Bankers may not like to hear it, but credit unions set the standard for quality service among retail deposit-taking institutions.

And the credit unions raised the standard higher this year, according to the American Banker consumer survey. More than a third of their members said service improved, compared with only 19% of bank customers and 16% of thrift customers.

Banks, Thrifts Lose Ground

The credit unions aside, it was a bad year in terms of customers' satisfaction with their principal financial institution. Among all 1,002 respondents to the survey, 59% were very satisfied with their chosen institution. That was down seven points from the 1991 level and below 60% for the first time since 1986.

After two years of steady improvement, the percentage of bank and thrift customers who were very satisfied declined significantly. At banks, the number dropped to 57%, from 65% in 1991; at thrifts the figure fell five percentage points, also to 57%.

Credit unions enjoyed 77% acclaim - down a statistically insignificant one point from 1991, according to the survey, which was administered in April and May by the Gallup Organization Inc.

Neither the credit union differential nor the perceived year-to-year improvement is new. In 1991, 29% of credit union members noted a quality improvement, with banks at only 17% and thrifts 20%.

In 1990. 23% of credit union members said yes when asked if they were more satisfied than a few years before. Only 15% of thrift customers said the same, and only 13% of bank users.

Friendliness Emphasized

How do the credit unions do it?

Jacqueline Fortunato, president of the $7 million-asset Maine Teachers Association Credit Union in Augusta, thinks she knows why her clients are happier than those of banks.

She cites her organization's practice of asking everyday questions - How are you? Where are you from? - that project friendliness.

Also, her members are her friends, she says. (For those who don't know the terminology, Ms. Fortunato explains: "I don't have customers, I have members.") When a new one joins, she gets in her car and goes to introduce herself

"I tell them, |If there's a problem, call me or come see me.'"

Listening to the men and women who run the nation's credit unions, it quickly becomes apparent that they do not regard their enterprises as mere businesses. They like to call themselves a movement, but it may be more like a religion.

Their decidedly noncorporate culture - and the fact that credit unions tend to be anything but large and impersonal - may go a long way toward explaining the advantage that shows up every year in the American Banker survey and other market research.

Bankers tend to play down the credit unions' apparent edge. "Their customers have lower expectations," sniffed one banker.

Coming on Strong

Banks' 59% share of principal relationships dwarfs the credit unions' 14%. But credit unions increased total assets 28% in the two years through last December, to $238 billion, while bank assets were rising 1% to $3.4 trillion.

"The credit union industry could overtake the thrift industry in asset size within a few years," concluded William C. Ferguson, president of Ferguson & Co., Irving, Tex., in a recent report.

Total thrift assets declined 4% during the first quarter of 1992 alone, to $906 billion, according to Sheshunoff Information Services Inc. of Austin, Tex., an affiliate of the American Banker. They peaked at about $1.4 trillion in 1988.

Mr. Ferguson noted that credit unions' grass-roots lobbying power, which has helped preserve their tax-exempt status, "has been the envy of the banks and thrifts."

A Common Bond

Credit unions also benefit from "common bond" charters that give them a built-in affinity with members as well as the tax breaks and other cost advantages that enable them to pay more for deposits and charge less for loans,

Many credit unions are sponsored by employers workers for a given organization share the requisite common bond.

"The employer relationship creates an affinity. [and] carries with it the whole notion that you're getting a better deal." said L. Biff Motley, executive vice president for marketing at Premier Bank in Baton Rouge, La.

"Credit unions have a convenience factor in being placed in or near the employer," said William Wilsted, a Boulder, Colo.-based consultant and researcher on bank service quality.

"Second., they have a much more select, homogeneous client base and narrower range of products," Mr. Wilsted added.

"So it is simpler to give personal attention."

Stiff Competition

Community banks, whose service characteristics may make them most comparable to credit unions. are giving no ground.

"In Kansas, I don't see anybody any friendlier in lobby service, than we are," said Dale Bradley, president of Citizens State Bank, Miltonvale, Kan.

"That's absolutely the most important thing," he said. "If they're not getting friendly service, they are going to go down the pike."

0. Jay Tomson, chairman of Citizens National Bank of Charles City, lowa, acknowledged that in some areas credit unions try harder.

"I think they are more accommodating in terms of hours," he said. "They open at 7:30 in the morning. so we have to open at 7:30 now to compete."

But Mr. Tomson said credit unions' main advantage - smallness - is shared by community banks.

The Personal Touch

Credit union managers think bankers are dreaming if they believe that success at customer relations comes from nothing more than size and proximity.

"It's tough to be personal with 32,000 members, but we try to train our employees to be as personal as they can be," said Donald C. Granato, president of Steel Works Community Federal Credit Union, Weirton, W. Va.

If credit union customers want to talk to the chief executive, they can, and do. "No calls are screened," he said.

