DON'T LOOK BACK, bank and thrift executives. The credit unions are gaining on you.

The credit unions have risen from their perennial third position to tie thrifts in a key measure of market share, the American Banker's 1993 consumer survey shows.

Each group now has 18% of households identifying it as their primary financial relationship. Banks still have a clear lead, at 54%, though their percentage fell by five points in the last year.

Benefiting from their consistently higher quality ratings and taking advantage of the demise of many thrifts, credit unions gained four points of market share this year. The thrifts lost two, even though the customers who have stuck with thrifts gave them significantly higher quality ratings. (See page 7A.)

Given the savings and loan crisis and its aftermath, the market-share trend may have been inevitable. The thrifts' total assets, $850 billion at the end of 1992, had fallen by 39% since 1988. Meanwhile, the number of institutions fell by 48%, to 2,148, according to Sheshunoff Information Services of Austin, Tex.

Credit unions' assets grew over that period by 73%, to $270 billion, and the group consolidated by a more modest 17%, leaving 13,385 survivors, according to the Credit Union National Association.

Commercial banks' assets grew by 12% between 1988 and 1992, to $3.5 trillion, while the number of chartered banks declined only 14%, to 11,450.

Even if the consumer preference trends continued, it would take years for the fragmented credit union industry to match the assets of the remaining, healthy portion of the thrift industry, let alone the banks. Despite their high degree of member loyalty and an expansion in product offerings, credit unions are still well behind in the race for mortgages, auto loans, and other types of assets.

But some analysts and credit union officers see the American Banker data as a leading indicator of a profound shift in consumer financial choices.

Credit unions already have a large base -- 44% of the population uses them for at least one financial service -- and many have a "captive audience" in the corporations or other affinity groups they serve.

By the usage measure, the credit unions are behind the banks' 75% and thrifts' 49%, but ahead of other financial providers such as insurance companies, at 40%, and securities brokers, at only 20%.

Only a relative handful of customers designated a nondepository institution, such as a. brokerage firm or mutual fund company, as their principal financial relationship.

"I think credit unions are going to be the people's banks and eventually totally dominate the direct consumer financing market," said James Williams, senior-vice president of the consulting firm Ferguson & Co.

The Texas-based firm's president, William Ferguson, was scoffed at last year when he said credit unions could surpass thrifts in aggregate assets within a few years. The prospect seems more and more plausible, especially since credit unions are so far ahead in customer satisfaction ratings.

Three-fourths of the 18% of the population that primarily use credit unions say they are "very satisfied" overall. Thrifts are at 64% by that reckoning, commercial banks at 56%.

Credit unions got higher "excellent" ratings than banks in each of nine service components tracked in the survey, and were neck-and-neck with thrifts in only one: staff friendliness and courteousness.

Of credit union loyalists, 32% said service quality improved, while only 3% said it worsened. For banks it was 22%-10%, for thrifts 16%-7%.

"The name of the game is service," said John Siefken, president of Citizens Equity Federal Credit Union, Peoria, 111. "We offer service that's so fuzzy and cuddly that people come back to us over and over."

Bankers, many of whom complain repeatedly about credit unions' regulatory advantages and nontaxable status, concede that such institutions have set a standard for customer satisfaction.

"Credit unions tend to be more personal -- they bring your co-workers and money together," said John Russell, spokesman for Banc One Corp. of Columbus, Ohio. "It's almost more of a fraternal relationship than a business relationship, although credit unions are good businesses."

"Most credit unions are simple lending-and-deposit institutions, so they can focus more," said David C. Cates, the Washington-based chairman of Ferguson & Co.. Because banks are "multiproduct," they are "more unfocused. It's more difficult for banks to organize for customer service."

Of those listing a credit union as their principal institution, 62% rated them "excellent" in staff courtesy, 45% in problem-solving, and 42% in quickness of loan decisions.

Banks' comparable ratings were 56%, 42%, and 19%; thrifts' 63%, 42%, and 19%.

And there is no contest when it comes to satisfaction with interest rates. Of credit union loyalists, 39% rated their institution excellent on loan rates, compared with 18% at banks and 17% at thrifts.

On deposit rates, credit unions were scored excellent by 31%, banks with 15%, and thrifts with 23%.

Credit unions have an edge because "the savings they get from being tax-exempt can be returned to customers," said Virginia Dean, spokeswoman for the American Bankers Association.

"We have to pay 40 cents on every dollar in taxes, said E. David Locke, president of $35 million-asset McFarland State Bank, which vies with 28 credit unions in the Madison, Wis., area. "So credit unions have a 40% pricing advantage. That's a tough nut to crack.

"I'm convinced that credit unions are picking up people because of price."

Wendell Sebastian, president of GTE Federal Credit Union in Tampa, Fla., which has $335 million in assets, offers no apologies. He said he is "appalled" that banks don't offer more competitive rates.

"Interest rates have fallen through the floor" without banks' offering customers higher dividends, he said. "The big banks are reaping unconscionable profits and they pretend that those profits don't exist."

But there may be a reason behind the banks' behavior.

"I think a large fraction of the loss in [banks'] household representation is deliberate," said Ferguson & Co.'s Mr. Cates. "They're getting rid of unprofitable small-balance account holders" and "cultivating high-balance depositors."

"I can't see anything that can slow down the credit unions," said Mr. Sebastian. "I just see us continuing to grow and prosper." And banks will have played a part in making that happen, said Ferguson's Mr. Williams.

"The banking industry decided a while ago to get out of consumer lending and got back more into commercial lending," he said. "It takes an awful lot of consumer lending to equal one commercial loan."

Mr. Williams expects thrifts, and perhaps some consumer-minded banks, to be the credit unions' principal rivals for the title of "people's bank."

Mr. Russell of Banc One pointed out that his company installed an electronic banking system at the Victoria's Secret distribution center in Columbus, with direct telephone and computer hookups to the bank's customer service center. It is typical of the "bank-at-work" approach that some commercial banks have taken to offset the inherent advantages of in-house credit unions.

"This is the typical role of the credit union as employee financial service provider," Mr. Russell said.

"In the face of competition, "credit unions have to diversify the options available to customers," said Charles W. Filson, president of the credit union consulting firm Callahan and Associates. "They have to move into annuities. They have to move into mutual funds."

Credit unions are also merging at a fairly rapid clip, and as they do they will face the same customer-service hazards as banks and thrifts.

Of the 1,009 participants in the American Banker survey, 28% said they use a bank, thrift, or credit union that was in a merger or acquisition in the past year. Of that group, 23% said service quality had declined since the transaction and 68% complained of one or more problems -- such as fee increases, less favorable interests rates, and visible unhappiness among customer-contact personnel.

More than 100 credit union members were in the group that went through a merger in the previous year. They tended to be more critical than bank and thrift customers about post-merger fee increases, changes in account procedures, and errors.

The implication is that if credit unions maintain their customary attentiveness to personal service and quality, they can make further gains in the age of consolidation.

Credit unions already have come a long way. Explanations for their advances are legion -- relaxations of field-of-membership requirements, a customer base more aware of its financial options, and the industry's stability amid the recent troubles of banks and thrifts.

"Credit unions hardly were heard of 15 years ago -- they were just mom-and-pop outfits," said Mr. Williams. Not any more.

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