Following the 2008 financial crisis, U.S. credit unions enjoyed a spike in membership, marketing themselves as a much more stable, reliable, and consumer-friendly alternative to big banks, which took the brunt of the criticism and blame for drawing the country into a prolonged recession.
Connecticut’s nonprofit credit cooperatives never really experienced significant membership gains after the crisis, but more recently their challenge has been hanging on to customers.
The state’s 115-federally insured credit unions lost 8,100 members, or 1 percent of their total customer base at the end of the second quarter, which represented the steepest quarterly decline the industry has seen since the first quarter of 2010, according to data from the National Credit Union Administration (NCUA).
Since September 2012, Connecticut credit unions shed about 20,000 members; the industry has 851,664 members today compared to 885,831 in December 2009, NCUA data shows.
Connecticut’s decline came despite U.S. credit unions growing their membership base nearly 2 percent during the first half of this year.
Credit union leaders say the membership drop-off is the result of several factors, including people moving out of state; an aging population that may be less likely to switch from an existing financial institution; and emerging technologies at larger banks that some smaller credit unions can’t afford to offer their own members.
“There was not a boom in membership after the recession,” said Jill Nowacki, the executive director of the Connecticut League of Credit Unions. “There was a boom in assets in the state … What we are seeing perhaps is more consumers using credit unions as their primary financial institution and keeping more of their personal assets with their credit union.”
Indeed, despite a recent membership decline, Connecticut credit unions have slightly grown their overall asset base to $9.4 billion, compared to $9.2 billion two years ago.
Nowacki said she thinks credit union membership in the state will increase, particularly as the industry caters to an evolving customer base that desires doing business with local financial institutions.
“When you look at society’s trends, especially among younger people, and the commitment that they have to buying local, to working in collaboration, I think credit unions offer those values,” she said.
Ed Danek Jr., CEO of Hartford Federal Credit Union, said credit co-ops are an attractive option because they often offer lower-interest loans than banks.
Danek said membership volume is important, but of greater concern is trying to get customers to use his $90.1 million credit union as their primary financial institution (PFI), meaning they open more than one account, borrrow, and use other services including mobile banking. Gaining those types of loyal members, however, can be a struggle for smaller credit unions with under $50 million in assets, he adds.
“How you strategically position yourself to your membership is critical, particularly for smaller credit unions,” said Danek, whose credit union has over 16,000 members. “If a credit union wants to be their members’ primary financial institution … they must continue to grow in order to afford and participate in advanced technology that will enhance their service delivery channels. This is what consumers expect from their PFI and what makes the relationship sticky.”
Danek said some of the smallest credit unions in Connecticut have carved out profitable niches by offering a limited number of services, but the regulatory burden on them is becoming more costly.
That makes it harder to invest in things like mobile banking technology, which consumers are increasingly demanding.
Nutmeg State Federal Credit Union CEO John Holt said regulatory requirements have increased threefold in the past four years even as his $364 million nonprofit cooperative looks to entice new members with emerging technologies.
“Next year, we’ll be moving our credit cards over to a chip, and the chip will be embedded in the credit card,” Holt said. “It will no longer be a magnetic strip … That is much more secure and safe than what you see out there now.”
Nutmeg, which has more than 33,000 members, also offers customers e-deposits and a mobile app, which are key to attracting new members, Holt said.
The Rocky Hill credit union is also asking state bank regulators permission to expand its membership base into New Haven County so it can gain access to a new market of potential customers.
Danek said the key for credit unions is to demonstrate value and stick to their core mission.
“For full-service credit unions, regardless of size, it’s all about getting your members to view you as their PFI and making the relationship sticky,” Danek said. “Statistics show that when a member has their checking, direct deposit, debit card, mobile banking, and online bill pay with an institution, their retention rate is over 90 percent higher. They are also many times more likely to borrow from that institution as well. PFI — make it sticky, and then deliver on your mission statement.”