Where The Advantage Lies In Examining Tax Exemption
There has been quite a bit of discussion recently concerning the taxation of credit unions. It seems as if this issue is once again rearing its ugly head and it is, of course, the banking industry that is holding a magnifying glass to it.
If the non-tax status of credit unions is such a benefit, why aren't banks converting to credit unions in droves? Maybe it lies in the idea that they would like to have credit unions around to handle only the business banks don't want-as they put it customers of limited means. That is probably a euphemism for individuals of limited profit potential. This isn't exactly a statement for competition at its best, especially since it's the American way for all citizens to have access to a wide variety of services and providers, including credit unions. After reading various comments from both sides over the past few weeks, I have developed the opinion that banks just don't get it.
Unfortunately, some credit union executives don't get it either. A limited few claim that it is non-taxation that sets credit unions apart from all other financial institutions. While the status is deserved, it's not the real difference - especially since the industry isn't exempt from all taxes. As some credit union CEOs have shared with me over the years, if credit unions were taxed in the same manner as other institutions very little would change. Only the rules would be altered and not the way credit unions play the game. Given what the credit union industry holds true at its core, financial cooperatives would still flourish and be competitive in the marketplace.
Some say it is the superior service and the "people helping people" philosophy that sets credit unions apart. While this is closer to the truth than the mindset mentioned above, it's still not the primary reason credit unions are special. While it is a key component to the essence of the industry, it is not the overriding difference from other financial institutions. Conceivably, a bank, or any organization for that matter, could adopt the "people helping people" philosophy in its mission and rigorously disseminate the idea within its culture and achieve a similar result.
Where The Real Difference Lies
The true difference lies in the singularity of focus that practically every credit union has. By their nature, these institutions serve specific groups of individuals. Whether these groups are composed of police officers, firefighters, teachers, a company, a community, a city, a state, etc., unlike banks they serve a particular field of membership. Credit unions learn how to serve a specific group, or like groups, of people better than any other class of institution. A Citigroup or Bank One employee would probably be hard pressed to tell you what their core-customer base is. I'm sure most community banks would be hard pressed as well.
It is this singularity of focus that allows credit unions to say to a member, we understand your particular needs better than any other institution because we concentrate on serving people like you everyday. By their nature, many credit unions can honestly claim that they serve a specific group of like individuals better than any other financial institution in the world. That is the true difference - the uniqueness that many organizations in other industries strive for but few attain. It is this difference that truly provides the greater value over other financial institutions.
Banks accuse CUs, or at least the largest within the industry, of trying to be all things to all people. They say that this is a divergence from the original purpose of the movement. The banks are correct about one opinion: credit unions shouldn't try to be all things to all people. But not for the reasons bankers claim. Credit unions should concentrate on specific and like groups because it is a wise business and branding strategy. Let banks weaken their brand positioning with individuals by attempting to be everything to everybody. As the saying goes, when you try to please everyone you inevitably please no one.
It is this unique perspective and focus that credit union executives can use to their advantage in the marketplace. Unfortunately some still choose to compete only on price. One credit union CEO even recently stated that there was nothing unique to running his credit union in comparison with other institutions. I was shocked to hear that comment. Then I remembered he's a former banker.
Ken Bator is president of Bator Training & Consulting, Naperville, Ill. He can be reached at kbator