You got to hand it to credit unions, who are making gains on the major financial institutions.

Why you have to give credit to credit unions

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Whether it's a major supermarket chain overtaking mom-and-pop shops or big-box retailers crowding out boutiques, we live in a world where size matters. While polls show that small businesses are still favored by most Americans, who prefer them over larger competitors, the numbers often suggest otherwise. Many small companies are forced to fold due to their inability to keep pace with their most capitalized rivals.

That hasn't necessarily been the case in the banking industry, as lean and mean credit unions are going head-to-head with bigger banks – and winning.

Over the past decade, banks nationwide have shut down roughly 9,000 branches, according to estimates from The Wall Street Journal. The reasons prompting closures are numerous. Mergers and acquisitions play a role as do changing demographics, consumer behaviors, and the fact that some FIs fail to keep up with demand for comprehensive financial services.

"The median size credit union has almost quadrupled its assets over the past 14 years."

It's been a bit of a different story for credit unions – one of nearly uninterrupted growth. Indeed, as The Wall Street Journal reported separately, the median size credit union has almost quadrupled its assets over the past 14 years and massively increased its loan offerings. The latter averaged roughly $575 billion on a quarterly basis in 2009 but jumped to a projected $1.1 trillion by the end of 2020, according to Credit Union National Association.

Community banks are experiencing similar levels of expansion. Between 2012 and 2017, approximately 22% of them increased their office locations, compared to 19% of larger banks that did the same, the Journal reported per FDIC data. In fact, if big FIs have done anything over the past several years, it's contract, with 49% decreasing their footprint over the same period.

How have credit unions done it?
What has fueled credit unions' and community banks' ascendance? For starters, they traditionally offer popular financial products – like home equity lines of credit and installment loans – for lower interest rates, according to Bankrate.com. New-car loan rates do tend to run higher than with major FIs, but with interest at historic lows, this hasn't deterred consumers from financing. In fact, auto originations rose 4.3% in the third quarter of 2019 compared to the corresponding period in 2018, TransUnion reported. And whereas larger banks are dialing back their auto lending, credit unions are filling the void, as close to 33% of car loans these days come from credit unions, the Journal reported. That's up from 23% in 2008.

Credit unions have also been more strategic in their implementation of regulatory guidelines in the aftermath of the Great Recession. Lawmakers and the Consumer Financial Protection Bureau have advocated for more stringent capital requirements, but due to resistance from industry executives, the updated rule has yet to go into effect.

Rodney Hood, chairperson for the National Credit Union Administration, told the paper that the 2001 rule doesn't require updating, if for no other reason than because the credit union system is extraordinarily well capitalized, above and beyond what the new set of regulations would entail.

"We have in place a very robust examination and supervision model," Hood explained, newly appointed to the NCUA chairmanship earlier this year by President Donald Trump.

Great with engagement
What may also be attributable to escalating appreciation for credit unions is their ability to engage customers, whether in person, online or via ATM terminals. A Gallup poll found that more than half of credit union members – 52% – are "fully engaged" customers, a stark contrast to 17% of national banks. Because so many credit unions now offer virtually all of the products and services their larger rivals do, account holders feel no need to transition to a major FI. In fact, credit unions often have more products averaging 2.64 deposit account products per customer, versus 2.38 among national banks, Gallup found. 

CUs still have plenty of room for growth, specifically as it relates to approaching customers with suggestions on products or services they may have interest in. Gallup revealed that just 19% of staff reported a sales conversation with a customer. Yet in those instances where customers were approached, they more often than not resulted in a sale, nearly 60% of the time. In short, customers are interested in certain products; they may just need a gentle nudge. As credit unions gain a better understanding of the need for elevated engagements, the business will follow.

Credit unions and community banks represent the bones of the financial institution industry; BranchServ can provide your facility with the muscle to achieve significant gains in growth and development. Contact us and we'll show you how we can help.