(Bloomberg Businessweek) -- For millions of working Americans, the 6,000-plus credit unions across the nation can serve as a paycheck-to-paycheck life preserver. Credit union tellers can refer customers with low balances to in-house financial literacy counselors, and their loan desks frequently offer the best rates, and lowest fees, in the country. A third of these institutions—almost 2,200—cater to low-income customers as standalone businesses or small chains.
What Cathie Mahon, chief executive officer of the National Federation of Community Development Credit Unions, found is that credit unions often use the same processing software as big banks but spend more on it. “Our smallest members pay more for software than personnel,” says Mahon, who leads a network of 235 CDCUs that share a mission of helping distressed communities. “They’re negotiating one-off contracts all the time.”
From 2007 to 2012, Mahon led New York City’s Office of Financial Empowerment, which was then-Mayor Michael Bloomberg’s initiative to educate, empower, and protect low-income residents when it comes to their financial resources. (Bloomberg is the founder and majority owner of Bloomberg LP, publisher of Bloomberg Businessweek.) In her role, which interfaced closely with credit unions, Mahon began working in 2015 with EPL Inc., a Birmingham, Ala., organization that provides core data processing to institutions. The goal: to develop a platform called CU Impact that would update account balances, power every auto bill pay, and fuel every ATM visit. In 2016 she and EPL negotiated a contract for members at a discount—unheard of in a business where investment in these types of platforms is very unusual.
“What Cathie’s done is preserve the trust factor,” says Justine Zinkin, CEO of Neighborhood Trust Financial Partners, a nonprofit that provides financial counseling to the underserved. “Only a quarter of Americans trust the financial system, and most are wary of financial institutions,” she says. “Credit unions do well on the front end but haven’t been very good at scaling. Cathie’s saying, ‘We’re still going to be your local credit union, but on the back end we’re going to be large and have impact.’ ”
Other innovations include a mobile app that details key information upfront: quickly visible bank balances, low-balance alerts, and money-transfer options. The switchover has been slow going; 20 CDCUs have joined the system as their existing 7- to 10-year contracts expire. Over the next five years, 50 more will adopt the system.
Morale is half the game. Zinkin says CU Impact has been “a shot in the arm to an industry that wanted to be true to its grass-roots values.”
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