Ripple or Tsunami?

On January 15, 2022, an underwater volcano near the remote island of Tonga violently erupted. The tectonic plates deep below the ocean’s surface gave way. The sea waters rose and waves fanned out in every direction. A mushroom cloud of smoke and ash climbed twelve miles high.

Tsunami warnings were issued prompting major seaports from Japan to California – all of them already strained by the massive supply chain breakdown – to prepare for a possibly catastrophic event.

Fortunately, the oceans were mostly able to absorb the shockwave and the threat largely passed without major devastation or disruption. That is, unless you were Liam and Manu Powers, owners of Sea Quest, a snorkeling tour company on the Island of Hawaii more than 3,000 miles away.

There, the current that silently made its way in the dark into tiny Keauhou Harbor turned out to be the destructive tsunami – at least for the Powers’ – that the world had been warned of. The wave that virtually no one else felt resulted in more than $100,000 in damage and further economic hardship to the small 30-year old business that had already been impacted by COVID-19.

What’s Below the Surface?

This geologic event made me think that about strength and preparedness as it pertains to retail banks versus credit unions.

Bank of America, Citibank, Chase, Wells Fargo and the rest are – in my mind — major harbors protected by multi-billion dollar steel-reinforced seawalls. Liam, Manu and Sea Quest represent small or regional credit unions. Today there is, give or take, approximately $20 trillion on deposit in U.S. banks. Within credit unions, the number is a tad under $2 trillion.

Now, hold that thought while thinking about the various active economic volcanoes smoldering and growing more active all around us:

  • The ever-widening gap in the number of retail branches and deposits versus CU’s.
  • The impact of inflation and future Fed monetary policy. (read, interest rate hikes).
  • The rapid expansion and effect of Fintech(s) on the banking industry.
  • Cryptocurrency. (Is crypto Bitcoin? Is Bitcoin crypto? And what is Fiat-Collateralized Stablecoin? Can you explain the difference to your members and where do CU’s stand in the blockchain evolution)?
  • The in-roads of Walmart, Amazon, Apple, GM and soon-to-be many others into the world of financial services. (Even DoorDash is launching a financing arm for loans to restaurants).
  • And of course, the great unknown of COVID-19 which is still in charge of the economy-at-large.

These economic volcanoes are growing stronger and, in time, each are going to erupt — some sooner and larger — than others. For the retail behemoths of the banking world, the effect will be a ripple and, more than likely, even a catalyst. But for credit unions — especially small-to-midsize CU’s — that ripple … well, think of Liam and Manu.

Sink or Surf?

The movement of tectonic plates cannot be stopped. Neither can the growth of Fintechs or the unbridled investment power of Walmarts’ and Amazons’. So, what are credit unions going to do in the face of all this?

Some will devise short term plans to hopefully ride out the next surge. Others – mainly those with long-term visions – will craft action plans to not only survive the coming crests, but surf smoothly upon them. Many will be engulfed.

Protecting your portion of the coastline through technological advancement and stellar member service is absolutely required. So is enhancing your headquarters and branches for the recruitment and retention of top talent and members.

The Power of Proactivity

As dire as all of this may sound I am, in fact, inspired by the incredible agility and innovation I’ve witnessed since the pandemic began. Rather than hunker down and hope, leaders of companies of all size in nearly every industry have shown a level of proactivity and resilience un-matched during my lifetime. From wholesale to retail, from manufactured goods to anything-as-a-service, the entrepreneurial acumen and spirit that drives our economy has effectively overcome disaster.

So, that’s the good news. But there is no question that credit union leadership must recognize that the next wave of challenge is coming and the sea walls of yesterday will not hold back the raging waters of tomorrow. In this case, a rising tide will not lift all boats. If not fully prepared, many CU’s will be swamped.

We are cautioning all of our clients not to be complacent even though the seas may look calm and controlled from a distance.

PS: Happy to report that Liam and Manu were insured, all repairs were made and Sea Quest is back in business! Aloha.

Corey A. Waite is a leading commercial real estate advisor to the financial services industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior executives coast-to-coast to deliver strategic plans and transactional services focused on optimizing the needs of employees, clients and members.

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