As part of our involvement within the Financial Services sector, we were recently asked exactly where credit unions fit in today's banking and financial services markets? What's their role, how are they different? It was suggested that financial services players are becoming ever more sophisticated in the way they communicate their offering and identity to the public and that competition is more intense than ever. We also discussed the broad frustration levels with "the big 4" and why this frustration didn't translate to more consumers engaging with more community and not for profit based businesses like Credit Unions. We were also asked why, given their heritage and relative scale they didn't command a stronger presence and relevance across the community?
Traditionally most credit unions have underpinned their proposition around being for their community and for their members. They may never have received exclusive patronage by their members, but we wondered why their traditional value proposition drivers such as lower cost, personal service, member focus and community contribution did not have the same relevance as they once did.
We believe there are a number of key challenges facing credit unions
Credit unions are seen or perceived as less safe than traditional banks and institutions (this despite their regulation by APRA). Their perceived individual size didn’t sum to a re-assuring stature that had people believe they were as secure as the big banks. The GFC and weakening share markets are associated factors; giving rise to motivations for depositors around preservation of funds above all else.
New competitors, including mutual and community banks have also entered the picture. More traditional competitors (eg Ubank, Rabo, ING Direct) are competing fiercely for deposits. Additionally the governments’ guaranteed preservation of those significant deposits with the Big 4 is encouraging all depositors that the only truly safe home for deposits is the Big 4. Clearly this isn’t helping.
The benefits of membership have become blurred and post GFC there is significant consolidation and confusion in the entire sector. A number of credit unions made some poor investment decisions during the GFC, as they sought higher returns on members deposits. Post the GFC many of these have been severely impacted resulting in a large numbers of mergers to ensure survival. Word of mouth in these situations spreads like wildfire, fueling concerns related to the risk of placing deposits with credit unions.
Changing Consumer Drivers
Consumer choice drivers are rapidly changing and credit unions are sometimes struggling to respond. Examples here include perceptions around absolute security of deposits (mentioned above), competitive products, competitive pricing, flexibility given their limited locations and best in class internet transacting – compared to the banks.
So what can credit unions do?
The picture isn't entirely bleak. They have a good story to tell - around safety, security and regulation, personalized focus around servicing members, as opposed to being focused on profiteering and shareholder returns. But they need more in a positioning sense. They need to raise their profile as an industry as well and strongly push their defining characteristics. As part of Abacus (Australian Mutuals is the industry body for the Australian mutual financial services sector, a strong alliance of 8 mutual building societies, 94 credit unions, 2 mutual banks and 15 friendly societies), they would benefit from collectively building a stronger united voice. The Superannuation Industry Funds are a classic example here. They have successfully stopped their infighting, got on the same page, and promoted themselves and the investor benefits of their proposition very well. And they've done it in a way that positions them quite distinctively, with a focus on how their members clearly benefit. In short, pointed the guns outwards in a very unified and effective way at the common enemy - the (for profit) managed funds industry.
So the Credit Union industry needs to establish greater credibility by being clearer on their collective proposition and brand. They need to move beyond the "we're for members, not profit" positioning and expand and dimensionalise their offer beyond that. Why? Because it simply isn't compelling enough to have consumers move beyond their inertia which has them remain with the big 4. In short moving consumers to a point where you don't just change my attitude, but rather my behavior. They need to get on the front foot and understand the needs, wants, requirements, and expectations of their desired clients and distil a positioning that is relevant to their target audience (which needs more clearly defining); that is credible and build from their key strengths; is sustainable and future proof (as we want to layer and build upon it over time) and differentiating relative to the big four banks as well as other mutuals.
In summary, credit unions will need to establish and prove how they are relevant in today's consumerist world. A well defined point of differentiation - going back to their roots, finding the stories from the past that resonate loudly today, and connecting that to current needs and trends could establish a strong and unique positioning and identity that re-establishes their relevancy (with a younger generation) and ensures they are around for years to come.