Marketing Challenges Shape Credit Union Account Comparisons
Credit unions may offer better rates and more features on checking accounts than banks do, but it's more in response to marketing challenges than it is a matter of member service, according to WalletHub.com, the online personal financial website.
WalletHub's Q2 2014 Banking Landscape Report tracked the second-quarter costs and features of 2,000 checking, savings, money market and certificate accounts offered by national and community banks and credit unions. In all cases, credit unions beat their banking competition hands down in terms of both rates and features on accounts.
But credit unions’ member service commitments played less of a role than the marketing issues the institutions face in driving those rates and features, according to Odysseas Papadimitriou, a former Capital One senior director and CEO of both WalletHub.com and CardHub.com.
“Credit unions have a hard time attracting customers because it's so complex to figure out what credit unions consumers qualify for,” Papadimitriou said. “Credit unions have to compensate for the lack of marketing agility by having better terms. Banks don't have to do that.”
The WalletHub data, compiled by Sonia Garrison, research manager for Evolution Finance, reported credit unions were 72% cheaper than national banks, offered 105% more features and provided 562% higher dividend rates. When it came to smaller, community-based banks, credit unions were still 48% cheaper, offering 46% more features and providing 699% higher dividend rates.
“Banks are profit-maximizing institutions, no question about it,” Papadimitriou said. “Credit unions have better products and the only reason banks get away with charging more is because credit unions have a marketing challenge.”
National banks charged the highest fees and offered the least amount of features with costs escalating based on the size of the bank, according to survey results. In addition to offering lower rates on checking accounts with more member-service features, credit unions also offered the highest interest rates on interest-bearing checking accounts, savings accounts and CDs, with average interest rates of 0.43%, 0.21% and 0.79%, respectively.
Monthly checking account fees were the most significant factor in the cost of maintaining an account, Papadimitriou said. Community banks charged an average of $5.65 per month to maintain an account, and the cost escalated with small ($7.04), regional ($10.06) and national ($15.28) banks. By comparison, credit unions averaged $1.97 per month to maintain a checking account.
The tables turned against credit unions, however, in measuring the deposit size necessary to avoid the monthly fee. Community banks required an average $2,704 on deposit to avoid the fee, with the amount escalating unevenly through small ($3,400), regional ($3,329) and national ($7,425) banks. By comparison, credit unions surveyed required $11,500 on deposit to avoid the monthly fee for those institutions that instituted a minimum deposit, the data said.
Credit unions soared when it came to features offered on checking accounts, with 70% of those surveyed requiring a no monthly fee or other requirements. This compared favorably to community (38.30%), small (34.88%), regional (18.60%) and national (4.17%) banks.
Credit unions also led the pack in interest-bearing checking accounts, with 47% paying interest on accounts with as little $1,000 on deposit. This compared favorably to community (29%), small (.05%), regional (.05%) and national (.06%) banks.
If there is a threat to credit union dominance in the checking account rates-and-features scenario, it's through online checking accounts, defined as those accounts that operate only electronically without access to teller and other staff intervention. According to survey data, online accounts were 19% cheaper than branch-based accounts, had 20% more features, and offered a 122% higher average interest rate. Very few credit unions currently are offering online accounts, according to Papadimitriou.
“They’re cheaper because they cut out the human factor,” Papadimitriou said. “They’re better than credit union accounts because the rates are higher and the fees are lower. This is the real threat to credit unions.”
WalletHub stressed the need for more student checking accounts, which scale back fees to accommodate those consumers still in school. Despite their market appeal, few banks or credit unions offered student accounts, Papadimitriou said.
Business accounts also came under fire from WalletHub, largely for high rates associated with them compared to personal accounts. Based on survey results, business accounts were 46% more expensive, had 4% fewer features, and offered 57% lower interest rates than consumer accounts.
Whenever possible, Papadimitriou stressed that small businesses, especially sole proprietorships, should switch from business accounts, which often are more expensive because of their real or perceived complexity, to personal accounts that offer most of the same features, but at a far lower cost.
“Forget the label on the account,” Papadimitriou said. “Just get the best checking product that you can.”
With the promise of rising rates, Papadimitriou stressed that both consumers and financial institutions should be aware of marketplace changes that will effect relationships between institutions and their depositors looking for greater return on their dollars. Rapidly evolving financial technology also will mean a sea change in the way consumers conduct their financial business, something that has already put many credit unions behind the eight ball in their marketing efforts, Papadimitriou said.
“We created an online marketing tool at WalletHub like the big banks use and offered it free of charge to credit unions with no strings attached,” Papadimitriou said. “We’ve gotten some inquiries, but so far no takers.”
The WalletHub tool is an online app that would allow credit union members to rate credit union services. By literally pasting a few lines of copy from http://wallethub.com/widgets/reviews/ onto the credit union's web page, the institution could have a significant marketing boost through an increasingly familiar consumer-support advantage, according to Matei Nicolae, WalletHub's product manager.
“Our goal at WalletHub is to level the playing field within the industry by giving credit unions free access to the same tools that mega-banks use,” Nicolae said. “It's proven that when leveraged correctly, user reviews can increase conversion rates by 20% to 50%.”
Citing data indicating that 72% of consumers place a high value on positive consumer reviews, WalletHub officials remain puzzled by the fact that, after reaching out to hundreds of credit unions in the six months since that app was introduced, none have taken them up on their free offer.
“I myself have emailed credit union CEOs with the offer, but they say, no, that they are not interested at this time,” Papadimitriou says. “I think there is some issue with a lack in marketing sophistication going on here.”