Banks and credit unions are like cats and dogs, Starbucks and Dunkin’ Donuts, Red Sox and Yankees, bad analogies and – well, you get the point.
So when the Credit Union National Association (CUNA) announced this summer that credit unions nationwide had achieved 100 million memberships, bankers may have met the news with a little old-fashioned skepticism.
After all, how many of those 100 million were double counted? How many were signed up for credit union membership via indirect auto lending? And is that growth really evenly distributed across the industry, or does it mainly favor the largest credit unions?
“We’re very explicit in saying we’ve reached 100 million memberships” – not 100 million members, said Bill Hampel, the interim president and CEO of CUNA.
For instance, Hampel counts himself among the people who may belong to more than one credit union, but conversely, he said, a couple who has a joint checking account at their local credit union would be counted only once.
And while some people do become credit union members once they sign on the dotted line for a new car, Hampel said that only about 10 percent of those people ever become full members. Credit unions routinely purge their rolls of inactive members, and an inactive member who’s unwittingly joined a credit union via car loan will be purged from the rolls when he or she pays down the debt, he said.
Banks Got Bailed Out; Credit Unions, Well, Didn’t
Keith Leggett, a senior vice president and senior economist at the American Bankers Association, maintains that the number is exaggerated for those reasons above, but regardless, says they do pose a threat to banks.
“I think what you will find is that it does point to the fact that credit unions are growing their membership and this has really come about from the liberalization of the rules dealing with fields of membership,” he said.
Credit unions and advocacy groups attribute increasing interest in credit unions to a cultural shift that’s taken hold since the recession and word of mouth among consumers who feel fed up with fees.
“More and more people want to do business with values-based organizations. If you look at locally-grown food, going green, going lean… Credit unions, by and large, are locally owned organizations. As not-for-profit financial cooperatives, we fall right into that sweet spot,” said Paul Gentile, president and CEO of the Massachusetts Credit Union League.
And where banks may have suffered an image problem in the aftermath of the financial crisis, credit unions have benefitted.
“Prior to the crisis, credit union growth rate was very anemic. It was growing at less than the population growth rate at one point,” said Mark Sievewright, president of Fiserv Credit Union Solutions. “Credit unions were not part of creating the financial crisis, and for some consumers, that resonates, especially these days, where I think everyone is sensitive and acutely aware of what that crisis felt like.”
As an example of that, Sievewright and Hampel both pointed to Bank Transfer Day, an Occupy-flavored grassroots consumer initiative that encouraged people fed up with big banks to move their accounts to not-for-profit credit unions.
Meanwhile, Keith Pequeno, chief marketing officer at the Chelsea-headquartered Metro Credit Union, said that credit unions still offer certain products that many banks have let fall by the wayside in recent years, like affordable mortgages and free checking accounts.
Room For Growth
It is true, however, that that much touted membership growth is largely happening at the very biggest credit unions. Hampel referenced “the 80/20 rule,” saying that “80 percent of members belong to the largest 20 percent of credit unions.”
And while 100 million sounds impressive on its face, credit unions have collectively captured only about 6 percent of the market share across all types of financial institutions, Sievewright said.
While the credit union industry as a whole strives for that next benchmark, the field will likely see consolidation among smaller credit unions that must merge with another to survive, he said.
Those that aren’t struggling face largely the same goals and challenges as banks: They want to capture more wallet share among Generation Y, stay on top of compliance demands, fend off non-traditional competitors in the payments space and keep pace with changes in delivery and distribution, Sievewright said.
Additionally, Pequeno sees potential for growth among Latino consumers in particular, and he points to the fact that Metro Credit Union, which is the largest credit union chartered in Massachusetts, has locations in Boston, Lynn, Chelsea and Lawrence.
“Banks still enjoy the vast majority of market share, but I do think there’s been acceleration in the adoption of credit union relationship,” Sievewright said. “I’m not sure it poses a threat to banks, but it’s a pretty good story for the credit union movement.”
Email: lalix@thewarrengroup.com
