Local Government Federal Credit Union has pushed back its planned split from State Employees Credit Union until 2025 and will use the extra time to open its own branches.
The $4.1 billion-asset Local Government had previously announced it would break away from SECU by March 2024. It has been joined at the hip with the $50.8 billion-asset SECU, the second-largest credit union in the U.S., since 1981. Local Government uses the larger credit union's branch network, contact center and core.
The symbiotic setup stems from a North Carolina Supreme Court ruling that
Local Government informed its members in February that the
First and foremost, Local Government needs its own branches.
"We talked to our members and they said 'we have to have a place we can drive to, if we need to talk to somebody,'" said Dwayne Naylor, CEO of Local Government. "There are a whole lot of moving parts. We need a little more time."
Some
The evidence is clear that the majority of U.S. consumers are not yet ready for a fully digital credit union delivery model, said Bill Handel, chief economist for Fiserv.
The phrase "high-tech and high-touch" is often used to describe the attitude of the vast majority of Americans in regard to how they want to consume financial services, Handel said.
"While they increasingly demand digital capabilities from their financial institution, the majority are not comfortable with a digital-only model," Handel said. "Most prefer the blend of physical presence and digital."
The challenge with a digital-only model will be attaining a strong share of the customer's wallet, Handel said. What will attract someone to a digital-only provider is typically some type of special offer.
It is hard to extend the relationship beyond the special offer for most digital-only providers because so many consumers want a physical presence, even if they use it infrequently, Handel said.
At the same time, the situation with SECU and Local Government has been complicated by CEO changes for both credit unions.
Naylor
"I can see how from the outside it looks like leadership changes were a part of this. But did Jim Hayes have anything to do with it? Honestly, when I finally got to talk to him personally, there's been nothing but support," Naylor said.
He added that SECU has been completely supportive of the change, and the date of the split being pushed back was due to Local Government members asking for the process to be slowed.
"The State Employees team delivered absolutely everything they needed for that March 2024 date," he said. "But our members said that was a little bit too fast. There's no politics involved."
SECU said in a statement that the company is "fully supportive" of Local Government's decision and is committed to ensuring a successful transition. "LGFCU and SECU will always share a commitment to improving the lives of our members," the credit union said.
It's possible for credit unions to succeed with minimal branches. Navy Federal Credit Union, the largest credit union at $166 billion of assets, serves a global membership out of 355
"I think the test case for credit unions and a digital-only model will be Alliant," Handel said. "They have the national membership to be successful. The question is whether they can garner a sufficient share of the member's wallet that enables them to be successful."
Local Government lost $99,000 in the first quarter of 2023 compared with a $13 million gain a year earlier, according to call report data from the National Credit Union Administration. SECU earned $144 million in the first quarter, relatively flat compared to the prior year.
