Credit Unions’ Strategic Evolution: Navigating Growth Through M&A and Beyond

U.S. credit unions are at an inflection point, facing their first asset contraction since 2014 amid an unprecedented wave of M&A activity. As these institutions navigate technological disruption and demographic shifts, they’re turning to both traditional mergers and innovative bank acquisitions to maintain competitiveness. The sector faces three fundamental challenges that are reshaping its traditional operating model:

1. Consolidation and shifting asset growth: The credit union sector has steadily consolidated over the past decade, with federally insured credit unions falling to fewer than 5,000 by 2023, as smaller institutions combine forces to achieve necessary scale for technological investments (see Figure 1).

Source: NCUA 

Despite this consolidation, credit unions maintained consistent asset growth for nearly a decade — until 2024. Total assets contracted to $2.32 trillion in Q2 2024, marking a 0.4% decline and ending a 39-quarter streak of continuous growth (see Figure 2). 

Source: St. Louis Fed Economic Data (FRED) 

2. Technological disruption: The rise of fintech companies and widespread adoption of digital banking are fundamentally reshaping consumer expectations. With 71% of U.S. adults now using online banking monthly, credit unions must rapidly modernize their digital offerings to remain competitive, especially among younger demographics.
3. Changing consumer behavior: This modernization imperative is complicated by demographic headwinds. Only 35% of credit union members are in their peak borrowing years (ages 25-44), down from 51% in 1989. This aging membership base creates significant challenges for long-term growth and sustainability.

Strategic growth through M&A

In response to mounting pressures, credit unions are executing an unprecedented number of bank acquisitions, fundamentally reshaping the financial services landscape. By October 2024, credit unions had announced 19 bank acquisitions — setting a record and representing a significant portion of all bank acquisitions nationwide (see Figure 3). 

Source: S&P Global

The scale of these transactions reflects ambitious growth strategies. Recent examples of credit unions’ bank acquisitions include:

• Global Credit Union’s purchase of First Financial Northwest Bank in Washington in a $231.2 million all-cash deal
• Spokane Teachers Credit Union’s acquisition of Community Bank in Oregon in a transaction involving $548.5 million in assets
• U.S. Eagle Federal Credit Union’s acquisition of Southwest Capital Bank in New Mexico for the bank’s $474.5 million in assets

Credit unions are also pursuing significant mergers within the sector to achieve greater scale, including a proposed merger between Digital Federal Credit Union and First Tech Federal Credit Union to create a $28.7 billion institution spanning eight states.

Key growth drivers

Credit unions are pursuing M&A deals that offer four distinct competitive advantages:

1. Market expansion: Bank acquisitions allow rapid entry into new markets and customer segments, diversifying risk and enhancing operational resilience
2. Increased lending capacity: Acquiring banks helps credit unions bypass regulatory lending caps, enabling them to compete more effectively in commercial markets
3. Tax advantage: Credit unions’ tax-exempt status allows for more competitive acquisition bids, though this advantage often faces criticism from traditional banks
4. Technological advancement: M&A offers a fast track to digital transformation, which is crucial for attracting and retaining younger members

Implementation challenges

As credit unions’ bank acquisitions accelerate, institutions face mounting scrutiny and complex challenges:

• Regulatory oversight: The FDIC is signaling stricter oversight, including potential requirements for more-detailed data on proposed deals. However, credit unions’ member-focused structure often aligns more closely with regulatory mandates, giving them an advantage over traditional banks in areas like fair lending and community reinvestment.
• Industry resistance: Controversy over these acquisitions has sparked calls for congressional hearings, federal scrutiny, and proposals like exit fees to address tax revenue concerns.
• Cultural integration: Credit unions must transition from a shareholder-focused bank model to a member-owned structure while managing cultural differences, retaining employees and maintaining service quality.
• Operational complexity: Acquisitions require aligning payment systems, membership requirements and other operations without disrupting service for existing and new customers.

While M&A activity provides one path forward, sustainable growth requires a multifaceted approach. Beyond acquisitions, institutions are pursuing organic growth strategies to build competitive advantages and deepen member relationships.

Sustainable growth strategies beyond M&A

To complement the scale achieved through M&A, credit unions are turning to organic growth strategies that deepen member relationships and enhance competitive advantages. These approaches ensure credit unions can grow while staying true to their member-first mission.

Holistic financial well-being

Today’s consumers expect comprehensive financial solutions beyond basic banking services. In response, credit unions are broadening their offerings to include investment services and financial guidance.  

Currently, approximately 23% of credit unions offer professional financial advice, reflecting a shift toward financial well-being as a strategic growth driver. These services deliver measurable benefits: Members are 1.5 times more likely to report improved financial well-being, twice as likely to have received financial counseling and nearly twice as likely to have at least $500 in emergency savings. Expanding these offerings strengthens retention and drives long-term growth (see Figure 4). 

