Summary and Implications

The intention of Well Capitalized was, in part, to take a positive approach to what I see as the assets of the credit union system.  In an age of rising financial capital requirements, many credit unions are rightfully concerned with their capitalization.  Without access to the same tools of capitalization as the traditional financial institutions (i.e. banks, government entities) the credit union system is at a strategic disadvantage in this area.  To add further irony, it was the acting in bad faith of these types of institutions which has largely spurred greater oversight, regulation, and capital requirements for credit unions.  It is as if the social capital and trust which was eroded over decades of scandals – with the 2008 financial crisis as a watershed moment – has needed to be literally replaced with financial capital.

So in this context of low trust, low social capital between the public and large financial institutions giving rise to increasingly tight financial regulation it seemed worthwhile to think positively about what assets the credit union system has to leverage.  In this spirit: this investigation of social capital and the Canadian credit union system.  For this purpose of this project I have defined social capital as 'the networks of relationships that afford, encourage, and engrain prosocial and mutually beneficial behaviors and attitudes in a group'.  While you cannot spend social capital at a store or invest social capital into the stock market, social capital is a resource which can be accumulated or expended, leveraged or neglected. 

Historically, social capital in credit unions was built out of tight-knit relationships – often born of sharing some key identifier (i.e. geography, religion, value, ethnicity, etc.).  These credit unions were born of communities coming together due to market failures (i.e. banks and governments unable or unwilling to provide the capital needs of a community), critiques of standard banking practice, ownership, and/or governance (i.e. philosophical belief in a ‘better way’ through cooperation), and/or the understanding that communities would retain independence through cooperation (i.e. credit unions provide insulation and power for communities).  This list is, of course, not exhaustive but illustrates major themes that played out in credit unions being founded. Throughout these examples there is an emphasis on clear, motivating vision and purpose and/or a clear sense of those within the community and the multitude of immediately relevant, personal relationships and networks.

As both the credit union system and Canadian society has experienced significant change, the relevance of the ties that bind (i.e. geography, religion, ethnicity) have been challenged.  Technology, changing attitudes and beliefs, an emerging sense of the ‘Canadian identity’ have all offered stark new challenges to the underlying key identifiers on which social capital was built.  Add to this a more advanced banking and government marketplace to access credit and banking services, the speed with which information can move beyond borders, the commoditization of banking, shrinking margins, major mergers in the credit union system – and what type of social capital are we left with?

My literature review and interviews with credit union leaders shows a wide variety of answers and approaches.  In my interview with John Veldkamp, he noted that Christian Credit Union - a closed-bond credit union - is wrestling with serving their community (as defined by their closed bond) and the ways in which their closed bond (ironically) prohibits them from serving their community.  At Conexus, Eric Dillion challenged the role of geography in building community as he stressed the need to facilitate connections between emerging communities of common interest.  At Canada's largest credit union, Vancity, Karen Hoffmann explored the ways in which transcendent social values such as 'healthy communities' and 'making good money' help to bind and define their membership.  

There is, of course, no formal score for social capital across the Canadian credit union system.  Such a score would be made up of the hundreds of credit unions – and thousands of members – who would differ wildly.  The tiny, northern, rural credit union that serves as the only financial institution in the community will have considerably different type of social capital than the credit union working through a tightly contested merger vote. However, beyond the individual differences of credit unions, the credit union system is largely well positioned for social capital due to the largely positive roots that define their history and the cooperative structure which allows and encourages pro-social business practices and decision making.

The question which will define the next era of the Canadian credit union system will be the ability of credit unions to gain relevance with a younger demographic.  It has been well-documented that the Canadian credit union system has among the world’s oldest average membership.  Winning the membership, and the business, of younger generations is a critical test for the credit union system’s long term thriving.  The relevance of credit unions was formerly more obvious to their membership.  The mutual self-help between individuals in a community leveraged social capital – trust, reciprocity, and good-will in service of the common good. Credit unions today struggle to leverage the social capital of their communities in part because the common goods that underpinned social capital have eroded (or evolved), in part because credit unions have begun serving a more diverse, diffuse set of communities (rather than one monolithic community), and – perhaps most of all – because credit unions have failed to revise the common good that communities rally around. 

Research suggests that the millennial generation is more willing than previous generations to make purchase decisions – and even pay a premium – for products, services, and companies that align with their values.  Values-based marketing is increasingly popular and perfected by highly-respected lifestyle brands.  In this way, brands have managed to differentiate themselves in highly commoditized marketplaces. 

Increasingly, traditional credit unions will need to understand their niche.  The common good that defines traditional credit unions (i.e. geography, ethnicity, religion, etc.) is essential for making an inspiring call to action to their community.  These credit unions may risk undermining the sense of belonging that ensures their members' loyalty by moving outside their niche. Mergers, name changes, branch closures, etc. ought to be considered, at least partially, with an eye towards how these strategic moves effect the underlying common good of the community.

As the country's largest credit unions continue to aspire to sustainability through volume, a broad vision of the values and purposes of the credit union are needed.  An ideal broad vision allows various communities to connect, have visibility, and pursue their own values within the inclusive values of the credit union.  The largest credit unions, as a function of the scale of their membership, will need high values – expertly communicated – to ensure that members understand the common good that their membership is in service of.  It is ultimately this common good that allows social capital to flourish.  Credit unions – with their cooperative, democratic, and profitless purpose – have the ability to make such a value positioning in the marketplace with a legitimacy that other financial institutions are unable to.