Think Inside the Box: The Growth Opportunities Staring Credit Unions in the Face

[0:00] Brandi Stankovic: I think some credit unions today are confused on what whole they’re filling, what gap they’re finding a solution for, what need they’re solving for their members. And you can’t be all things to all people. We can’t be, because we aren’t ever going to be as sexy as a bank with 10 times, a hundred times the assets that we have. I think that same is true with FinTech. We’re never going to be as sexy as a FinTech company that is investing all of their time and energy into technological solutions. So how do we partner, how do we create that solution and provide the value we’re supposed to be providing as cooperative finance? And that’s understanding and knowing our members.

[00:38] Narrator: Welcome to 22 Minutes in Lending, your go-to podcast for insights on all things lending, from lending practices, regulatory updates, how to enhance lending efforts and more. In each episode, Vince Passione connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let’s dive into the latest in lending.

[1:01] Vince Passione: Welcome everyone to 22 minutes in Lending. I’m your host, Vince Passione. I’m excited to welcome today’s guest, Dr. Brandi Stankovic. Dr. Stankovic is a strategic advisor to credit unions focusing on risk, growth, profitability, and the leadership strategies necessary to manage those areas. Dr. Stankovic is more than a consultant. She’s a driving force behind growth and innovation in credit unions. Brandi, welcome to 22 minutes in Lending. Thanks so much for coming on the podcast.

[1:25] Brandi Stankovic: Thank you for having me. I’m excited.

[01:27] Vince Passione: We recently were at a conference together and there was a lot of discussion about FinTech. And it just seems to be at every conference between AI and FinTech, it seems to be the topic du jour. So my concern is, is this just a shiny object that credit unions are just getting so overwhelmed with and should they just be focusing on their business? They have lots of concerns about their cores and the flexibility of their cores and how they can integrate other solutions with them. But this whole discussion about FinTech, there are 26,000 FinTech companies in the US. That’s a lot to sort of take in. Now you talk to boards all the time, you get in planning sessions, your opinion on it, is it overwhelming? I understand the relevance of it, but it just seems like it’s overwhelming all of these conferences these days.

[02:20] Brandi Stankovic: I think the sheer number, I actually felt that too when I was at the GAC this year just walking around. GAC has been around for 20 years. I walk around like, who are these people? So I feel that and I feel the intensity of it. I think that credit unions don’t have the luxury of just sitting back and being like, I’m not ready for that. The future is here. And so it is time for us to continue to have the conversations. Are they overwhelmed? Potentially, depending on what’s happening internally, and we may talk about that, but I think that their partnerships, their collaboration, their utilization of FinTech is required in order for us to move forward as an industry.

[ 03:01] Brandi Stankovic: I think you brought up a really important point though, and that’s core. Without the core, we can’t do anything. The core is the core of our business, holds all of our member data, everything, and we almost need to put the challenge out there and say, it’s time for digital transformation with our core service providers and for them to step up the game. And for those that are trying to moonlight or just hold on because credit unions are a small portion, they’re the ones that we need to be coming and banging on their door going, Hey, this is when we need you because we want to plug these different tools in and be able to collaborate even further and have the analytics and the capacity to be able to do that.

[03:36] Vince Passione: So when we started our relationship with Navy Federal Credit Union, they are obviously a much larger organization than we were when we started with them, it’s got to be over 10 years ago, and it was in the conversation I had with them, it was about, look, this can’t be a vendor relationship. It has to be a partnership relationship, which means you have to trust us, especially given the fact that we were going to render service to their members. Do you think that in your strategic planning sessions, does the discussion come up about how to manage your partners? Because if FinTech is going to become such an integrated part of what credit unions do, this idea of how you manage these relationships, it’s got to be at the top of the list, isn’t it?