Source: Kehre Group

Expanding through personalized solutions

Credit unions can leverage new technologies to deliver personalized financial products. Artificial intelligence (AI) and data analytics enable credit unions to:

• Create customized financial planning recommendations
• Provide automated investment guidance
• Develop targeted savings strategies
• Design personalized debt management solutions

Florida’s largest credit union, Suncoast Credit Union, exemplifies this approach by using AI to enhance services and streamline lending. Through a partnership with Zest AI, it improves credit decision-making, expanding access to credit for its members.

Broadening access through holistic support

Credit unions are uniquely positioned to address the financial needs of underserved populations. Tailored programs can help bridge gaps in access to financial services, including:

• Low-fee accounts designed to meet the needs of low-income members
• Credit-building initiatives that help members improve credit scores and gain access to affordable loans
• Customized debt management plans for reducing financial strain
• Financial education and coaching programs to promote long-term financial literacy  

This focus is especially critical given that 14% of Black adults and 11% of Hispanic adults remain unbanked, according to the Federal Reserve’s 2023 survey.

Leveraging the credit union advantage

Credit unions’ cooperative structure and community focus uniquely position them to deliver holistic financial support. Unlike traditional banks, they prioritize member well-being, tailoring services to meet local needs and investing in sustained relationships. This member-first approach enables credit unions to support long-term financial health while driving sustainable growth.

Small-business banking

Small businesses represent a significant growth opportunity for credit unions, which are uniquely positioned to meet their needs. With their local roots and community focus, credit unions can offer personalized support that larger institutions often overlook. Initiatives like networking events, educational workshops and mentorship programs allow credit unions to build stronger relationships with small-business owners, making them trusted partners in their growth.

The Federal Reserve’s 2023 Small Business Credit Survey underscores the potential: 61% of small businesses reported financial challenges, and 47% struggled to access adequate banking support.

Strategic advantages

For credit unions, small businesses offer multiple benefits:

• Expanded deposit base: Business accounts contribute steady, reliable growth
• High-value relationships: Business owners often qualify as high-net-worth members
• Fee income: Business services generate consistent revenue streams
• Cross-selling opportunities: Relationships with small and medium-sized businesses (SMBs) provide natural pathways to personal banking products

Despite these advantages, credit unions face regulatory limits on small-business lending, capped at 12.25% of total assets or 1.75 times net worth. While this restricts commercial lending growth, ongoing legislation aims to raise the cap or exempt veteran business loans.

Tailored solutions for SMBs

Credit unions can differentiate themselves by offering specialized products that address small-business needs, such as:

• Flexible financing options (credit lines, microloans, equipment loans)
• Low-fee business accounts with simplified services
• Customized insurance products, critical for the 75% of SMBs that are underinsured

Strategic partnerships

Strategic partnerships allow credit unions to evolve beyond traditional banking, providing innovative solutions that enhance convenience, attract new members and deepen existing relationships. By collaborating with fintechs and other partners, credit unions can expand their capabilities without requiring extensive in-house development.

Building a financial ‘super app’

The concept of a financial super app — a single platform offering diverse services — presents a significant opportunity for credit unions. Through strategic partnerships, credit unions can integrate traditional products like deposits and loans with complementary services such as:

• Retail rewards programs
• Financial management tools
• Lifestyle services like travel booking or wellness incentives

Examples like Revolut, a financial technology company, and Discovery Bank, a South African digital bank, illustrate the super app concept — platforms that integrate diverse services into seamless ecosystems. Revolut evolved from a currency exchange app to offering cryptocurrency trading, stock investments and travel booking. Discovery Bank links financial behavior to wellness rewards through its Vitality program.  

Expanding digital offerings through collaboration

Collaborations with fintechs empower credit unions to deliver advanced digital tools, such as:

• Real-time payments
• AI-powered personalization
• Automated lending platforms
• Blockchain-enabled solutions
• Buy-now-pay-later options

Fintechs like Scienaptic AI (AI-driven credit underwriting), Blend (cloud-based loan and deposit solutions) and Upstart (AI-powered consumer lending) work with credit unions to enhance these offerings and expand access to credit. By positioning themselves at the center of broader financial ecosystems, credit unions can provide members with innovative solutions, strengthen loyalty and achieve sustainable growth.

Charting a path to sustainable growth

The most successful institutions will adopt a balanced strategy, combining growth through strategic acquisitions, investments in innovation and collaborations that enhance capabilities and drive competitiveness.

Thriving credit unions will prioritize opportunities that deliver lasting member value, build robust digital ecosystems and leverage their community focus. By scaling with purpose and staying true to their member-first principles, they can lead in an evolving financial landscape.

Achieving sustainable growth requires careful planning and expert execution. Contact us to develop a tailored strategy that positions your credit union for long-term success.

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