Rubicon Latest Insights
How to Do Good While Doing Well
It’s in the credit union industry’s DNA to help
serve the under-served. But philanthropy
comes at a price. The question is how to
balance what’s good with what’s right?
There’s an expression that goes, “May you live in interesting times.” No doubt about it, we do. Personally, I’d be fine living in times a tad less interesting.
To be specific, while “interesting” at some levels, COVID has been far more horrible than compelling. Too many lives lost, too many taken ill (including me), too many jobs cut and too many businesses shuttered.
While the worst appears to be behind us, the final toll that the Coronavirus un-leashed remains far from clear. What is clear is that those who traditionally struggle during “normal times”, struggled even more during the pandemic.
People with typically lower paying service-related jobs were impacted at much higher rates than those with higher paying white-collar jobs. Compared to men, far more women were laid-off – or left the workforce – to care for children and have yet to find new employment. Students who already struggled attending schools in low-income communities struggled even more due to limited – or no – internet access.
COVID DIDN’T CARE
From the very beginning, COVID didn’t care who it impacted, but it had far more success impacting those with lower incomes. Fortunately, from coast-to-coast, credit unions were there assisting members throughout the crisis.
COVID exposed what many in the credit union industry already knew. That people in low-to-moderate income communities – LMI’s – are under-served by the retail banking industry. In these communities, what you generally find instead are high-rate check cashing shops and predatory lenders ready to saddle those who have no other options with “products” such as 28% auto loans.
But more and more, credit union leaders are looking for ways to better serve the under-served. Yet make no mistake, the chasm between desire and what is financially feasible is a challenging one to bridge – even in the best of times.
Case in point: The CEO of one of our client credit unions is personally passionate about serving under-served communities. The problem is that, in this credit union’s charter area, there aren’t many. To further reinforce the challenge, of their existing branch locations, their single LMI branch is by far the worst performing.
Another challenge is that – unlike real estate developers who have access to a multitude of tax-friendly benefits and other subsidies for developing in LMI-qualified communities – few, if any, such benefits are available to credit unions.
A DELICATE DANCE
So serving LMI communities is a complex cocktail: Balancing the math in serving people-in-need while providing convenient access to enough non-LMI prospective members – those whose credit scores and service volumes can offset the risks traditionally associated with under-served communities.
And here’s the next conundrum. A credit union may have the altruistic intent of helping an under-served region become financially stronger. Yet, if and when that strategy succeeds, the market may cease to be an LMI community and become an ideal target for deep pocket retail banks that — just a few years earlier – would never have invested there.
Yet, throughout the credit union industry, the desire to serve the under-served is generally strong. It’s long been part of the credit union industry’s history and DNA. The key then is to how apply the right tools to help determine which LMI markets are viable for investment – both today and for the future.
WHAT DRIVES CHANGE?
At Rubicon, we begin the process by analyzing current census track data to identify populations that qualify as LMI’s. Next, we expand our criteria to identify immediate or nearby residents — and this is vitally important – who are likely to become credit union members. The metrics we sample include their predisposition to join a credit union, preference of visiting a branch in person, median ages, household income, employment rates, credit scores, education levels, family size and more.
Next, we look beyond those known statistical demographics for “catalysts-to-change.” That being events taking place that could fundamentally change a market’s condition over the next several years.
Take for example Inglewood, California, just south of downtown Los Angeles. The past twenty years have been pretty tough on Inglewood since The Forum – a once iconic sports and concert venue – closed in the late nineties and the aerospace industry flew off to other parts of the country. These were catalysts – in this case bad ones — that negatively impacted the community.
Then last year both the LA Rams and Chargers NFL football teams opened SoFi Stadium while the concert lights came back on at The Forum and today Inglewood is experiencing a major renaissance.
This time the catalyst was positive. But as a credit union focused on LMI communities, you had to see the changes in Inglewood coming well in advance in order to provide the greatest benefit and to cultivate the non-LMI members necessary for long term survival.
Of course catalysts don’t depend solely on stadiums and concert venues. For example:
- Education is a major driver. This might include improvement in ranking and a school district. A new community college. A new satellite campus of a state or private university.
- More and more, Healthcare is becoming a powerful change catalyst. A new major medical center can literally transform a market.
- Transportation. Plans for light rail expansion, or a multi-modal transit hub can be a game-changing catalyst.
- And of course, Employer Expansion. Announcement by an established or growing company of a new R&D, manufacturing, distribution, or headquarters facility can attract further investment in numerous industries, particularly in housing and retail.
SKATING AHEAD OF THE PUCK
So the key is knowing about and understanding the potential impact of these catalysts well before they occur. To achieve this, we apply an array of data sets into a predictive five-year outlook algorithm. The result is a Report-of-Findings that enables our credit union clients to “see” what is anticipated for the future of an LMI market.
Armed with the breadth and accuracy of this data, credit unions have the information necessary to envision — with a high degree of confidence — whether their desire to do good things philanthropically can be achieved while doing wise things financially.
For our client I mentioned earlier, the information we revealed made it clear that serving LMI’s within their current charter was not financially wise. But rather than close the books on their goal, they are using the data to pursue new levels of flexibility. In this case, potentially altering their charter to expand into other regions where the metrics are aligned for the community and the credit union alike.
We’ll keep you posted.
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