Going global

Gilpatrick, Kristin

New rules, creative ideas may bring your credit union to its worldwide members.


For decades credit unions with members living in foreign countries have cobbled together creative ways to both serve and be overseas for their members.

The Internet, international ATM networks, 24-hour phone centers, and shared service center agreements have made global service smoother and faster in recent years. Still, some credit unions yearn for a way to actually be wherever their members are around the world. Those credit unions-especially with large sponsor group membership in overseas factories, etc.- continue to ask for the ability to open branches in foreign countries, something American banks have long been able to do.

A newly proposed National Credit Union Administration regulation would open the door to just such global service abilities and opportunities. According to the proposal (posted on the NCUA Web site at www.ncua.gov/news/proposed_ regs/proposed_regs.html), the new rule would allow a federally insured credit union (either federal or state chartered) to have a branch in a foreign country, provided the credit union deals only in U.S. dollars-so it remains National Credit Union Share Insurance Fund-eligible-and then first obtains and submits to NCUA:

* written approval from the host country as well as written documentation showing the country understands that NCUA maintains safety and soundness authority over the branch;

* written approval of state regulatory offices if the credit union is state chartered; and

* a thorough business plan for the foreign branch that outlines safeguards for assets, insurance and record preservation; analyzes foreign market conditions; addresses foreign currency risk; details facilities, equipment and supplies; explains the branch’s written operational policies; outlines the field of membership-or portion of it-that will be served by a foreign branch; details pro forma financial statements for the branch; describes internal controls and accounting procedures; and analyzes the impact of foreign income taxation.

As of this writing, the NCUA is considering amendments it might make to the proposed rule after the comment period close on Dec. 26, 2002. Should, as expected, the NCUA approve a foreign branching rule in early 2003, many credit unions would be poised to make a leap of global proportions in member service.


Taking that leap won’t be as easy as dreaming about it, however, caution the handful of U.S. credit unions that have already established a physical presence in a foreign country.

Defense credit unions, such as $17.3 billion Navy Federal Credit Union (www. navyfcu.org), Merrifield, Va., have been operating branches on defense installations in foreign countries for years.

While Navy FCU’s 26 foreign branches (serving mostly U.S. citizens) are technically on U.S. soil, the credit union has been working in and with foreign countries long enough to know how challenging overseas service and presence can be, notes CUES member Brian McDonnell, president/CEO of the 2.3 million-member institution. For 25 years, the credit union has participated in the Credit Union Money Orders system, an international service through which participating CUs’ members abroad can take advantage of Navy FCU’s services, with access restricted to share withdrawals and loan dispersements by draft.

“Yet, foreign service is not that simple,” McDonnell stresses. “You’ve got to do due diligence on all fronts and really know your foreign banking and labor laws very well because laws, like cultures, are different from country to country. Some countries, such as the United Kingdom, have very strict banking laws. Some countries have greater security risks to employees and members; others are unstable economically,” McDonnell explains.

Employment laws can be especially vexing, a reality that Navy FCU learned first the hard way, McDonnell admits. “We had an employee with dual citizenship who we terminated. That employee took us to court in the United States and lost. However, the employee then took us to court in Italy and we lost. The differing employment laws cost us quite a bit of money. As a result, we now only hire U.S. citizens for our branches.”

$1.6 billion United Nations Federal Credit Union (www.unfcu.org) also knows the complexities of foreign operations all too well. In fact, it had to pave a creative way through those complexities long before the NCUA began opening the door to branching possibilities for non-defense membership credit unions. More than half, and counting, of the credit union’s 54,000 members live overseas and work for the United Nations or affiliated United Nations organizations.

The New York City-based institution first began exploring developing an overseas physical presence at the request of a group of those members in Vienna, Austria, who were not satisfied with the complex and not-very– consumer-friendly banking options there, explains CUES member William Predmore, United Nations FCU’s executive vice president. Since the credit union’s membership wasn’t military, however, its foreign branching options seemed limited.

That is until the credit union struck on a creative solution-representative, liaison, offices. Such offices are different from traditional credit union branches in that they cannot accept nor dispense cash and, at this point, they complete all transactions in U.S. dollars.

In addition, all the liaison offices’ loan paperwork must be handled and approved in the New York City facilities, a logistical dilemma solved efficiently enough with technology so that loan approvals take less than 24 hours.

The first liaison office opened in Vienna, Austria, in 1997. Since then an office has opened in Geneva, Switzerland, and one is set to open early next year in Nairobi, Kenya. Plans are being considered for another office in Bangkok, Thailand, and, perhaps, in Santiago, Chile.

Regardless of where the foreign office is located, the basic setup is the same. Since United Nations FCU cannot deal in cash nor accept deposits on site, “members make deposits via payroll deduction because the United Nations normally pays professional staff worldwide in U.S. dollars or, if not U.S. dollars, converts their pay into dollars at a favorable exchange rate,” Predmore explains. “In addition, we establish accounts with local banks so members can deposit money from other accounts they might have.”

Members can also make withdrawals (with a higher daily withdrawal limit) from any ATM in the international network to which United Nations FCU belongs. The credit union also offers a Visa card without the usage charges and higher interest rates that most European banks charge.

(Find out more about the CU’s liaison offices in Serving Members Around the Globe, a case study published by the Filene Research Institute’s Center for Credit Union Innovation, available at www.filene.org.)

