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Careful What You Wish For: Community Banks, Credit Unions Challenged by Influx of New Customers

With an influx of new customers who are dissatisfied with big banks, smaller community banks and credit unions face new operational challenges.

Given the public sentiment against big banks that swept through the country in late 2011, 2012 could shape up to be a big year for community banks and credit unions. But a major influx of new customers also poses a potential challenge for smaller financial institutions.

Community banks and credit unions already are riding a newfound wave of popularity due to social movements such as Bank Transfer Day, a social media campaign started by a California woman urging consumers to take their money out of big banks and put it into credit unions by Nov. 5, 2011. In fact, credit unions brought in 40,000 new members and added $80 million in new savings account funds on Bank Transfer Day, according to a survey released by the Credit Union National Association (CUNA), the nation's largest credit union advocacy group, which is based in Washington, D.C., and Madison, Wis. In total, the group said, the month leading up to Bank Transfer Day resulted in about 650,000 new credit union members joining the ranks, which outstripped the new credit union membership total from all of 2010.

According to Mark Schwanhausser, senior analyst, multichannel financial services, Javelin Strategy and Research (Pleasanton, Claif.), the consumer mind-set that led to Bank Transfer Day and the backlash against big banks is "one of the most fascinating moments in the history of consumer banking." But he also notes that this newfound popularity poses challenges for small banks, which may not have the robust product offerings or depth of features that a big bank might have. "For credit unions, the question is, 'Is the technology effective and inviting and easy to use?'" Schwanhausser relates. "Typically speaking, small institutions don't have the same quality technology as large banks."

For example, "Credit unions have much squeakier entry doors to the online channel," Schwanhausser says. "Their online account abandonment rates are shockingly high." As a result, he asserts, credit unions and community banks will have to invest in technology to build the infrastructure to support higher volumes and provide the customer experience that large banks can offer.

Welcoming New Customers

The smaller financial institutions seem willing to do what it takes to embrace the new wave of customers. In a CUNA survey of 1,100 credit unions, approximately 80 percent of the larger credit unions reported that they signed up new members on Bank Transfer Day, and many credit unions opened on Saturday, Nov. 5, or extended their usual Saturday hours to deal with the expected influx of new members.

In a written statement, CUNA president and CEO Bill Cheney noted that the survey results indicate that the momentum credit unions realized in the weeks leading up to Bank Transfer Day continued right into Nov. 5 itself, with a specific spike in membership on that day. "Consumers should be given credit for being smart about what to do with their money," he said. "Many obviously did not wait for a specific day, but took the time to make the change to a credit union in a deliberate manner."

In additon to signig up new members, the credit unions surveyed by CUNA further reported that they made $90 million in new loans on Bank Transfer Day alone. One credit union based in Illinois reported that it took six mortgage loan and four auto loan applications from its new members.

Cheney added that the additional lending activity is an especially encouraging sign for the credit union sector. "This nation needs more economic activity to get back on its feet; credit unions are ready and willing to help gets things moving," he said. "Perhaps credit unions and their new members got things started on Nov. 5."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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