[04:18] Brandi Stankovic: Absolutely. Yeah. Just even negotiations, the understanding, the awareness, the capacity of the team to be able to see through it, right? You definitely see that on the technology side for sure with all of our vendor partners, but certainly in technology where you just trust it because you don’t know any better, and then we find out we should have known better instead of signing that contract and that type of thing. So yeah, obviously we have to go into it with a certain level of understanding. I think that you talked about boards and for the future for boards I always work with boards every year on future proofing themselves, no matter what level of sophistication that they lie to be able to be ready for these conversations, to be relevant, to be ensuring they’re being educated and understanding what savvy they need to be able to ask the right questions, to be dangerous enough to ask the right questions.

[05:08] Brandi Stankovic:  And that’s most important for our board guidance and oversight is they help the executives create the strategic vision in the future. I think that managing that internally is just part of it now. So there’s creation of new jobs. Maybe we don’t have somebody that’s filing the signature cards any longer, but we do need to have somebody that’s negotiating and managing our vendor contracts. The other piece of that for me though is there’s a debate on loyalty versus shop around when it comes to our vendor partners. I’m of the boat of challenging your loyal partners and people that you’ve worked with for years to be better, to do better, versus always getting out there and shopping around. There’s such a lack of loyalty that it isn’t encouraging good people to do more and it’s making these new individuals come in that maybe don’t have the experience with our members that maybe are coming in with that lack of institutional or industry knowledge. That’s just as dangerous.

[06:08] Vince Passione: It’s interesting you say that because I’ve worked with credit unions now for over 25 years, and what I’ve found is they are amazingly loyal partners. We serve over 350 of them today, and I think maybe we lost two or three, and they are engaging, right? They’ll come to us with problems. A lot of the new products that we built were because credit unions came to us and said, Hey, we have this next problem with the member. Can you help us there? So I’m a little surprised by that. So you hosted a session at the GAC and it was called Canceling the Echo Chamber. Can you tell us about that?

[06:41] Brandi Stankovic: Yeah. It was part of the Mitchell, Stankovic and Associates Underground, which is essentially and inherently challenging the status quo, pushing people to have these difficult conversations, these crucial conversations, and having them in the boardroom or in the executive session set up versus having them at night at two A.M. at the bottom when we solve all the world’s problems. So when we’re talking about the echo chamber, for anybody that maybe isn’t as familiar with that term, it’s almost the blinders that we get on as leaders where we are only being exposed to information that we believe in, with algorithms, generative AI, and just the noise that’s happening in the world today.

[07:19] Brandi Stankovic: We end up only hearing stuff that we support and we need to be aware of that. So canceling that, because we’re all impacted by it, because our phones alone, if I search something on the phone, it’s going to bring me stuff that it thinks that I’m going to want, right? It’s an effective tool and also lends itself to a lack of diversity, a lack of exposure. So we have to constantly be intentionally seeking out those other sides. The hard part though, to speak to that is the noise that comes along with that. And I know that some of us either get into extremes, we get into extremes, right? We’re way over the top in pushing our ideals or thoughts or different things on others, and then the others of us have become emotionally numb to it and being a little overwhelmed by it and thus not acting in the way that we should.

[08:11] Vince Passione: So Brandi, tough conversations. I’ve gone to some of the conferences recently and I often wonder, the discussion doesn’t come up with what’s happened to the system. And when we launched LendKey in 2009, there were a little over 10,000 credit unions, and today the number is now less than 5,000. So we’ve seen a 50% reduction rate since that time. And the relevance of credit unions in the space and the growth in the next demographic, what’s happening with Gen Zs and millennials. Do you see these conversations happening when you’re canceling the echo chamber or in your strategy sessions? I don’t hear them. I hear conversations about we need to get younger, but I don’t hear conversations about, look, is this a crisis and is this something that credit unions are really focused on is how do we exist and continue to thrive in this environment?

