Performing a credit union SWOT analysis can help find key strengths, weaknesses, opportunities, and threats that the organization can use to redefine its strategies.
SWOT analysis is a tool used to evaluate the external and internal environments of a company. It is useful in both decision-making and strategic planning, helping the company find opportunities and generate strategic alternatives.
Credit unions are created, owned, and operated by their members, who are often associated with a specific community, religion, or profession.
Credit unions operate as non-profit organizations, and they are exempted from federal and state taxes.
Despite facing intense competition from commercial banks, credit unions can acquire new technologies and target the younger population to increase their market share.
What are Credit Unions?
Credit unions are not-for-profit institutions that provide traditional banking services. The institutions are owned and operated by account holders, who are referred to as members. Any profits generated by the credit union are either paid to members as dividends or invested back into the organization in projects that are of interest to the members.
Since credit unions are not-for-profit institutions, they are exempted from state and federal taxes. As of 2016, the number of credit unions in the United States was 5,757, comprising nearly 104 million members.
Example of a Credit Union SWOT Analysis
Strengths of Credit Unions
Credit unions are created by members, who pool their money into the organization and own a portion of the entity’s shares. The union uses the member’s funds to provide loans and other financial products/services, and any income generated is used to pay dividends to members or fund projects that benefit the members and their interests.
Such a practice creates a strong feeling of trust among members, and they are generally confident that the organization is working towards their best interests. The credit union can build on the members’ trust to streamline its product and services.
Credit unions are non-profit
Credit unions operate as non-profit organizations, which means that all the profits generated during a financial period are shared with the members. The organization is not under pressure to find additional ways of making money, but it is at liberty to make decisions that favor the members or owners of the organization.
Also, credit unions are exempted from federal and state taxes, and it leaves the entities with more revenues to invest in activities that are of interest to their members. A credit union can exploit such strength by finding alternative income-generating activities. The activities can be tapped to generate revenues to support the organization’s day-to-day operations and invest in activities that directly impact the members.
Weaknesses of Credit Unions
Membership is restricted
The membership of a credit union is restricted to a specific community, most often a religion, profession, or geographic location. For a member to be eligible to join a credit union, they must belong to a group listed in the credit union’s charter. For example,
The Pentagon Federal Credit Union is an organization whose membership is restricted to US government employees or those with military affiliation, and their family members. The limitation prevents most unions from growing their customer base, despite getting interest from customers who are not part of the qualifying groups.
Limited access to new technology
Credit unions operate as non-profit organizations, and they often lack adequate capital to acquire new technologies or finance technology upgrades. Commercial banks are often able to access a large pool of assets and profits that they use to fund new technologies that credit unions cannot afford.
As a result, smaller credit unions are not able to offer mobile banking or banking apps that tech-savvy customers can use to make deposits and withdrawals and even deposit checks. A high proportion of credit unions lack fully functioning websites that can allow customers to access their funds and track transactions in real-time.
Opportunities for Credit Unions
A high percentage of a credit union’s membership comprises an aged population, who are mostly the founders of the organization. Given the prevailing state of their membership, credit unions have the opportunity to attract young members into their membership.
Credit unions need to leverage technological innovations to provide products and services that younger customers desire from their financial institutions. The innovations may include offering mobile banking and banking apps that millennials can access from their smartphones or tablets.
Small business lending
Although credit unions lend to small and medium-sized enterprises, SMEs comprise only a small portion of the organization’s loan portfolio. SMEs offer a great market for credit unions, especially due to the high level of distrust between banks and SMEs. Banks have been accused of practicing predatory lending practices, which has made it expensive for SMEs to acquire loans.
Credit unions can exploit the opportunity by creating credit products that are tailored to the needs of SMEs. Specifically, credit unions should offer lower interest rates and more flexible repayment terms than those offered by commercial banks.
Threats for Credit Unions
Credit unions operate in a business environment that is dominated by large commercial banks. Such a highly competitive environment threatens the existence of credit unions and their ability to continually provide lower fees and high interest rates on savings to its members. Operating as non-profit entities present a threat to credit unions since they need to compete with large commercial banks. Larger financial institutions report billions of dollars in profits every year, allowing them to invest in new locations and infrastructure and even acquire new technologies.
Despite enjoying federal and state tax exemptions, credit unions must contend with their limiting legal framework. Also, commercial banks are ahead in providing digital services, making them attractive to the tech-savvy younger population.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below: