By Sarah McNeil
In a financial system where trust is increasingly fragile, the institutional structures that create trust may matter more than ever.
GAC Observations
At this year’s Governmental Affairs Conference, I listened to several leaders talk about how they are staying relevant as technology shapes financial services. Much of the discussion focused on what individual credit unions are doing: how each institution is investing in technology, engaging its community, and advocating for members.
That perspective makes sense. But it also raises an interesting question.
In a cooperative movement, is our difference primarily about how individual institutions behave, or is it also about how the system itself is designed?
We heard the common refrain that credit unions are different from banks. Internally, however, the system is evolving in ways that can sometimes make credit unions look more like banks structurally. Consolidation and increasing institutional scale are gradually reshaping the structure of the credit union system. At the same time, our competitive positioning and messaging often mirror the very institutions credit unions were created to be an alternative to.
If credit unions increasingly resemble banks in strategy and structure, what makes them distinct in the long run?
Technology, Trust, and the Scale Question
A theme that came up repeatedly during the conference was the importance of maintaining the human connection even as technology advances. Several CEOs spoke about using AI and automation to remove administrative work so staff can spend more time helping members. That balance between technology and human service is an important part of how many credit unions think about staying relevant.
In a discussion during Mithell Stankovic’s Underground meeting, technology investor Louis Hernandez argued that credit unions may be well positioned in a digital world precisely because they are trusted institutions rooted in their communities. As trust in many institutions declines, that authenticity could become a powerful advantage.
When institutions are owned by their members, serving specific communities and governed locally, they naturally encourage relationships and long-term trust. Yet the financial system increasingly rewards scale, creating pressure on those locally rooted institutions.
The Pressure is Real, But…
Many leaders believe technology will ultimately make smaller institutions unsustainable and that consolidation is the only path to achieving the scale required to compete. The pressure is real. But technology itself does not determine where scale must live. That is a design choice for the cooperative system.
Perhaps the challenge facing the credit union movement is not choosing between technology and human connection. The real challenge may be discovering whether cooperative systems can harness technology while preserving the structures that made them trusted institutions in the first place.
The Scale Paradox
In a fireside chat with America’s Credit Unions President Scott Simpson, NCUA Chairman Kyle Hauptman made a remark that stayed with me. He described credit unions’ “alpha,” or their unique advantage, as the personal connection they have with their members. In his view, banks should not be able to outcompete credit unions on that dimension because that relationship is where credit unions are strongest.
That comment highlights an interesting tension for the movement. If the credit union advantage is rooted in being personal and closely connected to members, how do we preserve that advantage as institutions continue to scale?
Cooperative industries often face what some economists describe as a scale paradox: the very qualities that make cooperatives valuable, such as local governance, member focus, and community connection, become harder to maintain as institutions grow larger.
What If Scale Lived in the System Instead of the Institution?
A panel featuring CEOs of several of the nation’s largest credit unions reflected on how their institutions remain competitive in a technology-driven environment while continuing to serve the cooperative mission.
What was striking, however, was what did not appear in the conversation: cooperation between credit unions. Each leader framed their response around what their individual institution was doing. The implicit assumption seemed to be that technology requires individual institutional scale.
But why must scale exist only inside individual institutions? Have we seriously explored what might be possible if the cooperative system itself built those capabilities together?
Historically, cooperative systems approached scale differently. They built shared infrastructure that allowed many independent institutions to operate together rather than concentrating scale inside a single organization.
Financial institutions frequently collaborate when shared infrastructure benefits everyone. Major banks jointly launched Zelle for instant payments. Institutions across the sector share cyber threat intelligence through FS-ISAC, and globally banks rely on the SWIFT network to move financial messages between institutions.
Building shared infrastructure is difficult in any system. Banks themselves took decades to build networks like these.
The Shift
Earlier in the movement, exploring cooperative infrastructure was more common. The goal was not simply to grow individual institutions but to ensure that many credit unions could succeed together. In that sense, the movement may have shifted from sharing scale to sharing services.
Financial education, community involvement, and consumer advocacy are important efforts, but any financial institution can adopt those behaviors. Structure is harder to duplicate.
Are we so focused on competing in the market that we have stopped asking how the cooperative system itself should be designed to operate within it?
Why the Public Struggles to See the Difference
During a discussion at Mitchell Stankovic’s Underground conference, speakers talked about the difficulty of spurring advocacy when many consumers cannot clearly articulate the difference between banks and credit unions.
That reality may say less about consumer indifference than about the credit union system increasingly operating in ways that resemble banks structurally. When the conversation focuses primarily on services and behaviors, the difference can begin to sound like philosophy rather than structure.
Philosophy alone is difficult to defend in policy debates.
Perhaps, if we practiced the cooperative structure more clearly, the cooperative difference would become easier to see.
What Policymakers Are Watching
During conversations with congressional staff while in Washington, consolidation across the financial industry—banks and credit unions alike—came up repeatedly as an issue policymakers are watching closely.
Several staff members expressed interest in understanding how consolidation affects consumers, particularly when it reduces the number of locally governed financial institutions serving specific communities.
They emphasized the value of those local financial institutions that know their members and communities intimately. Those relationships allow institutions to respond to needs in ways very large institutions often cannot.
On another panel, the CEO of one of the nation’s largest credit unions described the constant effort required to push policymakers to protect the credit union tax status. Anyone who has worked in this movement knows how hard leagues and advocates fight to defend it.
It does raise an interesting question: what if that same level of energy were directed toward strengthening the cooperative system itself?
In an era of consolidation across many sectors of the economy, a financial system intentionally structured around decentralization would be powerful. Credit unions already have the framework to build that kind of system.
A Visit to the Library of Congress
On the final day of GAC, I made one last stop at the Library of Congress.
While reviewing early credit union documents in the Adams Reading Room, something became clear: Congress originally saw credit unions as filling gaps in the financial system, particularly for people of modest means.
The decentralized structure of many small institutions embedded in communities of common bonds was considered a strength. Credit unions would not be fragile because they would not be isolated. The cooperative system would allow them to support each other.
Early leaders like Louise McCarren Herring and Roy Bergengren worked to establish thousands of credit unions so that cooperative support would exist throughout the system and no one credit union would be isolated. That is how the early movement grew.
When Congress debated federal credit unions in 1933, the structure was described clearly. Credit unions were to be “organized within and limited to a specific group of people managed by officers chosen by and from the people grouped together.”
The intention was not to build large financial institutions serving broad groups of people. The intention was to enable communities to organize their own financial cooperatives.
If this is the case, then scale was never meant to live inside the credit union–scale was meant to live in the system.
Where Should Scale Live?
If the current trajectory continues, the credit union system may eventually look less like a network of local institutions and more like a bank-like industry with cooperative governance. That future may be workable, but as the structure changes, does the trust our members place in us change with it?
Throughout the conference, speakers emphasized the importance of trust, authenticity, and human connection in an increasingly digital world. While those qualities have long been strengths of credit unions, historically they did not emerge simply because credit unions tried to behave differently.
They emerged because credit unions were designed differently.
In a financial system where trust in institutions is increasingly fragile, the structures that produce trust matter more than ever. The cooperative model gives credit unions a unique opportunity to think about scale differently.
If scale is necessary for the future of credit unions, where should that scale live? Inside individual institutions or within the cooperative system itself?
Sarah McNeil is CEO of United Trades Federal Credit Union in Oregon. She serves on the board of the Endangered Small Credit Union Defense (ESCUD) and focuses on cooperative system design, small credit union sustainability, and the role of shared infrastructure in preserving local ownership and mission. She can be reached at [email protected] or on LinkedIn.
