- As the complexity of business demands in financial services grows (e.g., technology), the resource requirements may present a challenge for credit unions (and all community institutions) running thin margins. Since raising capital is limited to retained earnings, non-profits need to be more intentional about how they prioritize tech investment.
- Banks in recent years have seen a significant shift in how they view customer service. Once a key point of differentiation for the CU market, banks are now coming on board to make customer centricity the new operating model, increasingly driven by the digital experience. While customer centricity is healthy for the industry as a whole, it’s unclear to what extent it indicates an erosion of credit unions’ key value proposition.
- As technology breaks down geographical barriers of financial services, customers are given more options, and the competitive landscape widens based on the availability of channels. Switching financial services providers is no longer a high-friction process, and the selection is wider than ever. Digital is also redefining what it means to be a part of a community, and it’s increasingly being decoupled from physical proximity. This puts pressure on institutions that have previously enjoyed relative isolation in well-defined localities.
April 27, 2015 by Leave a Comment
Celent recently released the report On the Margins: A Comparison of Banks and Credit Unions by Asset Tier, where community institutions of the same size are compared across a number of performance metrics, mainly efficiency ratio. One of the most interesting findings is that credit unions are becoming less efficient at a faster rate than banks of the same size. Efficiency ratios measure how much it costs an institution to create one dollar of revenue. Looking at the data in previous sections, credit unions are increasingly spending more money to generate as much revenue as banks of the same size. Efficiency ratio can be dependent on a number of factors, but as a way to look at simple margins, it´s one of the more useful industry metrics. At a glance it seems counter-intuitive. Credit unions are generally more customer-centric and have higher technology adoption. They use real-time systems, simpler product lines, invest in labor saving technology, and leverage community involvement like CUSOs and shared services to drive down prices. But there are obviously distinct business model differences, where credit unions, being member-owned, generally run thinner margins, returning more benefit back to the customer in the form of better interest rates and/or lower fees. Although this is an intentional business decision reinforced by member-centric charters, it leaves the institution with fewer resources than similarly sized banks that may take a more profit-driven approach. So what’s the issue here? It comes down to the effects of digitalization. Celent sees three challenges that may affect the credit union market going forward:
March 25, 2009 by Leave a Comment
I recently attended an credit union roundtable session that focused on the health savings accounts (HSAs). This was my first professional exposure to the credit union industry, which introduced me to an entirely new lingo including “SEGs” (Select Employer Groups), “dividends” (interest) and “CUSOs” (Credit Union Service Organizations). By talking with the roundtable participants, I came to respect their dedication to their communities, something that I often find missing when I talk with bankers. Whereas banks try to “go wide”, credit unions often don’t have that option and instead try to “go deep” by offering more services to their customers (I even heard a story of a credit union that opened a used car lot to sell discounted automobiles to its customers!). The credit unions also won my respect in the healthcare banking context. The number of credit unions that offer HSAs is increasingly rapidly — from 244 in Dec ’06 to 585 in Dec ’08. During the same period, HSA assets grew from $53 million to $139 million. However, in a growing HSA market, the threat of the credit union industry “Davids” would appear to be of little concern to the bank industry “Goliaths”. After all, credit unions only hold about 2% of HSA assets market-wide. Howevever, embedded within the credit unions’ success, there is a cautionary tale for banks. As the HSA market matures and account holders become more aware of their portability options, any rollovers between credit unions and banks will largely flow one way — to the credit unions. The reason for this is the community presence that credit unions hold. All else being equal, account holders looking to rollover a more prone to choose a local financial institution over a remote one. However, all is not always equal, including interest rates, which are often higher at credit unions. Combined, these factors will likely work to credit unions’ advantage. Proof of this is already emerging; one of the roundtable participants announced that it had won a rather significant block of account holders away from one of the largest HSA custodial banks in the country. David’s slingshot is beginning to hurt…