Why Does Minnesota have solid but not outstanding Credit Unions?

Read about all these interesting if not great CUs around and then I look around home and they are financially feet on the ground but nothing I would write mother about? Inquiring Minds want to know?

Dinosaur wrote: ↑Tue Oct 03, 2023 4:25 am Read about all these interesting if not great CUs around and then I look around home and they are financially feet on the ground but nothing I would write mother about? Inquiring Minds want to know?

It sounds like you are surprised you don’t have a unicorn nearby, if unicorns were so common they wouldn’t be so special. From what I have seen these types of credit unions are common where there is little to no national investment or rather extremely closed local economies. Most CUs are a single office of a company or a single chapter of say a union, it takes a lot of factors and a bit of a misstep for these credit unions to become an AOD, or Redstone, and often just a short time for them to roll back what makes them so special.

I only joined one CU while I lived in Minnesota, which we used as our secondary bank, but I don't recall there being any that had unicorn deposit or credit products that I saw. Wakota FCU used have the Elan MCP at a lower APR range than other institutions, but I just looked at website and their APR range now matches anywhere else that has those cards. The CU we were members of had good rates on money market savings (comparable to an online HYSA ,iirc) and their auto loan rates were competitive, but their credit card offerings were the same as you could get at pretty much any other CU: a 1% cb card and a lower-rate no-rewards platinum. While I was there, one of their managers told me that they try to have competitive products to serve their members' needs, but that they didn't try to chase, e.g., having a CD rate or credit card cb % that would put them on the front page of Doctor of Credit or something like that, because their experience had been that most of the accounts you gain doing that leave the CU as soon as the next unicorn/fotm comes along.

“ because their experience had been that most of the accounts you gain doing that leave the CU as soon as the next unicorn/fotm comes along.”

I highly suspect the type of person who jumps on these accounts are not the kind that end up carrying a balance and making them money. The type of person drawn to say 3% cb on everything is someone chasing rewards not someone looking to lose those rewards to interest payments. Those same customers because they end up losing money on them is why those unicorn cards end up getting nerfed.

Yeah, interest income is part of the income CU's get from their card programs, but only part of it. I can't speak for all CU's, but CU's are not-for-profits, so they're generally not looking to farm their members for interest, since there's no one profiting from the interest who would pressure them to do so. CU profits just go back into the institution for the members, in one way or another: paying for higher deposit rates, lower borrowing rates, more staff, new software or equipment, etc (or even more mundane stuff, like keeping the lights on). I think the manager I was talking to was thinking more along the lines of: if we create a unicorn product and a bunch of people join, reap the rewards, and leave, then a handout to random Redditors probably wasn't the best way we could have spent our members' money.

Slabenstein wrote: ↑Wed Oct 04, 2023 9:52 pm Yeah, interest income is part of the income CU's get from their card programs, but only part of it. I can't speak for all CU's, but CU's are not-for-profits, so they're generally not looking to farm their members for interest, since there's no one profiting from the interest who would pressure them to do so. CU profits just go back into the institution for the members, in one way or another: paying for higher deposit rates, lower borrowing rates, more staff, new software or equipment, etc (or even more mundane stuff, like keeping the lights on). I think the manager I was talking to was thinking more along the lines of: if we create a unicorn product and a bunch of people join, reap the rewards, and leave, then a handout to random Redditors probably wasn't the best way we could have spent our members' money.

I think you misunderstood me… fotm cards get applied for milked for everything they are worth but they don’t bring in money for the union. If the product doesn’t bring in depositors or earned interest then it takes away from the real members as you said even nonprofits are “profit” motivated.

Beefy wrote: ↑Wed Oct 04, 2023 11:48 pm

Slabenstein wrote: ↑Wed Oct 04, 2023 9:52 pm Yeah, interest income is part of the income CU's get from their card programs, but only part of it. I can't speak for all CU's, but CU's are not-for-profits, so they're generally not looking to farm their members for interest, since there's no one profiting from the interest who would pressure them to do so. CU profits just go back into the institution for the members, in one way or another: paying for higher deposit rates, lower borrowing rates, more staff, new software or equipment, etc (or even more mundane stuff, like keeping the lights on). I think the manager I was talking to was thinking more along the lines of: if we create a unicorn product and a bunch of people join, reap the rewards, and leave, then a handout to random Redditors probably wasn't the best way we could have spent our members' money.

