Wednesday, October 19, 2011

Relative Strengths of Banks v. Credit Unions

Copyright California CU League, graphic Joe Lackow 2011
In the past couple of weeks, we've seen a lot of anti-bank sentiment in response to the announcement of debit card fees, in the wake of reduced interchange income for the banks.  It has been salt in the wound of a huge bailout and  the role of banks in the foreclosure crisis, followed directly by bonuses and record profit.

This has extended to at least one representative in Congress who stood before us and told Americans to dump Bank of America to send a message about the $5 debit card fee.  I don't know about you, but as much as we may find banks culpable, I don't think that is very fair, nor is it the place of government to do.

As if consumers needed to be told, anyway.  They know how to vote with their feet really, really well.

And the Nightly Business Report video in the upper right of this page is but one example in a torrent of media coverage about Americans leaving B of A and other big banks in droves, and heading to their latest credit union.  In fact, one of our major CU clients hung signs in their branches with a big $5, in a big red circle, with a big red slash through it.  Other reports, from credit union leagues to the bar on the corner, are that there is a significant uptick in CU membership happening right now.

But whether you are a bank or a credit union or a consumer, there is something solid to be sold and to be bought, and tradeoffs to be made.  As the NBR report suggests, those who value convenience and security and the latest technology might do well to stay put with their big bank, because they do those things well and provide value for those fees.  And those who are value-oriented, prefer a bit more old-fashioned service, and care about credit union values like co-ownership would do well to investigate their credit union options.

Regardless, it's time to face facts, America.  It costs quite a bit for a bank or credit union to do all it needs to do to provide you with a good, solid, safe checking account, and there is quite a bit of value there - despite the fact that this has been given away by so many and for so long.  As always, it is a matter of understanding what one's customers and members want and demand; how one's competitors react and what they offer and charge; and the overall environment in which services are offered and consumed.

And most of all, every financial institution and every American should understand that BANKS DON'T MAKE MONEY OFF A SINGLE SERVICE CHECKING RELATIONSHIP, AND NEVER REALLY COULD.  It is the broader customer relationship that is profitable, to all concerned.  And to those who point to customers who generate a lot of NSFs and overdrafts, let me tell you something.  Relying on the kind of marginal customer who generates enough of these fees to seem profitable in the short and medium term will jump up and bite you on the ass one day - when they go belly-up on you.

Almost everyone's financial needs extend well beyond a checking account, and it is crucial to seek out relationship, whether based on transactions, consumer credit, home oriented lending, saving, investing, insurance and most likely, a combination of these that is market segment-specific.  Banks and credit unions will be most successful as they become more consultative, and move towards fee-based offerings like financial planning, retirement planning, college savings and planning, and medical savings and planning.  Rather than trying to make money on a sure loser, and one that has never really been logically charged for before.

You know where I'm going with this.  Where we always go.  To the GIS, where all of this data is integrated in one place to support informed product, service and fee decisions.

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