Markets Are Changing; Credit Unions Advised to Change, Too

SAN DIEGO -Credit unions are only doing an “average” job in reaching out to the underserved and unbanked, forcing tens of millions of people to seek out alternative financial services such as check cashers and payday lenders. And credit unions only receive average marks for serving the young. A 20-year-old business owner, for example, questioned why credit unions stop marketing to members when they turn 18 years old, a time he said when “everyone else” was starting to target that age group. Those were some of the conclusions of both credit union leaders and others during a three-hour workshop prior to the official start of CUNA Mutual’s ninth annual Discovery Conference. The conference, held June 9-12 at the Manchester Grand Hyatt Hotel here, attracted some 900 people. Those attending the pre-Discovery work session gave credit unions a “C” grade when asked how they would rate the industry in serving the underserved. Credit unions received the same grade from the participants when it came to serving young Americans from 18-24. Credit unions were told they needed to do more if they wanted to attract and keep members of “low wealth.” Some alternative lenders are providing better, faster, more convenient and friendlier service than that being offered by credit unions, according to Mark Meyer, director of innovation with the Filene Research Institute. “They (alternative lenders) are recognizing . . . that they need to look for ways to offer savings and investments and insurance,” he added, noting that many alternative financial service firms were also “starting to go upscale.” And credit unions can expect to face even stiffer competition in the future, with the number of payday lending stores expected to nearly double to more than 40,000 locations within the next 15 years in the United States. In 1990, there were fewer than 50 locations. Other entrants into the financial services marketplace, such as retail giant Wal-Mart, have apparently recognized the potential of serving the 25 million to 35 million people who now utilize check-cashing services and who might welcome offers of other financial products and services. Those who are treated well by the alternative financial service institutions are “intensely loyal,” noted Bob Hoel, executive director of Filene Research. “They go to a good place that gives them a good deal that meets their needs and they will go and park all of their business with these people,” he said, adding that they will remain with those institutions as their wealth increases. “If you’re making $200,000 a year, everybody wants to do business with you,” Hoel said. “You’ve got lots of great choices. But if you don’t have much wealth, you don’t have such good choices.” Meyer described Wal-Mart’s foray into check cashing as a “first step” into the financial services marketplace. He also pointed to Washington Mutual as a bank which was taking an aggressive retail approach to attract low- to moderate-income customers. “As a traditional (financial services) industry, we’ve moved forward developing very sophisticated products and services . . . leaving pieces of the marketplace behind,” Meyer said. One of those who has picked up a big piece of that forgotten market is Tim Lanham, president of the Mister Money chain of 61 pawnshops in the U.S. and Mexico. The stores also provide payday loans, cash advances, check cashing, money orders, bill payments and money transfers to other countries. Lanham also offers what he calls the Alternative Financial Solution, a kiosk that offers consumers cash advances/payday loans and processes loan transactions. He said there are currently about 60 kiosks installed in five states, including one machine for check cashing at the CUNA credit union. Lanham said he serves the “sub-prime” market, consisting of people who have little or no credit, or less than perfect credit. He also serves people who are either unbanked – with no banking relationship whatsoever – or those who are underbanked, which he describes as those who use alternative financial services. Customers include new immigrants or “emerging Americans.” Meyer cited figures that showed 33 million new immigrants currently were coming into the United States. He said that number would increase to 55 million by 2025. Lanham said the sub-prime market represents 35% of the adult population or approximately 76 million people. “I believe that credit unions need to begin to look at this market,” Lanham said, adding that it offered credit unions high profits, a social mission and customer loyalty. He said that credit unions, convenience stores and grocery stores posed the greatest threat to existing payday lenders and check cashing outlets. Bryan Sims, a 20-year-old college student who founded brass/MEDIA, chastised credit union officials for failing to market properly to young adults. His magazine addresses issues of young adults, money and how it affects lives. His motto is “young today, rich tomorrow.” He described the18-25 age group as the credit union industry’s “forgotten market.” He suggested that officials change that age category to 17-25 to give credit unions a chance to better reach that demographic, since most companies wait to target young people once they turn 18. “Credit unions stop marketing when everyone else starts,” Sims said. “We (young people) can be very profitable if you set it up right.” Sims also urged credit unions to better cross sell to young adults, to do “lifestyle/life event” marketing and to add young people to boards and advisory groups. -