Australia's credit unions have embarked on what is to be a quarterly survey of its chief executives, seeking to quantify somewhat viewpoints shared-and not shared-by the country's credit union leaders.
The survey, which will be featured in the second part of this series in an upcoming issue, is being conducted by Philip Dernham, principal with Derham Marketing Research. In an e-mail interview with The Credit Union Journal, Mr. Derham talks about the reasons for the surveys, why such divergent opinions between men and women were found in the initial survey, and other aspects unique to the Australian market.
CUJ: What was the goal of the survey and the reasons it was conducted? What were you hoping to achieve?
Derham: It was the first of a survey that will be repeated every four months, often enough to be topical but not so often to irritate chief executive officers. It was undertaken because as a supplier of research services to credit unions, we hear a lot about "the credit union view" of whatever, but have found that in practice there are widely divergent views between credit unions and CEOs and we wanted to be able to identify those and publish the findings, so that comment on "the credit union view" would be at least an informed view. It's essentially to provide a public opinion measure.
CUJ: Will you be using the survey to create benchmarks?
Derham: This was the first survey, and the next one will be undertaken in early March 2006, and some of the questions will be benchmarked then and others new and topical at the time. We shall use the same method (e-mail invitation to each CEO personally with an invitation to undertake a brief web survey) and offer again a chance to win one of 15 sets of two cinema tickets (value each $A29). The survey sponsor will continue to be Derham Marketing Research Pty. Ltd. and we don't intend to seek additional sponsorship.
CUJ: The first findings cited reference "service" as "the credit union difference." Do Australia's credit unions have any data (member surveys, for instance) to support the service differentiation, or is it all anecdotal? And what is the general level of service provided by Australia's banks?
Derham: Australian credit unions have traditionally said that service was their key differentiator from the profit-making banks. Australian credit unions return their profits to members in terms of lower account fees, lower interest rates on loans or higher interest on savings, but in a market of some 200-plus financial institutions all offering differing rates and charges, those rates and charges differences can be harder to communicate, so service has been the strong distinction promoted. In saying service, credit unions tend to relate that to customer satisfaction (member satisfaction) and our surveys and other researchers' surveys generally find an overall satisfaction level of about 90% to 95% among credit union members; banks were traditionally as much as 30% lower.
However, this has changed, whether because customers have now accepted the standards of service offered at banks or because credit unions are under very strong cost pressure to reduce their costs. (The latter) often involves lowered interest rates on investments and loans and increased fees and charges, and particularly closing of branches and far greater use of call centers and other impersonal contact methods. The result is that last year, we had overall satisfaction measures of, for example:
* Rural small town credit union: overall satisfied 97%, but very satisfied 68%.
* Industrial credit union: overall satisfied 94%, but very satisfied 70%.
* National coverage credit union: 87% satisfied (and down 8% since 2004) and very satisfied 69%.
A recent national survey of banks (and there are essentially six major banks in Australia) found overall satisfaction levels of ANZ Bank (77% overall satisfaction), Westpac (83%), National (68%), St. George (78%) and Commonwealth (65%).
But these are up between 10% and 15% over the past five years. Australian credit unions look at their overall satisfaction levels and say those are due to better service.
However, the credit union marketshare has remained pretty static, so while the members are being well-serviced, most use 2.5 financial institutions including their credit union, and the other 1.5 get much of the members' business. Why? Credit unions often had to play catch-up, though they were very innovative once (introducing ATMs, for example).
But-and this is why we want to quantify comment-we suspect that often they relied on a member loyalty to get business when members relied on what was best for their own financial interests and the credit unions missed out somewhat. As an example, there was a major swing to credit cards while (again anecdotally) many in credit unions felt that personal loans were better (lower interest, for example, say 10% APR versus a credit card interest rate of 17%), but members preferred the freedom to spend without getting prior approval. As a result, many Australian credit unions were slower to get into credit cards than banks and so missed much of that market.
CUJ: The survey's findings indicate in several places a distinction between how men and women responded or perceived some issue, such as the ability of a man or woman to provide service? Why the gender differences? Have such findings been evident in prior surveys? Is there any evidence that women are superior at sales, or is this also anecdotal?
Derham: Yes, the gender differences were expressly explored and the different results and perceptions reflect those of the CEOs. There are no prior survey results to this that I am aware of. Advice from a range of credit union managers is that they do not measure performance in this way, so the perceptions reported are anecdotal and this is a subject they'd prefer not discussed.
CUJ: We noticed the survey indicated that nine of 10 respondents were men, but that 90% of Australian CU employees are women. Why? Are nine out of 10 CEOs men? Do women not compose a significant portion of management slots at Australia's credit unions?
