Community banks and credit unions have been around since the mid 1800s. Unlike most commercial banks which exist as publicly listed companies, credit unions and community banks are normally not-for-profit structures built to serve the community or groups where they are established. Generally these community banks or credit unions serve a specific geography (as in the case of community development banks) or specific industry or interest groups. According to Wikipedia there are over 46,000 credit unions in 97 countries around the world, making this form of banking an essential part of the financial system, particularly in underbanked segments.
In recent times credit unions have had some solid success despite the Global Financial Crisis. In the United States alone there are 4,101 community banks (52% of all of the 7,932 FDIC-insured financial institutions) with total assets at $909.8 billion (Source:CUNA, FDIC.) US-based credit unions recorded savings totaling $784.1 billion for the first quarter, an increase of 6.6 percent over the previous quarter. Banks such as Bank of America, Citibank and Comerica all lost deposits between June 2005 and June 2009, according to the FDIC.
Some community banks such as Keystone Community Banks have increased deposits 27 percent over the past five years. Provident Bank in NY has performed exceptionally well over the worst years of the financial crisis with 16 percent growth in 2008 and 4 percent growth in 2009. Compared with the negative growth in deposits from mainstream financial service providers, this sort of growth is exceptional. To be fair, there are some community banks that have suffered due to loan exposures established in 2004-2006, and a fair number of community banks that have failed, but comparatively as a group they appear to be performing robustly against mainstream financial institutions.
In Australia, one of the nation’s biggest credit unions, the NSW-based Teachers Credit Union, has seen it’s lending growth spike by 12 percent for this financial year, a rate that has outpaced the broader market including the big 4 banks there. Deposits have also increased, up 5 percent for the year to date.
‘Credit unions and building societies are starting to take a little more off the banks. This time last year the [big 4] banks had 93 per cent of the lending market and now they are down to 88 per cent,” said the CEO of the Teacher’s Credit Union’s, Steve James.
Why the surge in deposit growth for community banks and credit unions in the current environment? Undoubtedly there are two main factors. Firstly a strong public backlash against “Big Banks” has produced an uplift in support for local ‘banks’ who are more sensitive to the needs of their community and secondly, there is a strong synergy that community-led banks have with the massive growth in social media.
In fact, there are a bunch of reasons why social media must be a core strategy for community-led banks, cooperatives and credit unions, but I’d like to focus on a few specific areas:
From Physical “Communities” to Virtual
Community banks and credit unions exist largely to serve a specifically aligned group of community members. In some instances these members are bound geographically, while others are bound by a common cause or industry, such as credit unions built around specific professions (teachers, pilots, postal workers, etc). This community spirit worked to create unique growth opportunities for such institutions in recent times.
In Australia while the ‘big four’ were moving to shut down branches in country towns and suburbs, Bendigo Bank formed a “Community Bank® initiative to help rural communities secure long-term branch banking services” . Using a community owned joint-venture model, Bendigo Bank opened more than 100 community bank branches during the period 1999-2003, making it the fastest growing bank in the country.
The very sense of community that binds the individuals who support such financial institutions is also a core element in the success of social media (which we often refer to as ‘virtual communities‘.) So all these community-led institutions need to do is tap into that same sense of community online as they do in the real world. Instinctively they’ll find it much easier to participate in the conversations and interactions that take place in the social media space. Mainstream banks are used to a tight control over their brand and related communications – in this environment many of them still feel threatened by the way social media empowers the voice of consumers.
Higher rate of Customer Advocacy
Forrester’s 2010 Customer Advocacy rankings report, ranks nearly 50 financial services firms in the United States by the percentage customers who agree with the statement: “My financial provider does what’s best for me, not just its own bottom line.” Credit unions ranked much higher than the big banks, as they have in previous years, with 70 percent of credit union customers saying their financial institution puts their interests first. Whereas the bottom seven of this year’s rankings included Bank of America, Chase, Capital One, TD/Commerce, Fifth Third, Citibank, and in last place, HSBC. These bottom seven rated between 16 and 33 percent.
Poor customer advocacy explains why Social media is threatening for big banks. In September of 2009, Ann Minch successfully rebuffed Bank of America’s attempt to increase her credit card APR through the smart use of social media. Arianna Huffington of Huffington Post supported the “Move Your Money” campaign in the new year, promoting this ’cause’ on CBS and other mainstream media in the first quarter. The hashtag #moveyourmoney continues to track popularly on Twitter even today. Social media builds advocacy for great service organizations, but for the big banks who tend to focus more on EPS than customer satisfaction, social media exposes their inadequacies.
Technology enables reach
In the US in recent times, BankVue and their Kasasa banking unit have built an extremely successful model as an integrator for smaller community banks. They have taken marginal players—smaller banks from communities around the US—and given them a platform for greater customer involvement and profitability. Kasasa already has 15 banks enrolled onto its common platform. It gives customers of those banks a much broader service network because they can go into any Kasasa partner bank, use their ATM, process a cheque over the counter, or pay bills. It suddenly gives a smaller community bank the competitive capability of a much larger brand in respect of network and services.
In conclusion, social media is a big part of the recent success of community-led banks and credit unions comparative to the big banks. The smart community banks today should rapidly tap into the power of social media to extend their reach, to empower their communities and to continue to differentiate their customer advocacy capability versus the big banks who are ‘too big to care’.