A Digital Co-op Bank?

A month ago Central 1 published a short ‘white paper’ outlining their rationale for a ‘Digital Co-op Bank‘. The publication follows quickly on the Central 1 conference and AGM in May where virtually all the presentations related to a pending digital revolution in the financial services industry.  New management at Central 1 is making a pretty strong pitch.

It has become clear that banking is very much an information management industry.  This is shaking things up as FI’s partner with information systems houses, innovative fintechs, and digital service providers.  Banks are also building internal capacity.  Central 1 is clear in viewing this as being Central 1’s territory.  The presumption is that the second tier entity, Central 1, is the logical place to pool resources.

What is noteworthy about this Central 1 paper is that is sets out a different strategic model for credit unions to consider.  The default current ‘consolidation’ strategy is credit union ‘centric’ – a large credit union will grow, absorb smaller ones and become an autonomous ‘co-op bank’ (AKA federal credit union).  This is the ‘journey’ that Coast Capital Savings has defined.  This model seriously threatens the future of smaller provincial credit unions and second tier entities.

The implied path in the Central 1 paper is different.  Perhaps this is, as the paper states, ‘a pivotal moment for Canadian Credit Unions’.  The suggested aggregator in this ‘technology’ driven model would be the technology lead – presumably Central 1.  This approach to consolidation would provide a far more secure future to those working at Central 1.  It might also look more attractive to smaller credit unions if there was some local control and autonomy retained.

However, all the discussion is all about ‘data’, digital service channels, user experience, and operational efficiencies. The white paper use’s the term ‘member-centric’, but it is not well defined.  Neither the federal credit union model nor the digital co-op bank model have dealt with the ownership conundrum.  Co-operative, democratic ownership is the key difference in our ‘credit union’ system.  That is what sets us apart from joint-stock companies.  However, co-operative ownership does not work well at a large scale.  Democratic governance at a national scale has to be designed, not just the result of convenient decision-making.

The Central 1 white paper is a good attempt to offer a different ‘vision’ as we redefine the future of credit unions.   But let’s not get dazzled and distracted by the the word ‘digital’.