Should Credit Unions Just Sack the Bats and Head Home?

Struggling Business.jpeg Editor's Note: What is a credit union? The answer for many seems to be hard to find. CUNA recently published a report in which it showed that many people are unaware of credit unions and their abilities to use them. In part one of a two part blog series, we take a closer look at some of these stats and discuss why credit unions may be in the position that they are. 

A recent article posted by Jeffry Pilcher, the top dog at The Financial Brand, carried a headline that surprised me. Given I have been in the financial services industry working specifically with banks and credit unions since 1990, it takes a LOT to surprise me. The headline of Jeffry's posting was Research Proves Consumer Know Diddly Squat About Credit Unions.

Really? How could that be? Surely anyone who spends much time with credit union management and their teams must find it difficult to understand how this could be. Credit unions are different. They are special. They even have their own special language that they are very insistent be used when talking about their business. For example, they don't have "customers" or "stockholders". They have members. The members do not have "checking" and "savings" accounts. They have "draft" and "share" accounts.

There are a number of advocacy organizations that work on educating the public about what makes credit unions different. The basic differences are:

  1. They are not-for-profit, maintaining a surplus to stay in business and returning other proceeds from operations to members annually.
  2. They elect their leadership based on a one member, one vote basis rather than weighting the voter power to reflect the money an individual has on account.
  3. They consider themselves to be more community and people focused as compared to other financial institutions, i.e. banks.

Yet, according to research done by CUNA (Credit Union National Association), Affinity FCU and Harris Polls, there is an amazing disconnect between what credit unions say and what the general public hears. According to the CUNA survey:

  1. When asked if they were familiar with credit unions, 64% of respondents were not.
  2. When Millennials were asked if they were familiar with credit unions, 71% were not. 
  3. Two out of every five people think they cannot join a credit union. 
  4. Three out of five people think credit unions do not offer mortgages or digital banking.
  5. More than 60% of respondents did not know credit unions were not-for-profit.
  6. Only 16% of Americans use credit unions as their primary financial institution.

There were other stats equally as disturbing to anyone who is tasked with evangelizing for credit unions. What's the rub?

Well, most likely the primary cause for this state of affairs can be best summed up in the words immortalized in the movie Jerry Maguire, "Show me the money!" When compared to the marketing dollars of even mid tier financial institutions, most credit unions' budget pales in comparison. However, given this reality, it would seem that credit unions have adopted a sound approach to being outgunned; i.e. they have taken a position designed to make consumers question the intent of their more powerful competitors. 

Think of it as the financial services equivalent of the Avis "We're #2, We Try Harder" campaign. In taking this position, Avis was actually suggesting that Hertz, the market leader at the time, was not trying very hard to satisfy all their customers. That campaign was so successful that Avis had to drop the first part of their slogan when they overtook Hertz. However, unlike rental cars, financial institutions are judged by a different set of criteria and, for most Americans, the word "bank" elicits a different qualitative response than "credit union." This qualitative difference has more to do with history than any specific attributes - positive or negative.

In this case, the origins of credit unions represent an obstacle very difficult to overcome, as the research cited by Jeffry demonstrates. The 40% of consumers who believed they could not join a credit union demonstrates the impact of this origin. Credit unions started out as organizations that served particular groups that had some commonality, usually the company for which they worked. Though as a statement it is more theoretical than practical, it is doubtful that credit unions could overcome this perception totally even if they were suddenly endowed with budgets that would allow them to double or triple their current efforts.

What are credit unions to do? Well, stay tuned. While the outlook is not particularly rosy, if credit unions can make a shift from cause marketing to value selling, there is hope. Until next time...