Credit unions thrive because they stick to banking
The more we observe the big banks behaving badly, the more we embrace credit unions for their fee-free philosophy, their attractive loan rates and their personalized service.
How do credit unions create so much customer satisfaction?
A new study confirms what we suspected: They're simply better than banks at banking.
Celent, a Boston-based financial consulting firm, found that credit unions consistently operate more efficiently than banks when adjustments are made to compare the two, apples to apples.
That's nothing new: Celent found a similar disparity between credit unions and banks across the board in studies from 2004, 2006, 2008 and 2010.
What caught my eye were the underlying reasons for this ongoing David versus Goliath smack-down. Celent found that unlike banks, credit unions:
- Don't participate in commercial banking and the technological complexity that goes with it.
- Have simpler product lines.
- Have real-time systems.
- Are already customer-centric.
- Invest more in labor-saving branch technology.
- Have credit union service organizations and shared branch networks to create economies of scale.
"Comparable credit unions are more efficient by about 10 points," says Celent's Bart Narter, coauthor of the study. "That is a profoundly lower cost structure. The great irony is that credit unions, as a matter of course, do not use efficiency ratio as a metric. Banks certainly do."
The study concludes that banks could learn a lot from the beat-down they're being handed by credit unions, especially when it comes to priorities:
"Credit unions generally have a crystal-clear focus on what types of members they serve and how they are going to serve these customers as efficiently as possible. They generally don't have competing lines of business driving profitability in their respective silos, since profit isn't a key metric for them. Ironically, this lack of profit focus seems to be more conducive to driving efficiency."
Irony is certainly the operative word for this ongoing disparity between credit unions and banks.
Who knows: Perhaps if banks don't stop and read the tea leaves, we may cease referring to them by their increasingly inaccurate name altogether.