one year, SCCCU grew the program from $3 million in loans to $13 million—clear evidence the product was vital to local members.
Throughout their history, credit unions have been known for delivering highly personal, “everyone knows your name” financial services. But is that level of connection still possible—or even desirable—in today’s digitally focused, data- and algorithm-driven world? Small credit unions are living proof the approach still has value.
In their report, Filene found that true connections were critical to the success of thriving small credit unions. Their research found that the best small credit unions:
How are small credit unions living these differences?
At Express every phone call is answered by a person. Escobar stressed that while this isn’t the most cost-effective way to do business, it’s a difference that matters to its members—especially given that many of the credit union’s members face financial challenges that can’t easily be addressed with an FAQ or a chatbot.
“We find that people still value being able to get through and talk to a real person,” said Escobar. “We still know our members’ names, we know their stories, we know their voices.”
At Nueva Esperanza, CEO Cuevas spent the credit union’s early days going out into the community, looking for ways to connect and be seen as a true friend. Having earned members’ trust, Nueva Esperanza is now able to uncover and serve members’ financial needs. She can communicate with members directly and honestly when there’s an issue like a late payment.
“Now there’s a trust factor, people feel like, ‘I can go to Sue,’” said Cuevas.
If you’re a small credit union, take heart in the reality that you matter — to the system and to the members and communities you serve. And if you’re a mid-size or big credit union? Consider learning from or collaborating with your smaller asset brethren. It’s a relationship that could benefit you both.
This article originally appeared on CUInsight.