I think you misunderstood me… fotm cards get applied for milked for everything they are worth but they don’t bring in money for the union. If the product doesn’t bring in depositors or earned interest then it takes away from the real members as you said even nonprofits are “profit” motivated.

If they're using the cards then they're bringing in money via interchange fees. The question is just whether it's enough when the total losses and gains from a credit card program are considered, which is another part of why the overwhelming majority of credit unions don't offer unicorn cards. Relative to other loan products, credit cards have high losses from defaults (those are the cardholders that cost the issuer money), so the margin to keep a credit card program in the black is pretty thin. Within that margin you have to account for interchange fees, finance charges, and other fees coming in vs. processor costs (most CUs are way too small to run their credit card programs in-house), rewards costs, and other program costs going out. Generally speaking, if you're a CU, you're going to want to have a rewards structure that lets your credit card program operate without a net loss (so, for most CU's, probably not a 3% or even a 2% card), but the cost of that rewards structure and the interest paid by your members who revolve balances are only two parts of the equation. I think most CUs are probably "continue to exist" motivated, rather than being "profit" motivated. They want to provide their members with financial services, so they'll price according to the path they've chosen to be able to continue to do that, but since they don't have a private owner or shareholders, there's no one they would be trying to generate a profit for.

Slabenstein wrote: ↑Thu Oct 05, 2023 11:43 am

Beefy wrote: ↑Wed Oct 04, 2023 11:48 pm

Slabenstein wrote: ↑Wed Oct 04, 2023 9:52 pm Yeah, interest income is part of the income CU's get from their card programs, but only part of it. I can't speak for all CU's, but CU's are not-for-profits, so they're generally not looking to farm their members for interest, since there's no one profiting from the interest who would pressure them to do so. CU profits just go back into the institution for the members, in one way or another: paying for higher deposit rates, lower borrowing rates, more staff, new software or equipment, etc (or even more mundane stuff, like keeping the lights on). I think the manager I was talking to was thinking more along the lines of: if we create a unicorn product and a bunch of people join, reap the rewards, and leave, then a handout to random Redditors probably wasn't the best way we could have spent our members' money.

I think you misunderstood me… fotm cards get applied for milked for everything they are worth but they don’t bring in money for the union. If the product doesn’t bring in depositors or earned interest then it takes away from the real members as you said even nonprofits are “profit” motivated.

If they're using the cards then they're bringing in money via interchange fees. The question is just whether it's enough when the total losses and gains from a credit card program are considered, which is another part of why the overwhelming majority of credit unions don't offer unicorn cards. Relative to other loan products, credit cards have high losses from defaults (those are the cardholders that cost the issuer money), so the margin to keep a credit card program in the black is pretty thin. Within that margin you have to account for interchange fees, finance charges, and other fees coming in vs. processor costs (most CUs are way too small to run their credit card programs in-house), rewards costs, and other program costs going out. Generally speaking, if you're a CU, you're going to want to have a rewards structure that lets your credit card program operate without a net loss (so, for most CU's, probably not a 3% or even a 2% card), but the cost of that rewards structure and the interest paid by your members who revolve balances are only two parts of the equation. I think most CUs are probably "continue to exist" motivated, rather than being "profit" motivated. They want to provide their members with financial services, so they'll price according to the path they've chosen to be able to continue to do that, but since they don't have a private owner or shareholders, there's no one they would be trying to generate a profit for.

But they do have private owners or “shareholders” the union members. I don’t think we are really of that different of an opinion on this, I think it is more of a difference of terminology than anything.

Most CUs don't have lucrative revolving accounts because they put the money into lower loan rates for their members. It's all driven by what the members want balanced with what will keep the credit union healthy and growing.