In the last three to four years, credit unions have taken a heightened interest in growing noninterest income due to a combination of factors. As interest income dwindles, credit unions need to offset additional expenses such as compliance.
Over the past decade, we’ve seen a massive influx of noncredit union centric people coming into the credit union space driving new thoughts and ideas. As a result, credit unions are embracing new opportunities to acquire or partner to build their organizations.
If you are looking to grow your organization, here are five paths to consider.
- Strategic Alliance/Partnership – Form an alliance with a partner who serves the members you seek with a noncompeting product. Strategic alliances are best used for short term agreements focused on limited objectives. This type of partnership, which is typically less risky and involves low commitment and energy, allows you to access new capabilities and potentially new members.
- Minority Investment – In a minority investment you own less than 50 percent of an organization. This type of external growth is less risky and less expensive than acquiring a majority share or an entire organization and gives you more control than a strategic alliance because you have an equity stake in the organization. On the other hand, because you are the minority shareholder, your stake is typically, but not always, non-controlling.
- Joint Venture – Two organizations construct a new enterprise where each partner has equal ownership and agrees to share profit, loss and control.
- Majority Investment – Owning more than a 50 percent stake in an organization gives you more control to drive the organization’s direction, but you’ll still share the risks and rewards with a partner.
- Merger or Acquisition – Buying another organization outright can help you increase competitiveness and grow your organization. Acquiring can be riskier and requires a higher investment commitment, but you gain complete control of operations and management and can quickly add capabilities and knowledge to your business.