Though technically not foreign branches (and excluded as such in the proposed NCUA regulation), UN FCU’s offices have the feel of a customer-friendly branch site to its members. Still, establishing those offices meant solving many of the same legislative, legal and employment challenges future foreign “branchers” will face, Predmore notes.

Hurdling the requirements of foreign legislatures and/or regulatory bodies-which those hoping to establish an actual foreign branch will also have to do-can prove to be a complicated and even frustrating task, he notes.

“In Austria and Kenya we worked with governments that had some understanding of credit unions, but in Switzerland we found a government that was really unfamiliar with them and that took some time to overcome. The Swiss were confused, for example, about the term `shares.’ They thought it meant stock and when you’re dealing with a different government, culture, language and way of doing things, misunderstandings like that can take longer to clear up,” Predmore suggests.


To that end, having strong support from the credit union’s sponsor company and its local membership can make the road to foreign locations a lot smoother, he stresses.

“Sponsor support is crucial because the sponsor company and/or members living in the foreign country will oftentimes have contacts with local government officials. They also know the language and culture and can help open doors and navigate around potential problems. Without strong sponsor support, the whole process slows down,” Predmore says.

Just as critical is expert advice from the country’s perspective. “You need local legal representation to really know about local employment laws, etc.,” stresses Predmore. “For example, all of our European staff have employment contracts, and their benefits are totally different from staff in the United States. As an example, in the U.S. our staff has a 401(k) plan and private medical insurance, but in Austria they have a government pension program and socialized medicine.

“Holidays are also different as are things like maternity leave (in some countries new parents can take as much as three years off),” he adds, noting that even though United Nations FCU bases salary and staff structures loosely on its New York operations, there are variances from location to location. “For example, our member service representatives all share a common title, but their pay scales vary by country.”

MSRs at the liaison offices have something else in common. They are locally hired from the country where the office is located. “Because of language, culture and work visa issues, we decided to hire local staff for our offices,” Predmore says. “Initially, we did rotate staff from New York for limited terms of two to three months to act as trainers, etc., but we wanted people who really knew the culture and languages) of members in that location.”

Still, serving a foreign culture can put demands on the CU’s culture, Predmore and McDonnell agree.

“Technology helps to keep us connected and keep a sense of a bigger credit union team among employees. Our offices and employees are all on the United Nations Federal Credit Union intranet, but we also try to stay connected in personal ways,” notes Predmore.

“Our vice president of branch administration makes frequent trips to our liaison offices, four to six per year. We also try to get each office’s manager to New York once a year and each of the offices’ staff members visit New York at least once when they are hired to get a feel for our culture and how we serve members through a sales and service culture that’s more personal than Europeans are generally accustomed to.”

Navy FCU also tightens its corporate bond abroad by keeping it all in the family. “We make a concerted effort to hire our active military members’ spouses into the 1,200 employees we have in our 97 branches worldwide,” notes McDonnell. “That means there’s a bigger turnover in our branches as spouses move to new duty stations. But, the practice also helps us maintain familiarity and teamwork throughout our branches worldwide because the spouse employees know us, our culture, our services and even our IT network– which are all the same no matter what branch they move to.”


McDonnell further suggests that offering consistent, reliable and efficient service is especially important to members living and working overseas. Foreign locations are just one part of that service.

“Our whole strategy is to provide primarily lifetime financial services to our membership, to meet members’ needs from the time we pick them up when they are 18, to the time they’re stationed in Bahrain to after they retire and move back to the states. Therefore, we have to put in place the delivery channels our members need to get those services, and branches are one of those channels,” he explains.

“To meet members’ needs via any channel they choose to access us, from anywhere in the world, our call center has 800 numbers for international calling, we have debit and credit cards, we have 300 ATMs, and we have 97 branches worldwide. Most importantly, we offer Navy Federal Online, which can be accessed via the Internet anywhere, any time in the world.”

Though a proprietary ATM system, foreign branches and accessible call centers help serve members when they’re abroad, it’s the online delivery channel that’s proved Navy FCU’s strongest and most popular overseas service “branch,” he stresses. “Navy Federal Online has become the credit union’s main international delivery channel and is currently serving 850,000 members worldwide who use it for everything from bill payment to address changes to applying for loans.

“In other words, our online branch is our primary means of reaching out to members overseas, and that’s something others looking to branch ‘worldwide’ should consider,” McDonnell suggests.

Those still seeking that physical location in a foreign country should consider one more thing, McDonnell and Predmore add. “Patience.”

“Plan on taking at least a couple of years to get a branch established in each country,” McDonnell notes. “It’s a complex process and each country will present its own challenges, not the least of which will be the taxation laws that vary from country to country.”

“It takes time,” agrees Predmore. “It takes us a minimum of one to two years to get a foreign office approved and running at this point. So, patience is key.”

Also important is planning, understanding and flexibility, he adds. “Flexibility is probably the biggest key to success in the international arena because every country and situation will be totally different.”

Still, Predmore insists, opening foreign locations is rewarding. “For the right credit unions, foreign branches will be a good strategic move for their future success and for their members’ service. And, it really is fun to do this stuff!”

Kristin Gilpatrick, a former Credit Union Management editor, is a Madison, Wis.-based business writer and the author of a war history series called The Hero Next Door (www.heronext door.org).

Copyright Credit Union Executives Society Jan 2003

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