Saturday, March 20, 2010

New Space Credit Union

A reader sent me this idea.  What do you think?  A viable business?  Please comment pros and cons.

Idea: Offer an Internet based Credit Union (think E-Trade except an online Credit Union instead of stock trading ) where profits from the organization are used to fund a combination of space prizes, R&D, and new space business ventures.  A few more details:
  • Federally charted to operate in all 50 states
  • Sign ATM/branch sharing agreements with existing brick and mortar credit unions to provide instant national reach (and great customer service)
  • As with all credit unions, each account holder has a voting share.
  • 1-3 years to start one with significant paperwork
  • Here is one site's 10 steps to starting your own credit union
I know very little about the nuts and bolts of banking.  But here are the things I like about a New Space Credit Union:
  • Relatively low start up capital since you would use depositors funds to offer loans and make investments.
  • Would garner significant support from existing New Space advocates adding early membership
  • Assuming competitive rates with other similar financial institutions, advocates would not need to sacrifice financial return or customer service to support the industry.
  • Competive rates and services would even draw non-advocates leveraging their deposits as well - all in the name of space development
  • There many successful credit unions across the country - no new technology is being pioneered.  Professionals exist that could be brought on board to run this one successfully.
So now the questions:
  • Has this already been done?  Is there already a new space credit union out there focused on using its profits to expand the frontier?  How about credit unions focused on non-space frontier expansion that could serve as a model?
  • How profitable could such a venture be assuming 1, 3, 5 thousand members?  I can model revenue fairly easily, but costs are hard to approximate without more knowledge about the industry.  I need to do some primary research.
Since I don't know much about credit unions, I called someone who does.  In the coming weeks, I am interviewing the President of local Credit Union with about 10 branches (finalizing a time now).  I want to find out more about the details of his industry, the profit potential of a credit union, expected costs, etc.  I will update this post with the results of that interview.

So now I need your thoughts.  I hope there are others smarter than me on this that can weigh in.


  1. I put together a spreadsheet after reading this and dropped it on my blog's filespace so you can get it that will calculate not only basic revenues but also takes into account default rates and average value recovered from default.


    Might be fun for you to play around with and help develop your idea. Toying with the spreadsheet I found the key thing is actually not getting a high deposit balance or interest return but making sure you have a low default rate and a high recovery rate for loans that do default. If you can do this and get the subscribers this might very well work.

    Also, you may or may not know this but online banks have existed in the past and probably still do, though I don't know about credit unions.

    Jon Schneider

  2. Thanks Jon. This spreadsheet should be very helpful. This helps us better understand the revenue potential. Thanks also for listing your sources. The next steps will be getting a handle on costs. National reach would be important, but there is a cost for that reach. This might be a little far out there, but assuming one could make this space credit union work, I wonder if we ever ran up against the 5,000 member limit if we couldn't start multiple regional credit unions with the identical missions that funnel their profits into a seperate organization that carries out the prize implementation, R&D Funding, New
    Space Investments, etc. this might allow 20, 30, 40K people to participate in the credit union by uniting multiple credit unions with a single purpose - or it might just get me thrown in jail. But now I am really getting ahead of myself. :)

  3. UPDATE:
    Previously, this post contained a limit of 5,000 members per credit union. This is true of UK CU's, but not, to the best of knowledge, of US Credit Unions. I have updated the text of the post removing this limit.

  4. If you're looking for models, you probably ought to look for credit unions that pursue some charity goal. That seems close enough to what you're thinking of doing. They should go through the same sort of problems you'll face, even if their goal is say, feeding kids in Africa rather than opening up a new frontier.

    Going through your links, I see that a number of my concerns about the complexities of starting and running a credit union are addressed there. You need to establish some sort of common bond (in the "ten steps" article, they mention an association or profession society as one way, that seems most useful here since you'll probably have interested people from very small companies).

    Also, the space development angle seems a weak. The big problem I see is that there's no demonstration of what we'd get. It's otherwise a credit union with some unknown amount of overhead in projects that may or may not work out. It may be wise to create a non-profit in advance with some sort of activity to show off. Or get someone who has good experience in this area on board.

    Finally, I think there's a relatively undeveloped niche for prizes in the $1k to $10k range for achievements that are within the range of small groups of skilled amateurs and college students. That might be a good start since it is both relatively low stake yet could generate considerable dividends.

  5. Karl:

    Great point about the vague space value. The "New Space" value would need to be clearly articulated and demonstrated for all potential investors.

    So this idea's due diligence would include a set of tasks focused on creating a Internet-based Credit Union and all that goes with that, and a set of tasks focused on how to maximize value to the New Space Industry (to include the potential of the type of prizes you are describing). This one-two punch of Credit Union focus and Maximize New Space value focus should serve the venture well since it allows for a dichotomy of passions to both be utilized within the venture. The company could bring it the brightest Credit Union minds to run the CU while maintaining an advisory board filled with Space visionaries who oversee the distributions of "space funds".

    Great comments. Thanks.

  6. I fell in love with this idea last year. Any news about it actually maturing into a real life credit union.