Retail financial services have been changing since the end of the Second World War. The distinctions that once existed between banks, savings and loans and credit unions have blurred.
The last three decades have accelerated the rate of change. The repeal of Glass-Steagall and the passage of Gramm-Leach-Bliley have yielded a marketplace where it often seems that just about anybody can do just about anything.
These changes have had special impact on credit unions. Things look pretty bright right now.
Membership is strong. Credit union membership has grown from 63.8 million members in 1992 to 82.6 million members in 2002, according to a report from the Credit Union National Association (CUNA).
Membership isn’t the only measure that's looking good. Household savings held in credit unions grew from 7.3 percent of the national market in 1992 to 9.2 percent in 2002. Over the same period, banks have not done so well. Comparable accounts held in banks fell from 77.5 percent in 1992 to 68.9 percent this year.
What about loans? Credit union consumer loans grew from 16 percent share of the national market in 1992 to 17 percent in 2002. That may not sound like much, but loans issued by banks fell from 50 percent to 39 percent in the same period.
Part of the reason for the growth in both membership and market share is that members are happier with their credit union than customers are with their bank.
For almost 20 years credit unions have outranked banks in Gallup's annual survey that's sponsored by American Banker. Of those who used a credit union as their primary financial institution in 2000, 72 percent said they were "very satisfied' overall, compared to just 53 percent of bank customers. The same surveys show that credit union members are more likely to be very satisfied with their fees and rates than bank customers.
If all that's true, then why worry? There are two reasons.
The first one is complacency. When things are going well it's easy to assume that this is the natural order of things and not the result of paying attention and working to deliver value to members.
The other reason has to do with the changes in the law over the last 30 years or so. The lines between different kinds of financial institutions have blurred. Credit unions with “bank envy” now can act just like a bank if they choose.
Many are, in fact, choosing and those that do are giving up their main competitive advantage. The biggest competitive advantage that credit unions have is that they have members. People belong to credit unions. It truly is, or should be, their financial institution. Give that up and you’re just another player on the great financial services landscape, a landscape that will
continue to change in the next few years.