[09:06] Brandi Stankovic: You know as well as I do, we’ve been talking about the younger generation throughout the progression of generations before Gen Z even existed, back when we called millennials, Gen Y. I think that yes, we always need to be having these conversations, and whenever you talk to somebody that’s been in the industry for even longer, they remember having a conversation about Gen Xers. And so it is because that’s the future. I think the challenge that we have now is behavioral habits. So going back to my kids, behavioral habits of these little guys who are only on these digital devices or are on them for a good portion of their lives. And so the services and solutions that they choose may look different than the solutions that I choose. And thus credit unions need to constantly evolve, be utilizing partners in that and in those FinTech organizations who are just advancing in innovative solutions to be able to be relevant as they grow with these younger generations. It’s not about becoming a new institution, it’s about evolving within the business model to better serve.

[10:05] Vince Passione: Yeah, I was at a conference and I put up a chart and I was showing how Chime and PayPal accounted for almost half of the new checking accounts that opened in 23. And I talked to a couple of the credit union leaders afterwards and they’re like, well, we know we’re getting Zelle and we want to focus on what’s important to our existing members. And I said, I started feeling like there was this bifurcation. I want to serve my existing members and am I serving my existing members to the detriment of the potential of getting these new members. Do you feel that in the conversation? I challenged some of them and asked them that, and I think they just kind of, once again, it’s a hard conversation. And I’m not a credit union CEO, so there’s only so far I can take that discussion.

[10:46] Brandi Stankovic: It is a balance between the two because without our existing members, we don’t have deposits, we don’t have the loyalty, we don’t have the community. And so we need those. And then the more transactional members, the newer members, we have to invest in the future or 10 years are going to go by or less than that these days, a few years are going to go by and we will no longer be relevant. So it’s a balance. It’s a balance between the two. I think organizations that are saying things like that are ones that are closing their eyes, they’re having a little nap instead of focusing on what needs to be happening in the future. But I also think it’s the problem of all of us that we all need to be doing this. I have seen different speakers speak, but most recently Frank Beekman talked about there’s really two movements happening.

[11:27] Brandi Stankovic: He was talking at the new CUSO conference. There’s a movement of the larger institutions, the billion dollar, $10 billion plus shops, and then the smaller credit unions, and the majority of institutions are under a hundred million. So of those thousands you talk about they’re all under a hundred million. And so it’s really the servicing the needs of both when it comes to our technology companies. I also think it’s everybody’s problem, meaning that the big credit unions should be looking at ways that we can support the industry and the smaller institutions. I tell my kids all the time that defense when they play sports is every player’s problem. It’s not just the goalie. It’s not just the defensive players, it’s everyone’s problem. And the same is true for us in this industry. Can I tell you something that pisses me off?

[12:10] Vince Passione: Sure.

[12:11] Brandi Stankovic: When credit union leaders say, well, my kids don’t even use the credit union. Okay, well then that’s a you problem as much as it is you having this okay, so great you have this miniature little focus group in your house, right? I get it. I feel that. With that, what are we doing? What am I doing? What are they doing to actually educate this next generation on credit unions and pushing their credit unions, challenging them to be better so they can provide products and solutions for kids instead of just talking about the fact that their kids moved on?

[12:43] Vince Passione: Well, you keep talking about kids, so I’m going to do something I usually don’t do on the podcast. I’m going to take a shot at student lending, which I’m not supposed to do, but I have been going from conference to conference and I put up these slides of the headlines of what’s happening with student loans. And I talked to credit unions about, you all want to get young, and you all tell me that you’re really focused on your member. And your member’s biggest expense is putting their child through college, and over 1600 of you basically refer your member to another institution outside the credit union space to provide education loans to them. It makes no sense to me. And yet every time I talk to them, they say, well, my board is concerned about the quality of the asset, and the answer is the asset performs extremely well.

[13:28] Vince Passione: And then the second is, well, we think about doing it, but we’re providing a lot of financial literacy. And I said, but all the financial literacy in the world isn’t going to make up for the fact that that parent is going to have sticker shock when their child shows up at school and for one year of college education in a private nonprofit school is $40,000. There isn’t enough financial literacy that’s going to solve that problem. You need a loan. And credit unions are just, they represent 3% of this entire student lending business. What do you say to that and how do you solve that? Because I got to imagine this is a product that they should be offering to get young.

