Fintech has provided customers with a plethora of alternative banking products to choose from. However, you don’t have to be tech-savvy to bank outside the traditional banking system. One banking alternative that’s been gaining traction in recent years is credit unions, which have been around since the late 19th century.
WTF are credit unions?
Credit unions are financial cooperatives that are owned by their members. Like banks, credit unions provide basic financial services, such as banking and ATM services, loans and payments, and investing. However, in order to join a credit union, you have to have share a certain commonality with the other credit union members, such as location, community, church, or place of employment.
Because credit unions are not-for-profit organizations, whose goal is to serve their members and not their shareholders, these organizations are exempted from taxes. Banks are obviously not down with this exemption, and in 1998, the banking industry won a Supreme Court ruling against credit unions that limited who could join these co-ops and threw into question the status of as many as 20 million existing customers of credit unions.
Not to worry, though. Credit unions have come up with some creative – and community driven – ways to get around that ruling.
Want to join Alliance Credit Union but don’t live in Chicago? Just donate $10 to the non-profit Foster Care for Success and you’re good to go. Feel like joining the NASA Federal Credit Union but you (sadly) aren’t an astronaut? Simply join the National Space Society (free) and deposit at least $5 in savings account.
Talk to me in numbers.
A 2014 report published by the World Council of Credit Unions lists 57,000 credit unions in 105 countries in every continent on planet earth (save Antarctica). These organizations serve 217 million people worldwide, and combined hold $1.5 trillion in savings, $1.2 trillion in loans, $151 billion in reserves, and $1.8 trillion in assets.
Why choose credit unions over banks?
Credit unions’ tax exemption gives them an edge over traditional banks in terms of fees: 76% of US credit unions offer free checking accounts, and most have substantially milder penalty fees (such as overdraft or ATM withdrawal fees).
Furthermore, a 2014 survey conducted by the American Customer Satisfaction Index (ASCI) found that credit unions were easily winning the customer satisfaction game: credit unions average an 85 customer satisfaction score, while banks lag behind at 76.
The same report showed that member loyalty is nearly 20% higher at credit unions than at any other financial services the ACSI surveyed, and the complaint rate among credit union members is less than half the rate at banks.
Still, credit unions aren’t a deus ex machina with the power to resolve any and all banking problems. As BankRate’s David McMillin points out, credit unions don’t always win against the banks, especially when it comes to being able to offer attractive rewards programs and innovative digital banking solutions.
Plus, in spite of their get-out-of-tax-free card, credit unions may have to up their fees to meet regulatory expectations, just like banks.
So are credit unions up to digital scratch or not?
That’s like asking whether all banks have figured out how to seamlessly digitize all of their services. The answer is yes, and no. Some credit unions — like the aforementioned Alliance Credit Union and NASA Federal Credit Union, which feature on multiple “best credit union” lists – -are outfitted with up-to-date online and mobile technology, including P2P payments.
Other credit unions, like Tinker Federal Credit Union and Visions Federal Credit Union still have a ways to go when it comes to providing a positive digital experience for customers.