A report published by Filene Research contained the following passage:
“Americans’ rising prosperity, coupled with traditional banks’ exclusive focus on corporations and the wealthy, led to the emergence of American credit unions focused on serving the underserved…Today’s credit unions, then, grew by addressing an unmet need: providing financial services to previously underserved working Americans.”
I don’t doubt for a second that the desire to “serve the underserved” is a driving motivation of many credit union professionals, and I wouldn’t for a second try to argue that it wasn’t a worthwhile, and honorable, objective.
But I would doubt, and I would argue, whether or not it describes the future of credit unions. Credit unions may have grown by serving underserved working Americans, but that doesn’t mean that: 1) The members credit unions serve today are “underserved” Americans, or 2) CU’s future growth potential lies with serving the underserved.
In a Q2 2012 survey conducted by Aite Group, US consumers were asked what type of institution was their primary FI: large bank, community bank, or credit union. Of consumers who have a checking account, about one in five indicated a credit union was their primary FI.
[Note: For the purpose of this discussion, when I refer to "CU members," I'm referring to respondents who indicated a CU was their primary FI. I realize that this doesn't reflect all CU members. The same construct goes for "Large bank customers" and "Community bank customers" -- they're not all customers of those types of FI, but consumers who consider that FI type their primary FI]
Comparing the demographics of the three segments reveals that:
- 35% of CU members earn more than $60k. In contrast, 42% of large bank customers, and 35% of community bank customers, earn more than $60k. Three in 10 CU members earn less than $30k, as do 32% of community bank, and 24% of large bank customers.
- Four in 10 CU members have a college degree or higher. Among large bank customers, that percentage is 51%, and among community bank customers, it’s 43%. Only 22% of CU members have no more than a high school degree — the same percentage found among large bank and community bank customers.
- 10% of CU members are unemployed and looking for employment. That compares to 10% of community bank customers, and 8% of large bank customers.
Underserved consumers? Really? I’m not seeing it.
Also consider this: When asked how well their primary FI helps them perform a range of financial management activities, survey responses were as follows:
Across every activity, fewer credit union members gave their CU a top box score than large bank customers.
I’m not looking to berate credit unions, nor am I looking to provide Keith Leggett with any fodder to bash credit unions. Instead, I’m simply trying to provide a wake-up call, and inject a dose of reality into the credit union world.
The cumbaya notion that CUs provide some sort of safety net to hordes of hard-working, down-trodden US consumers who have been taken advantage of by big bad evil large banks doesn’t hold water. CUs don’t serve any more of the underserved than other types of FIs. And, according to the consumers surveyed, CUs aren’t necessarily doing a better job of serving those members that are being served.
The key to the mindshift that needs to occur among creditunionistas is hinted at by the first line in the Filene report cited above: “Americans’ rising prosperity….” As Americans’ prosperity has risen, the number of truly underserved Americans has declined.
Consumer advocate groups and special interest groups will always point to the 8% of US households that don’t have a checking or savings account as evidence that big banks are taking advantage of people. And there will always be stories about someone who has a horror customer service story to tell about a big bank. But given the number of consumers served by the large banks, there is little evidence that the incidence rate of these horror stories is any larger among large banks than among community banks or credit unions.
“Serving the underserved” is no longer just about providing a checking account to someone, or lending money in a time of need. Serving the underserved is about helping consumers manage their financial lives. It’s about helping them make smart decisions about their finances. It’s about helping them manage their prosperity, helping them continue to become prosperous, and/or helping them get on the road to prosperity.
Credit unions that cling to the romanticized view of “serving the underserved” will find it difficult to prosper themselves.