NEW YORK (MainStreet) -- U.S. credit unions hit a milestone last week, reaching $1 trillion in assets. It's not just a milestone, though – it’s a trend away from big financial institutions and toward smaller ones.
Two new studies underscore the problem large banks have keeping customers in-house – and why their failure to do so is working out like gangbusters for smaller financial institutions.
The first study, released last month by the direct mail advertising firm Titan List & Mailing Services, said banks are “losing millions of customers to smaller credit unions." Titan List adds that “rising fees” are behind the consumer exodus from big banks, along with the elimination of popular bank rewards programs.
A second report, this one released by Moebs Services, notes the credit union industry reached $1 trillion in assets as of March 31.
The Moebs study shows that larger credit unions are growing by leaps and bounds – mainly due to the misgivings financial consumers have about larger banks, and ostensibly better deals available with those credit unions. Smaller credit unions haven’t seen that same rate of growth, indicating that bank customers want to scale down – but not too far down – in their personal financial lives.
“Credit unions greater than $5 billion increased their assets at a pace of 14% in 2011,” said Michael Moebs, chief executive officer at Moebs. “Those between $500 million and $5 billion saw an increase of 6.1%. Credit unions with less than $500 million in assets increased by 0.5%. "
It was the large credit unions that truly pushed the movement past the trillion dollar pinnacle,” he adds.
Heftier credit unions are helping their own cause by their ability to keep business expenses down, as those savings can be passed along to customers in the form of higher bank savings rates, lower fees and overdraft penalties and decent rewards programs.
“The credit unions over $5 billion, with a couple of exceptions, are remarkably efficient financial institutions,” Moebs explains. “Their revenue, both rate and fee, is down, and their expenses are down even more; their expenses are 39 percent less than credit unions less than $500 million in assets and 29 percent less than community banks. These lower expenses allow credit unions over $5 Billion to build capital and grow.”
Of course, there’s no guarantee that credit unions can keep cutting expenses enough to keep attracting new customers. Critical mass works both ways, on the upward growth side and the downward expense side, and you can only cut expenses so much.
But credit unions seem to have a big marketing advantage over big banks, which have been on the receiving end of negative publicity from the media and from consumer advocacy groups.
Now, smaller financial institutions are reaping the rewards of the pendulum swinging in their direction. $1 trillion may be a drop in the bucket to big banks, but the steady growth of the credit union industry over the past seven years isn’t in dispute.
Even the “too big to fail” banks will have to admit that and adjust their business models accordingly if they’re going to stem the tide of all those consumers walking out the door.