Ask consumers today about what they expect from a bank, and nine times out of 10 they'll say convenience. Ask consumers today about what they expect from a credit union, and nine times out of 10 they'll ask you what a credit union is. Nine times out of 10, we'll answer that a credit union is like a bank.
When asked again, what do consumers expect from a credit union? They'll likely say convenience (or best rates or free checking) - just like banks.
Too often we ignore the difference between credit unions and banks. Market research for credit unions often begins with a line of questioning such as the above, defining "credit unions" in the context of banking. This shortcut may serve as an easy way to explain what a credit union is, but by defining credit unions in the context of this perceived competition, we may be missing the real opportunity to differentiate the industry. We believe it is time for credit unions to communicate that they're not "just like a bank."
The consolidation of national banks is being driven by a number of factors, including an internal and investor-driven desire to increase market share and build operating efficiencies. From a customer perspective, the scale of these larger entities allows them to offer more convenience through increased product and service offerings, longer office hours and more branches and ATMs.
Bigger, More Convenient, Free Checking
Aside from being larger and more convenient, these banks have also decided to offer free checking-a loss leader meant to bring customers into the fold so that banks have more opportunities to market their more profitable services.
In doing so, the national banks have defined "banking" in consumers' minds as the combination of all of these capital-intensive services and offerings and set high barriers to entry for any competition that attempts to challenge them in the same manner.
Community banks are on the way out (largely through acquisition), and for credit unions that increasingly compete on the community level, it looks like they might be endangered too. If the market really is about convenience and free checking, credit unions, like community banks, may have already lost.
Thankfully, credit unions are not banks.
Shifting gears, let's consider another industry facing similar challenges-retail. As Wal-Mart continues its steady march, critics have followed, decrying the loss of "Main Street"-local businesses that cannot compete against their low prices.
No one has the economies of scale to get the discounts and efficiencies that are available to Wal-Mart, and few can provide its breadth of offerings. For the foreseeable future, you won't be able to find the number of products at prices at or below what Wal-Mart charges at any retail store other than Wal-Mart. But Wal-Mart's presence does not necessarily mean the fall of "Main Street" that many have predicted; it only means that the market for general discount retail has been cornered.
Those who have survived and prospered in the world of Wal-Mart are those who have offered an alternate value proposition. Looking at the market that Wal-Mart serves, the opportunity for those willing to consider a new retail model is very appealing.
Wal-Mart's core proposition is based on generality and price value, so the opportunity is to serve the opposite market-specialization and premium pricing.
The successful "Main Street" businesses prospering in the shadow of Wal-Mart are specialty stores and boutiques that draw in customers who are looking for alternatives to Wal-Mart.
What does this mean for retail financial services? The national banks are competing using a Wal-Mart model, offering a breadth of services at low prices. Their battle at the top of the market is defining consumer expectations for banks and banking, categorizing quality banks as those with free checking and many ATMs.
In this environment it's time to take a closer look at credit unions as something other than a bank. With member-owners instead of shareholders, credit unions can consistently offer competitive rates and, with local, personal knowledge, credit unions can offer a level of service that the national banks cannot.
THIS IS THE REASON that credit unions were formed in the first place-to be alternatives TO BANKS. As with Wal-Mart, the unserved market is potentially the most lucrative (on a transaction-by-transaction basis).
While national banks are investing in capital-heavy business-building, there is an opportunity to focus on more profitable services such as loans, rather than free, loss-leading offers.
As Steve Lardiere, CEO of Picatinny FCU pointed out, "We need to focus not on offering every product out there, but on offering the products we do as best we can." With Picatinny, market-testing alone suggested that Mr. Lardiere's instincts were incomplete; among other things, we found that personalized banking service WAS defined by having ATMs within five miles of a member's workplace or home. But it was not his perspective, but the study, that was incomplete.
The Problem With The Study
The problem was the study evaluated Picatinny along metrics set by the big national banks; it did not allow for current and prospective members to express the idea we discovered when speaking with them-credit unions can and should be considered in a separate context.
Give the banks "everyday banking" - they'd take it anyway. Credit unions have the opportunity to redefine value as trust, based on personal relationships and local knowledge, and in many cases offering a better deal.
Buying a car, financing the purchase of a house, paying for college, small business loans-this is where the business model of credit unions gives them a competitive advantage. In this model, credit unions are not competing with the national banks, but instead complementing them, opening themselves up to the potential for growth and success.
Don't concern yourself with beating the banks at their own game; that battle, for better or worse, has already been lost. Discover and focus on your unique value as a credit union. Make them play by your rules. And please, whatever you do, don't call it "banking."
Anthony Johndrow is executive vice president & managing director, and Geordie McClelland is senior strategist with Straightline International, a strategic brand consultancy, which among its efforts has been the rebranding of Picatinny FCU, Morris County, NJ. For info: www.straightlineinternational.com.
