Credit unions make up for lost time

By Hannah Duncan, based on an interview with Mark McAlpine, board member and consultant, Not The Odd One Out

Credit unions have long struggled to compete with banks. The first problem is resources. As one government paper puts it, "In 2023 the average UK credit union had 7 employees; some are entirely run by volunteers". By contrast, the average bank employs 795 people. And those volunteers may not have a background in financial services.

Mark McAlpine works closely with credit unions as both a board member and a consultant, running Not The Odd One Out. He has seen at first hand how they struggle for resources. "Because most of the board members are volunteers, they sometimes struggle to find suitably qualified people", he says. Some open only "two days a week". That makes it hard to keep up with technology and compliance. A quick look at the website of the credit union where I grew up shows I'd still need to hand in a paper form to apply for a loan.

Credit unions play a vital role in supporting vulnerable borrowers 

Yet despite the odds, credit unions are much-loved. During COVID-19, membership grew. And in the current cost-of-living crisis, they offer lower interest rates on small loans, a much-needed lifeline that keeps people away from bad debt.

In the past year, an estimated 1.9 million adults in Great Britain turned to unlicensed lenders or loan sharks, around 4% of the population.

Strong credit unions keep local people from falling prey to loan sharks, or taking on credit that doesn't suit them. They think locally, not nationally. And they have a real stake in the community, because their shareholders are the members themselves.

Government reforms will let credit unions reach more customers

The logical move is for credit unions to pool resources. That means more staff and economies of scale. According to Mark, it's what the FCA would want too. "They'd probably prefer to see about 50 well-governed credit unions with diverse boards", he says.

Until now, merging has been hard. Every credit union is built around a common bond, the shared link that decides who can join, often a place where members live or work. Under a locality common bond, the cap on potential members sits at 3 million, a limit raised from two million by a 2017 order under the Credit Unions Act 1979. Most credit unions have far fewer members than that. Across the UK's 366 credit unions there are only around 2.6 million members in total. But because the cap counts potential members, a merger can tip the combined catchment over the threshold.

For decades this has held back growth, to the detriment of communities. London Community Credit Union recently fell into administration. Even credit unions that did combine, such as Clockwise Credit Union and Notts & Lincs Credit Union, faced real hurdles from the cap. Both had to redraw their common bonds to get the deal done, with Clockwise dropping Northamptonshire and Notts & Lincs dropping Lincolnshire.

Recognising the bottleneck, on 18 March 2026 the government announced plans to raise the locality cap from 3 million to 10 million, more than tripling it. It also plans to widen who can join, adding students, more relatives, and members who want to stay on after they retire. For credit unions, it's a huge chance to make up for lost time.

Credit Unions are pooling resources to deliver dramatically better services

More Credit Union Service Organisations, or CUSOs, are expected as a result. Mark is at the front line of forging these alliances in Scotland. A CUSO is "effectively an aggregation of buying power", he explains. It's an exciting mission, and a daunting one.

Three obstacles stop credit unions from competing meaningfully with banks. First, people. Second, compliance. Third, collections and debt recovery. The last is "by far the most painful of the three", says Mark, with firms relying too heavily on outdated systems and manual processes. Everything from paper letters to pre-Consumer Duty language needs an overhaul as credit unions come together to streamline how they work. Some of that work is already underway.

Mark works with the UK's first CUSO of it's kind, bringing together three credit unions: Glasgow Credit Union, Capital Credit Union and Scotwest. As a starting point, the CUSO put in Flexys' collections technology and saw recoveries rise "on the very first day". Flexys' online self-service repayment plans were an instant hit, cutting friction for members. "By working with Flexys, we are building an organisation that is well-grounded, resilient and sets the standard for what a CUSO should be", he says. The CUSO has also added a benefits calculator that helps members spot unclaimed entitlements.

Fresh lending products in the pipeline

As CUSOs build and shape themselves around their members, expect more of these ideas. Credit unions are for the people, by the people. So community dividends could take unusual forms, such as cheaper transportation or evening classes. Many already run local lotteries that fund charities and community services. It's a rare chance for finance to work better for everyone.

Unlike traditional high street banks, credit union products can be deeply personalised for niche local audiences too. HEY Credit Union offers school uniform loans and Christmas saver accounts. Capital Credit Union offers golf and season ticket finance. As not-for-profits, they reinvest the money back into their members and communities.

What collections software means for credit unions

Flexys is glad to be part of this. Our collections software helps credit unions collect more, at a lower cost to collect, while staying on the right side of compliance and Consumer Duty. Just as important, it helps them treat people who fall behind with dignity, through self-service payment plans that flex to real-time circumstances.

Credit unions may have struggled to keep pace with banks in the past. They're about to pick up a lot more interest.

See how collections software helps credit unions cut their cost to collect and deliver better outcomes.