[14:11] Brandi Stankovic: Any highly regulated industry ends up being reactive. Something occurs. Wells Fargo goes out there and opens checking accounts for everyone, and then suddenly the pendulum shifts and all these consumer protections. And we’ve always been reacting in credit union land, and I think credit unions especially because we can be a little slower moving, end up being a little too reactive, so we get flinchy with things. And so I think student lending is one of those. We’re worried about some forgiveness. We’re worried about the bubble bursting in all of this, and now suddenly it’s a place that we don’t want to touch. But to your point, it can create loyalty. It can serve our communities, and if mitigated properly from a risk standpoint, there should be no reason why we aren’t exploring that as an option as institutions, especially if college-age students are who we want to be serving in our particular fields of membership or demographics.

[15:01] Brandi Stankovic: I see the same thing when it comes, but you have to employ people internally that have that capacity. Do you remember that, well, of course you remember the taxi medallion kind of burst, that happened, right? And so it’s a very similar thing that that’s partly because we weren’t paying enough attention to what was happening in industries or denying the fact that things are changing. And so we need to have that level of individuals internally within our organizations or large institutions supporting the smaller to be able to have that knowledge and wherewithal and serve and mitigate in that way.

[15:34] Vince Passione: Yeah. I put up a slide that I thought would be controversial and it got a big reaction. I had a slide that showed the growth of SoFi, and I said, Mike Cagney approached me in 2012 when he was launching the business to see if they could potentially use our technology, and he explained his business was called Social Finance. I said, boy, that sounds very interesting. It sounds like what credit unions are.

[15:34] Vince Passione: And his whole concept was he was going to get wealthy graduates to fund loans for students, and it was a peer-to-peer model when it started. Now you look at the way SoFi has grown it built its business basically going after the highly educated, not rich yet. They became a bank two years ago. They brought in over $18 billion worth of deposits. And I was listening to Anthony Noto on the latest earnings call, one of the analysts said, well, those deposits, they’re just hot deposits because of your CD rates. And he said, no, they’re not. He said, those are direct deposits from paychecks. 90% of them are direct deposits of paychecks into SoFi. And I put the slide up and I said, this is a credit union with a modern tech stack that was built going after the biggest problem that exists out there today for these young potential future members, and that is financing and refinancing their education. And folks looked at it and then, poof, we went on to the next conversation. But tough conversation.

[16:53] Brandi Stankovic:  Well, they came in at a time where there was fixing a need. I think some credit unions today are confused on what hole they’re filling, what gap they’re finding a solution for, what need they’re solving for their members. And you can’t be all things to all people. We can’t be because we aren’t ever going to be as sexy as a bank with 10 times, a hundred times the assets that we have. I think that same is true with FinTech. We’re never going to be as sexy as a FinTech company that is investing all of their time and energy into technological solutions. So how do we partner? How do we create that solution and provide the value we’re supposed to be providing as cooperative finance? And that’s understanding and knowing our members.

[17:33] Vince Passione: Now, last year you were part of a panel at the Credit Union Leadership Conference where you were asked to provide one core insight for the credit unions to stay relevant. And I’d summarize by saying, you said, stay the course. Now lots changed, right? So we talked about lots changed since the pandemic. Would you say the same thing today or would you say something different?

[17:50] Brandi Stankovic: Well, the good news, everyone listened. And so because of that now my message would evolve, but the message that it was trying to get across, think inside the box, because we were in the noise of fintechs and just coming right out of the pandemic. It was a year and a half ago probably at this point, and having a conversation that what we’re also worried about all these things that we’re forgetting that somebody has to run this internally and run it well, somebody has to be managing the chaos and has to be mitigating the risk. And so thinking inside, I said the first step is to be aware of your own bull-shit, to be clear of your cooperative mission, which we’ve reiterated in this conversation, to create efficiencies internally, to get rid of any of those things that are holding us back.

