CU managers make most of opportunities

Northwestern Financial Review, Nov 1-Nov 14, 2004

Credit Unions

Teenagers head off to college every fall with the goal of independence; finally, they will be free of mom and dad, free to stay up late, free to eat nothing but cheese nips for dinner, and free to write checks off their very own bank account. This year, however, many of those pioneering freshmen will open their first account at a credit union. A NewGround survey of 480 credit union officials confirmed that recent regulatory changes allowing credit unions to acquire customers of all ages and occupations - not just single employee groups - have inspired and energized credit unions to expand their business and compete on more equal footing with banks.

"More young people than ever before are taking 'credit union 101' this school year," said Charlene Stern, chief experience officer of NewGround, a Chicago-based design/ build and branding firm for financial institutions. "With many credit unions changing to community charters, they are casting a wide net for new members, building new branches, marketing in sophisticated ways, and designing their products to appeal to a whole new crowd and generation." Change has affected everything from the name, to the look and feel of credit union branches. More than one in four credit unions (26 percent) said they had outgrown and changed their name, and an additional 38 percent are planning to change their name.

"The new marketplace definition of the majority of credit unions is providing a unique and critical opportunity to build a more meaningful brand in their market that is integrated with the place they do business and culture of their associates," Stern said.

Eighteen percent of the credit unions surveyed said they had created lots of innovation for members, and 35 percent said they had updated to high technology in their branches.

"College-age members are attracted to many of the new things credit unions are doing in their branches," said Stern. "Now, instead of walking into a sterile institutional building, kids can belly up to a juice bar or an Internet kiosk while they check their balance or simply surf the web with high speed access. The new branch environments encourage members to hang around, browse, learn and buy, where before it was all about the quick transaction."

Two-thirds of credit unions polled said a "compelling and engaging environment" makes their branches work to sell their services. To that end, some credit unions have done away with tellers completely, opting for "retail associates" who can do transactions as well as loan duties, and new accounts.

"The new branches more closely resemble retail stores than banks," said Stern. "No employees are sitting. No one has a home base. There is no teller line. Floor personnel are moving; it's alive, just like its customers." Beyond branch design, younger members may also be attracted to the more sales-oriented member representatives they encounter in a redesigned credit union. Nearly seven in 10 credit union officials (68 percent) said they expect their member representatives to deliver a memorable experience over and above the basics of good service. In addition, 78 percent of credit unions said they were in the business of "building emotional loyalty." Thirty-seven percent of credit unions said the "changing marketplace" is their biggest organizational challenge. By the same token, 21 percent said lack of creative thinking was their biggest challenge, and 10 percent cited lack of ambition.

Indeed, most credit unions surveyed said they consider banks to be their main competitors. Sixty-nine percent said their main competitor was a local or nationwide bank. Only 20 percent said their main competition was other credit unions.

"This is not surprising with the dynamic nature of the credit union category and the emerging high level of ambition due to federal government regulatory approval providing expansion of the market potential," Stern said. "Understandably, the largest number of respondents feels that local banks are their key competitor, as they both represent the alternative to the big bank offering."

One of the survey questions attempted to identify the most interesting things going on in the credit union industry. Thirteen percent of the respondents said there is "increasing sameness" among credit unions, while only 2 percent of those in the survey believe that there is "lots of differentiation" among credit unions. Furthermore, 18 percent said credit unions had been "innovating for members." Thirty-five percent cited "technology" as the industry's most important development. "This reflects the significant investment in technology supporting delivery channels and updating the internal service infrastructure at their credit union," Stern said. Fourteen percent cited an increase in the number of branches at credit unions. "This question indicates a very dynamic industry that has not yet addressed the area of differentiating their offerings in the marketplace in order to grow their business."