Credit unions around the Pittsburgh area are ready to protect their turf as big banks move in.
JPMorgan Chase plans to open three new retail branches in Pittsburgh by the end of this year, an announcement that comes after Bank of America said a year ago that it was heading for Pittsburgh.
It’s an issue that credit unions across the country are facing as big banks retract from less populated rural markets and redirect their investments to high-growth cities. But credit unions believe they will be able to compete because of their focus on member service and the collaborative nature of the industry.
“The core of the credit union is in member give back and member value,” said Onker Basu, senior director of Cornerstone Advisors. “Credit unions have an opportunity to compete because of how they are structured and the purpose of their services.”
There are 35 credit unions headquartered in Pittsburgh, though that doesn’t include institutions based in the areas surrounding the city, according to data from the National Credit Union Administration. These institutions range from just $474,000 in assets to $166 million in assets. That’s minuscule compared with their latest competitors – JPMorgan has roughly $2.4 trillion in assets and Bank of America holds about $1.8 trillion in assets, according to data from the Federal Deposit Insurance Corp.
In general, that pattern holds true for banks and credit unions across the country. Credit unions overall tend to be smaller, making it harder for them to efficiently meet compliance requirements and offer the latest technology consumers are demanding.
Because of that, credit unions may cringe when a new competitor, especially a megabank, enters their market. What’s happening in Pittsburgh can be seen as a microcosm of that.
Nevertheless, Pittsburgh credit unions are not necessarily afraid. These institutions are already used to competing against superregional PNC Financial Services, which has $380.6 billion in assets and is based in the Steel City.
Hill District Federal Credit Union in Pittsburgh has a low-income designation. With $5.9 million in assets, Hill District serves about 3,300 members, whose medium income is less than $20,000 per year. Last year the credit union opened up 660 accounts, even with PNC as a competitor, said Richard Witherspoon, Hill District’s CEO.
Larger banks are less attracted to this type of niche market and are not likely to affect the dynamics of credit unions in Pittsburgh, Witherspoon said.
“We’re not worried about the competition factor,” he added. “I've been here 30 years, as the economy goes up and down, our membership and business stay pretty much the same.”
This stability can be partly attributed to the fact that credit unions are member owned, creating a common bond and shared interest, said Ancin R. Cooley, principal of Synergy Bank Consulting. Banks may have trouble recreating this connection.
Credit unions also pride themselves on providing a high level of customer service and generally offer higher interest rates on deposits and lower rates on loans, Cooley said. Many credit unions are also more willing to work with consumers who have issues with their credit history and are riskier borrowers.
“If you have some blemishes on your credit report, that will run into the bank’s automated system when you apply for a student loan,” Cooley said. “But at credit unions, they’re going to look at your entire picture, the length of your relationship with them, and if you are just delinquent with your student loans but have never missed a mortgage payment.”
Some credit unions may even be able to take advantage of bigger banks' move into their markets, Witherspoon said. For instance, because Hill District accepts nonmember deposits, it may reach out to big banks to shore up its reserves, Witherspoon said.
Still, there will likely be disruption in the market, especially for larger credit unions. Bigger banks and credit unions are more likely chasing the same customers by offering the same technology so they are more direct competitors.
This is particularly relevant in the personal and small business banking, said Bill Astrab, shareholder in Doeren Mayhew's Financial Institutions Group.
But even in this crowded market, larger credit unions can still find their sweet spot, Cooley said.
“Technology has a way of homogenizing people, seeing you as a credit score or a debt-to-income ratio,” Cooley said. “That’s where credit unions have to find their advantages. They need to be customer-focused.”
The $1.3 billion-asset Clearview Federal Credit Union is one example of a credit union that is adapting to better compete. Using technology as a tool to improve client experiences, Clearview sees the coming of banking behemoths as less of a concern, said Renee Lucas, senior vice president of member experience and lending of Clearview.
Headquartered about 12 miles northwest of Pittsburgh in Moon Township, Clearview has a sizable branch network and a strong foothold in the Steel City. It has moved away from the traditional teller line in its branches, implemented personal video teller machines and turned to digital channels to ease the use of its products for members, Lucas said.
Collaborating with other credit unions also helps Clearview. It is a part of a shared branch network that links thousands of credit unions nationwide so members can visit these other locations to get help, Lucas said.
“We also do transactions for other credit unions back and forth,” Lucas said. “Credit unions often help each other with products and services. It is not just monetarily that we're supporting our community.”
To ensure the industry remains competitive, credit unions will have to adapt and invest smarter. That could lead to further consolidation as credit unions look to get bigger so they are better equipped to offer more services and technology to members.
“The cost of compliance, the economies of scale of smaller credit unions, aging membership, I think all those are very strong factors in consolidation,” Astrab said. “We’ll have larger and more efficient credit unions in the future.”