Derham: The number is growing but this situation is still a matter of sensitivity within the credit union industry and the reasons and effects not widely discussed. The impact of Gen X or Y or the aging Baby Boomers is seen as more useful to discuss.
CUJ: Could you define, just so we're clear, the reference to "home loan churn," which is referenced in the survey. Is churn a "reference" to refinancings?
Derham: Yes. Banks and particularly the smaller home loan specialist companies are happy to encourage refinancing and a growing mortgage broker industry does so, too. Mortgage brokers set up business to get the home buyer the "best" loan and often get commission for the loans and so are interested in chasing past customers to encourage a refinancing to get a fresh commission.
CUJ: Why are home loans so important to Australia's credit unions, and is this loan category the dominant loan category among Australian credit unions? What about auto loans or credit cards?
Derham: Personal loans have diminished markedly, though they once were a major source of credit union lending in Australia, and that drop has seen largely converted into credit card debt, and most credit cards are not with credit unions as they entered the market late and often with what were seen as "me-too" cards from companies not in tune with the credit union member class. For example, a Diners Club card is at one with an industrial credit union member's self -perception than the more widespread Visa card. Same sort of deal but one fits the members' self perceptions and one is for the "silver tails" or the bosses.
For the last four or five years, until the start of 2005, Australia enjoyed a property boom; prices rose solidly in every state capital city (all seven) and home lending became a very competitive field as home loan originators ripped market share and loans away from "flabby" banks by offering fast approval, home visits by lenders to sign up, and, importantly, lower interest rates, fees and charges.
The banks lost market share and as credit unions were losing personal loan business, the next area to look to was home loans that often offered split-rate loans: part fixed and part variable interest rates as a borrower "hedge" against rate rises and a credit union "hedge against rate falls. There are also "redraw home loans," which enable you to pay up more than necessary and redraw down late, and so buy a car at home loan rates rather than car loan rates, which are higher.
Car loans are still an important part of the credit unions' business but car dealers offer in-house (often GE) finance and many buy at the time they visit the car yard, and so the credit unions have missed out. I am unaware of any no-interest car loans here, though I understand they were offered in the States last year for a short time. Also, the major retail chains offer MasterCard store cards or their own store cards or in-store finance (often again GE) so customers can buy on the spot.
CUJ: There was also a distinction in the data in rural and urban credit unions? Could you elaborate a bit more on this for American credit unions who know the difference between a rural and urban area, but may not understand why this is a differentiator in Australia?
Derham: In Australia, 64% of our 20-million population live in the one national and seven state capital cities. In the capital cities, credit union offices tend to be scarce and often in office blocks some floors up or in factory premises, and in both cases often only available to or known to members. More of these credit unions tend to encourage Internet banking or telephone banking as it is less expensive than providing branch banking
In contrast, credit unions in the rural areas (the non-capital cities) tend to be more strongly branch-based and committed to retaining and trading through branches. In addition, on-street space in rural towns is cheaper to rent or buy and so credit unions tend to have main street or near main street premises and so more able to capitalize on street level visibility.
Also, media is cheaper in the rural areas and so rural or regional credit unions can afford to advertise on TV or radio and in newspapers more readily than capital city credit unions can do.
And an efficient rural credit union can market itself locally very strongly and be very competitive with the banks with the reasonably sure knowledge that a major national bank will not alter its national campaigns to respond to the activities of a credit union in a town of 40,000 people, when there are far larger markets in the capital cities (Sydney four million, Melbourne 3.6 million and Brisbane 1.8 million people).
In population terms, Australia is rather like a saucer; nothing much in population in the middle, half the total population in three cities on the eastern seaboard and very light scatterings of people across the rest. Not densely populated like Virginia or New York State, more like Arizona or Utah, I suspect.
CUJ: How do you expect Australia's credit unions to act on this data, if at all?
Derham: First, to understand the differences between capital cities and regional credit unions so there is not the perception of a monolithic credit union view and that there are nuances and differences in opinion.
Secondly, to look at the alleged differentiator (is service really a sales benefit) and if that is personal service, how do impersonal involvements such as Internet banking and telephone banking and ATMs add or diminish from that. In other words, if your key differentiator is people service, do members really want to visit branches for that or do they want to transact differently? And if so, what is the impact on the credit union?
That is, to assess whether the service model means doing what confectionary sellers do-let people buy from vending machines, all day and night stores, from supermarkets and from very expensive upmarket specialty confectionary stores, not making all fit one mold.
Longer term, I expect executives to ensure the debates on credit union direction are founded in facts not gut feel. And, I suspect, I can be optimistic about that as the current generation of credit union CEOs seem keen to act on a knowledge base not just a hunch.
