The Customer Effect
How credit unions can advance inclusion
- Since credit unions are owned and operated by their members, they are uniquely positioned to advance social, economic and environmental objectives.
- As credit unions attract new types of customers, the challenge will be to stay true to the member-centric vision.
Thirteen years ago, Washington State Employees Credit Union President and CEO Kevin Foster-Keddie asked one of his employees to add up how much of customers' money that year was going to payday lenders. The result was surprising enough for him to decide it was time to do something about it. "A teller noticed that members were buying lots of money orders payable to payday lenders -- I asked her to add the numbers up and it was a million dollars," said Foster Keddie. "We said 'whoa'; We're a financial institution, we should be doing this; payday lenders charge a lot of money, and if we can do it better, cheaper, and faster, our members will benefit." That was the trigger for the birth of Q-Cash, a payday loan alternative that credit union customers could access at lower interest rates and longer repayment terms than traditional payday loans. Today, Q-Cash has tens of thousands of customers who can get underwritten through a mobile app within 60 seconds. The product was nominated for a Financial Times fintech innovation award this year, and it's an example of how credit unions are uniquely positioned to advance social and economic objectives. "Credit unions are better set up for financial inclusion," said Foster-Keddie, who explained that the credit union's mission, which is tied to advancing broader social and environmental goals, was designed by its members, or customer co-owners. "They don't have the pressure from shareholders to drive return on equity." Washington State Employees Credit Union is not alone its focus on increasing access for the underserved. Vancity, one of Canada's largest credit unions, has commitments to social justice and financial inclusion as part of its guiding principles. Although Vancity has a 71-year history, it's also using technology to offer products that advance its values-based mission. It's looking to change the market for short-term loans through its Fair and Fast Loan product which has similar rates to credit cards. Because the principal can be paid back over a longer period than a typical payday loan, customers aren't burdened with costly loan rollovers they may face from a payday lender. Customers can apply in-branch or online. "If you come from a strictly financial bottom line, capitalist approach, you may argue there's not a lot of money in this product," said Stewart Anderson, manager of community investment and aboriginal banking at Vancity. "If you look at social and individual benefits, maybe that outweighs the lower financial return." Vancity's understanding of financial inclusion also extends to offering services to remote communities. Three years ago, Vancity was approached by community members of Cormorant Island, a mostly aboriginal community on Vancouver Island whose only bank branch had closed. Anderson said the closure of the branch led to locals traveling at least 45 minutes do their banking, a long commute that resulted in community members spending their money elsewhere. Vancity worked with the Village of Alert Bay and the ‘Namgis First Nation to open up a bank branch in 2015, the goal of which was not only access to services but a way to prevent capital flight outside the community. It was unique opportunity for us to support the development of the local economy," said Anderson. "Within the first year of operations, deposits pretty much offset the cash taken out." Others are capitalizing on the use of social media marketing to get the message out on financial education. For the past nine years, Wisconsin-based Summit Credit Union, has run a seven-month financial challenge competition ("Project Money") where four families who are having financial difficulties get intensive personal finance coaching from credit union employees. As part of the activity, the teams must blog and post what they learn on the credit union's website and on social media. "Part of our passion is what we do every day in our branches guiding and advising folks to give them the tools that will have an impact in their lives," said Amy Crowe, a financial education specialist at Summit Credit Union. What makes credit unions different from banks and fintech companies is the way they're organized -- to serve the needs of the customers that are co-owners. While they have the regulatory cover to offer bank-type financial services like taking deposits and offering loans, they are non-profit cooperatives. At the core is a goal to put the members at the center: "[Members know their credit union will be there for them in bad times, as well as good," writes the Credit Union National Association. "The same people-first philosophy causes credit unions and our employees to get involved in community charitable activities and worthwhile causes." So, unlike other types of financial services providers, credit unions are bound to social, environmental or economic objectives as defined by the membership base. "I study credit unions in terms of how different they are compared to other financial services providers, and a lot of that comes down to their ownership structure," said Dionne Pohler, assistant professor at the University of Toronto's Centre for Industrial Relations. "They developed to address a need in communities where people couldn’t get access to financial services, or they were being treated unfairly by other financial services providers." But as credit unions appeal to more customers, staying true to the member-centric vision may be a challenge. "Credit unions are in a really interesting time where they have to struggle with the benefits of growth and how that affects their unique advantage compared to banks and fintech companies," said Pohler. "They face a trade-off -- they need economies of scale to continue to survive and appeal to new generations of customers." Photo credit: Flickr / edenpictures (image has been cropped)