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A Preliminary Study on Credit Union Franchising

The purpose of this preliminary study is to identify tasks performed at credit unions that would be candidates for franchising—specifically, tasks that would benefit from economies of scale and centralization.

Executive Summary

Approximately once each day, U.S. credit unions lose one of their peers through merger and consolidation. The pace of consolidation has reached an average of 300 credit unions per year, driven largely by the need to access economies of scale. Researcher Steven C. Michael from University of Illinois at Urbana-Champaign, looked into strategic options other than mergers through which credit unions can fulfill the need for such economies.

What is the research about?

Filene Research Institute contacted a leading academic expert in franchising, Professor Steven Michael from the University of Illinois at Urbana- Champaign. We were curious to know if a franchise model could be used to alleviate staff resources expended on routine, time-consuming functions performed by smaller credit unions. The following report is a summary of our preliminary research and Professor Michael’s thoughts on the viability of a credit union franchising model. We intend to follow up this report with further discussions on the future development of credit union franchising models and the larger question of how credit unions can strategically respond to industry consolidation.

Briefly, our research team spoke to a handful of CEOs at smaller credit unions and did a time-utilization study to identify activities that might be candidates for a back-office franchising system. The activities identified as having the most potential were:

  • Compliance and internal audit.
  • Consumer lending/Marketing.
  • Human resources.
  • Accounting/Information technology (IT)/Security.
  • Facilities management and planning

What are the credit union implications?

As smaller credit unions struggle to grow and compete with larger financial institutions, business format franchising may prove to be a viable model for both credit unions and service industry entrepreneurs. By enabling credit union CEOs and their management teams to redirect staff resources away from time- consuming, largely repetitive functions, franchising could potentially serve as a catalyst for credit union growth and innovation. And the fact that credit union CEOs have historically been willing to share the secrets of their success with other credit union CEOs bodes well for entrepreneurs who are able to roll out a business concept that can reduce staff- intensive tasks, processes, and functions using franchisees.