Credit union managers say their approach has the intimate quality that people are more likely to expect from family members than from financial institutions.

"I really believe in counseling members, helping them set up personal budgets," said Maine Teachers' Ms. Fortunato.

"When I see them get into trouble, I help them set up a budget."

On individual components of service quality, credit unions do much better than banks or thrifts - whether by subjective standards such as staff courtesy or such harder measures as interest rates.

The interest rate differential - or or the perception thereof - is where credit unions really shine. Of the 14% of adults who choose credit unions as their principal institution, 48% said they did an excellent job charging competitive loan rates. Banks scored only 14%, thrifts 12%.

Credit unions actually improved their image on rates this year; their 1991 reading was 46%. Meanwhile banks and thrifts slid, from 24% and 25%, respectively.

Also, 32% this year viewed credit unions as excellent on deposit interest rates; 16% rated banks that high, and 17% thrifts. With deposit rates low, all three scores plunged below the levels of 1991, when excellent grades were given by 42% of credit union members, 26% of bank customers, and 32% of thrift customers.

Credit unions also do well on service charges, with 55% rating them excellent, compared with 24% at both banks and thrifts. Credit unions widened their margin since last year, when they rated 52%, banks 29%, and thrifts 36%.

Courtesy Contest

The institutions are much closer in the area of "friendly and courteous staff" - credit units were rated excellent by 69% of respondents this year. banks and thrifts by 61%. But while credit unions gained a percentage point since last year, banks lost three points and savings institutions seven.

Lumping all primary-institution ratings together, the financial services industry lost ground this year on all the measured components of performance, from clarity of statements to promptness of loan decisions. Less than one in five rated their institution excellent on loan and deposit rates.

The decline in market interest rates contributed to the overall drop in customer satisfaction, said J. Douglas Adamson, executive vice president of the Bank Marketing Association, which offers members a program for measuring service quality. Its index dropped precipitously over the summer.

Seniors Unhappy

"Certainly, there is some concern, some unhappiness over rates," said Mr. Tomson of Citizens National Bank in lowa. "In rural America, a significant percentage of the deposit base is generated from the senior citizen category. These are people used to living on interest income," so when they renew a 7% or higher certificate of deposit at 4.5%, "it hurts."

Mr. Motley at Premier Bank said the negative reaction of older people has been pronounced, and the American Banker/Gallup results indicated as much. While the over-64 age group remained more positive than all others - 67% high satisfaction with the primary depository relationship - the figure was down from 76% in 1991.

Among people 55 to 64, the proportion of very satisfied fell to 60%, from 7 1 %.

In the over-64 group, only 15% deemed their institution excellent on deposit rates, down from 43%. And of those 55 to 64, the figure fell to 15%, from 36%.

Service Charges

Fees are also turning people off. The percentage of all consumers most satisfied on this score fell to 28%, from 34% last year.

"Our customers are very aware of the cost of doing banking," said Thomas H. Olson, president of Lisco State Bank in Lisco, Neb. "They look at interest rates and service charges both."

But Mr. Olson thinks other aspects of service play a larger role in maintaining customer loyalty and overcoming the negatives of cost. "Personal service is No. 1," he said.

Credit unions have held on to their public's affections in the same low-rate environment, but their tax-exempt status and lean overhead give them pricing advantages.

"We are paying 4% on CDs and 3.5% on a high-yield savings account," said Maine Teachers' Ms. Fortunato. "Locally, the banks are paying 3.18% on CDs."

The Competence Factor

And while banks often charge for automated teller machine transactions, her basic transaction account lets customers use ATMs eight times a month for free.

Still, Bank Marketing Association studies show that features such as rates and lobby appearance are not the major concerns of bank customers.

"Competence, responsiveness, "having people who can answer a question" are "big issues," said Mr. Adamson.

In the American Banker survey, 49% rated credit unions excellent at fast loan decisions. Only 18% rated banks that high, and 14% thrifts.

Still, the question remains: How important are high levels of customer service in attracting and retaining customers? And is the industry doing its job if 59% of the people are very satisfied with their principal institution, 35% somewhat satisfied, and more than 5% dissatisfied?

Mr. Wilsted believes the industry as a whole has a long way to go.

"One hundred percent [satisfaction] would be acceptable to me," said Mr. Wilsted. "I know from empirical evidence that service quality is a competitive advantage and can be related to market share and performance."

High Expectations

The public expects good, error-free service from banks, he said. And for the most part that's what they get. In fact, that's part of the problem.

"The reality is that banks have given such good service in terms of the small number of defects in check processing that people have a very high level of expectation," he said.

Those expectations are reinforced by bank advertising.

A few years ago, said Mr. Adamson, "every bank was focused on making sure the phone was answered in three rings. Then we found that customers were more interested in whether we could answer the question than in how quickly we could answer the phone."

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