Credit Unions vs Banks: A Competition of Value

It is a common belief that the credit union model is superior to the bank model when it comes to proving value to consumers. But what do the numbers say?

 
 

Customer Satisfaction: Credit Unions (84%) vs Banks (75%)
Source: American Customer Satisfaction Index

No one actually expects members to sit down and do the math when deciding their level of satisfaction with their financial institution; we just expect them to consider whether their bank or credit union is meeting their needs.

However, there are a lot of numbers behind the scenes that factor into the “thumbs up, thumbs down” reaction of satisfaction. I was recently discussing with a friend the value the credit unions provide to their members, value that in many instances is greater than other banking institutions. After explaining the benefits of member ownership, his response was “prove it.” He wanted numbers, numbers that demonstrated the value credit unions provide.

Here are several metrics that help communicate credit unions’ effectiveness in working with members, and how that compares with other financial institutions.

Fee Income / Gross Income: Credit Unions (12.5%) vs FDIC Insured (18.9%)
Source: Peer-to-Peer Software, FDIC

The FDIC figure is actually for “service charges on deposit accounts.” It is no stretch to accept that the average member does not want to pay fees. A financial institution that relies less on fee income is providing better value to the patrons that use their products and services at a reasonable cost, all other variables being constant.

Net Interest Margin: Credit Unions vs FDIC Insured

Source: Peer-to-Peer Software, FDIC

A smaller net interest margin typically means that a credit is paying out more for deposits and getting paid less for loans. While this is not perhaps ideal from the institutional perspective, it is good news for the member. For those who prefer to do most of their business with a limited number of institutions, the net interest margin is a good indicator of the institutions appeal as a one-stop shop: cheaper loans and higher-yield savings.

Capital Ratio: Credit Unions (10.9%) vs FDIC Insured (7.5%)
Source: Peer-to-Peer Software, FDIC

This metric is worth considering for two reasons: 1) it is an indicator of available credit union; 2) it is an indicator of stability. Credit unions have been able to maintain healthy capital reserves, providing them with additional dollars to lend during the 2008 “credit crunch.” This is a contributing reason why credit union loan volume increased 6.7% over the past year, while lending from FDIC insured institutions actually shrank by 40 bps. The comparison of capitalization shows that credit unions are better positioned to continue lending throughout 2009, obviously valuable to individuals seeking loans this year.

Re-Default Rate: Credit Unions (23.2%) vs Banks and Thrifts (up to 55%)
Source: Peer-to-Peer, OCC and OTS Joint Mortgage Metrics Report

This comparison is not perfect; while the credit union results are as of fourth quarter, the most recent release of the Mortgage Metrics Report is as of third quarter. Here are the report’s findings:

The Comptroller of the Currency John C. Dugan provides further context: “One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months.” Ultimately, credit unions are still beating the most conservative, available figures for mortgage re-default rates. This rate is a strong indicator of financial institutions’ ability and willingness to work with borrowers toward a sustainable solution.

There are certainly other metrics out there; this list is composed of some of the primary ways to demonstrate value. It is pretty easy to see why customer satisfaction with the credit union industry is so high: the underlying data supports the positive experience members are experiencing at credit unions. Across the board, credit unions are beating the market when it comes to meeting the needs of their members.

 

 

 

March 16, 2009


Comments

 
 
 
  • I honestly prefer a credit union over big banks. For me, a credit union is a lot easier to deal with compared to banks and the folks at Oak Trust in Plainfield, Illinois just make the experience even better. Check out their site at www.oaktrust.com
    Annie August
     
     
     
  • I honestly prefer a credit union over big banks. For me, a credit union is a lot easier to deal with compared to banks and the folks at Oak Trust in Plainfield, Illinois just make the experience even better. Check out their website at www.oaktrust.com
    Annie August
     
     
     
  • Since credit unions are exempt from Federal tax why doesn't this savings get passed on to the member? The Federal tax rate is 35% so should the NIM decrease by 35%? 3.5% vs 2.8% is only 20%. where does the rest of the savings go??? To the executives?
    Anonymous
     
     
     
  • I AM A MEMEBER OF " COOPERATIVA SAN JOSE " IN PUERTO RICO. I WANT TO KNOW IF THE CREDIT UNIONS WORK THE SAME WAY OR NOT. WE ARE MEMBERS, WE BUY STOCKS IN WHAT MEMBERS CAN AFFORD. THIS IS NOT MANDATORY BUT IT IS BETTER, YOU GET A LOT OF BENEFITS IN DOING THIS. GET MORE DIVIDENS, MORE INTERESTS ON OUR MONIES, LESS INTERESTS IN LOANS, FOR WHAT EVER WE BUY. WELL IT SURE BEATS THE BANKS. IN PUERTO RICO THE "COPERATIVAS " ARE THE ONES WITH THE MONIES, BANKS DOWN HERE ARE AT THE BRINK. I AM MOVING TO SPRING HILL, FLORIDA, IS THE CREDITS UNIONS THE SAME WAY OR NOT. I HATE TO USE A REGULAR BANK. HELP!!!
    ANA ROSA MIRANDA
     
     
     
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