[18:37] Brandi Stankovic: And then to elevate the bullpen to making sure that internally we have people that can take us to a championship. I know I made the sports reference earlier, but you don’t win a championship this year by worrying about next year’s draft picks, right? You have to get on the court and make things happen this year. And so understanding who’s on the bench, how can we keep evolving, how can we work together, will help us now to prepare for what’s happening in the future. So I think that the message today now is if we have that internal in place, now’s the time for us to be looking at partnerships in technology and digital transformation.

[19:13] Vince Passione: Now, you talked about leadership teams and we keep saying more and more credit union leaders are retiring. What are the credit unions doing to be prepared for that next generation that needs to move in? And now the world is very different. We talked about FinTech. We didn’t touch balance sheets, but balance sheet management is a big, big requirement, moving from return on assets to really looking at return on equity, looking more like an ROE kind of shop. What do you see as that succession plan and preparation for that next group of leaders in the credit union space?

[19:48] Brandi Stankovic: I think that I have two opposing perspectives on this, and one is, our retiring leaders cannot get out of the way fast enough. Get out.

[19:59] Vince Passione: Really?

[20:02] Brandi Stankovic: Yes, because how else are people going to step up? So many people that are in a CEO position today were thrown into the deep end of the pool and they figured it out. And today we have to make sure that everyone is so prepared. They have have all this education and work in every department and have all the council certifications and, oh, we got to do all this stuff and then we’re still going to go shop around outside instead of just putting some trust in our people that they’re going to figure it out because they live and breathe our mission and our purpose. So I think that that’s half of it is we need to move on.

[20:30] Brandi Stankovic: I was having some conversations about a board and they’re creating a merit disposition, which is a great opportunity to get board members out of their seats and into a role where they can soften the blow. But also, emeritus doesn’t mean that you get to stick around and tell everybody what to do for the next 10 years either, right? And so I think that we need to have that shift. The other piece is I challenge anyone that’s in and around my age that we need to step up our game. We need to make sure that we understand not only this industry, but all the financials and the evolution of those financials. We need to understand technology and the evolution of the technology and member experiencing behavior. And so anybody that is at the precipice or is taking the reins really need to take it upon themselves, not be waiting to be told what to do, but get out there and seek some of that understanding.

[21:18] Vince Passione:  Interesting. Just get out of the way. I’m going to remember that. So what are the three things that credit union should be excited about and optimistic about for the last half of 2024?

[21:29] Brandi Stankovic: Well, we talked a lot about digital transformation. It’s the time. Get in the industry, understand, read the trades, get involved, get out there, understand what’s happening, talk to your partners, challenge people with digital transformation, I think is exciting for me and should be exciting for all of us, whether it’s with our CUSOs, fintechs or partners, et cetera. The second I think is really social impact. Credit unions are really at a place that we can make an impact on the lives of the human beings in our communities. And so utilizing our fields of membership to understand what best avenue to go after with that. And there’s so many subcultures that happen in the new generation. And so whether it’s women in your communities or I talked about the agricultural fields or whatever, making an impact on something broader than just a transaction.

[22:16] Brandi Stankovic: And then the final one I think, is we have a lot of hungry leaders out there that we started the conversation with emotional intelligence. And I’m really excited about how emotional intelligence is going to be interweaved with our artificial intelligence tools and our digital platforms. And we are at that time where we’re using what’s special about us as human beings and becoming better through our technology.

[22:40] Vince Passione: Great. Well, listen, we’re going to leave it there, Brandi. Thank you so much for taking the time today. I really did enjoy the conversation. Thanks also always for our listeners, don’t forget to subscribe so you can enjoy future episodes and I’ll meet you back here in our next 22 Minutes in Lending. Thanks again, Brandi.

[22:53] Brandi Stankovic: Thank you.

[22:55] Narrator: Thank you for listening to the 22 Minutes in Lending podcast. We hope you enjoyed today’s episode. You’ll find links to any resources mentioned in the show notes. If you’re enjoying our show, be sure to subscribe and leave us a five-star review.