Guest Editorial by Jeff Kline, CEO, Members Development Company
In a financial landscape marked by fluctuating interest rates and economic uncertainty, credit unions are facing ever growing challenges in managing our balance sheets. As market conditions change, credit unions must address a long-standing issue: the need to manage the extreme fluctuations in our loan to share ratio and how we let that ratio impact member service and product pricing. Loan to Share ratios get too high and we want to raise loan rates and raise deposit rates, not because of where interest rates stand or what our members want, but to manage the loan to share ratio. By leveraging collaborative solutions, there are opportunities for credit unions to balance their deposits, loans, and provide better value for their members.
A balance sheet marketplace is an innovative concept to create pipelines where credit unions can seamlessly take in or trade away deposits and take in or trade away loans with each other or with other industries. These solutions help credit unions remain financially healthy, allowing credit unions to grow or shrink the balance sheet and to keep serving members. For example, over the past 15 years credit unions have operated at a disadvantage, as banks have benefited from collaborative deposit networks that provide substantially more deposit insurance to their retail and business clientele, making it easier for banks to bring in or remove deposits from their balance sheet. Credit unions are now rolling out their own deposit network with a fintech called ModernFi, which allows credit unions to share deposits with each other, expanding deposit insurance for members (retail and commercial), and allowing credit unions to grow, shrink, or maintain the size of balance sheets.
Over the past 15 years, we have seen numerous fintechs born as competitors in loan origination across almost every asset class. They have beaten credit unions to the consumer in the digital lending space, and to make it worse, credit unions compete with each other to buy loans from those fintechs. While this appears to be a good investment option for CFOs compared to buying securities, it also means that credit unions now take in loans from many different loan providers across many asset classes. Every new vendor creates new headaches in vetting, accounting, and ongoing due diligence, which has to be repeated every time a credit union finds a new vendor or new asset class. What if we, credit unions collectively, create one platform to buy loans from many fintechs and then credit unions only need one source for fintech loans? Credit Unions wouldn’t have to compete with each other to buy loans, but instead use scale to get better pricing from those individual fintechs? It also means we only have one vendor (our platform) for all asset classes which simplifies settlement of funds, monthly reporting, etc. And what if we aggregate all the servicing data from all the credit unions to analyze the performance of those loan types and each fintech originator?
More importantly, a balance sheet marketplace would enable credit unions to provide a better member experience. As credit unions can better manage their balance sheets, they can dedicate more resources to building meaningful relationships with members and invest in technology that further benefits members and back-office processes.
As the financial landscape continues to evolve, credit unions must adopt innovative strategies to remain competitive and serve their members effectively. A balance sheet marketplace is not just an opportunity — it’s a necessary step toward ensuring long-term growth and success. Now is the time for credit unions to collaborate, innovate, and thrive.