Enough Room for Growth?  

The First of Three Reasons for Charter and Field of Membership Change

This blog post will be the first in a series of three where we explore the three primary reasons we see for charter and/or field of membership changes:

1. Market Right Sizing

2. Strategic Growth Initiatives

3. Regulatory Relief

Does your credit union have enough room to achieve your strategic growth goals? How would you know or analyze what can be an ambiguous, tough-to-quantify topic?  

To help frame these discussions with credit unions, CUCollaborate uses the concept of TAM, SAM, and SOM, or what looks like the traditional marketing / business development funnel.  

Put in credit union terms:

• Total Addressable Market (TAM) = Your Potential Field of Membership or your membership if you achieve the (impossible) 100% market share
• Serviceable Addressable Market (SAM) = The proportion of your Field of Membership that you could or should reasonably serve (i.e., you probably won’t be successful pitching auto loans to 7-year-olds, even if they are eligible for membership)
• Serviceable Obtainable Market (SOM) = Your Current Membership

How can we begin to assess how much Total Addressable Market (Field of Membership) your credit union needs to achieve its Service Obtainable Market (Current Membership) goals?

One place to start is with the publicly available data on hand, specifically the NCUA 5300 call report data.

We do have two call report fields: number of current members and number of potential members that help when assessing market penetration. Using these data points, the average community charter market penetration rate is 1.5%. We believe the community charter calculation is of higher value than looking at other charter types like Multiple Common Bond or Single Common Bond because it can be hard (or impossible) to estimate the total addressable market of occupational or associational groups (often referred to as SEGs) and keep these estimates current.  

The good news is that credit unions have created more room for growth throughout the past 40 years. Below are two charts that show the market penetration rates of credit unions from 1980 – 2020, both by a percent of total credit union assets and as a percent of credit unions by count. We classify market penetration into 5 separate peer groups:  

• Very tight – market penetration rate between 50% and 100%
• Tight – market penetration rate between 20%-50%
• Constrained – market penetration rate between 10%-20%
• Intermediate – market penetration rate between 1%-10%
• Loose – market penetration rate between 0%-1%
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If your credit union membership has more than 1.5% of your potential membership as reported in your call report, it may be time to look at an FOM Expansion and/or Charter conversion. However, even if your TAM does not seem too tight for growth, you may explore whether it provides enough Serviceable Addressable Market (SAM).

Assessing how much Serviceable Addressable Market your credit union needs to achieve its Service Obtainable Market (Current Membership) is understandably more challenging because it requires you to both define the demographics of the TAM that your credit union is best equipped to serve, and then to assess how many and where these demographics lie within your potential membership. The good news is that credit unions have better access to data than ever before through their core processor and ancillary data / market analytical tools.

Below is an example from a member credit union who used our AnalyzeCU software, which analyzes credit union’s member data and compares it to the demographics within a selected geographical area. This credit union found that they were over-represented in the rural portions of their field of membership, demonstrating that perhaps this was a competitive advantage and something to leverage in existing or new markets. Conversely, the credit union was under-represented in economically distressed areas despite their membership closely aligning to the household income distribution of their surrounding areas. This could highlight a product/service gap in their offerings or the need to expand into other areas that are not economically distressed if their goal is to maintain existing product/service mix or underwriting standards.
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Despite access to data and analytical tools, the picture can remain cloudy, and managers could always use qualitative information to tell us that our charter or field of membership may be restricting growth. Moreover, credit union managers and front-line staff may frequently report that they are often turning would-be members or borrowers away at community events, at in-branch transactions, or in high online application abandonment rates (particularly at the eligibility step). This could also be a function of marketing / business development activities “spilling over” outside your field of membership. To note, the average marketing (education and promotion expense) expense per potential member for all credit unions is $0.50 per potential member. If your education and promotion spends exceed this metric, you may not be getting a good return on your investment in new business.

Assessing whether your credit union has appropriate room for growth is challenging. The above framework and example metrics can provide an initial baseline of where your credit union stands today in terms of market penetration as well as ensuring there is enough room to achieve your growth goals.  

If you have specific questions about your market or potential total addressable market (FOM / Charter) options, please schedule a meeting with us. As credit union fanatics, we want to ensure credit unions have ample room to thrive in an increasingly competitive landscape!