Regional banks are taking on the big boys - with credit unions quietly serving their community well, reports Leeanne Bland.
Innovative products, lower fees and better service - this is the proposition that is on the table from many of the regional and second-tier banks. But have innovative regional banks been gaining customers at the expense of credit unions?
Chris Whitehead, from Perth's BankWest, which has made inroads into east coast banking with its Lite series of products, thinks not. He is adamant that his competitors are the big banks and not other mid-sized banks or credit unions.
"The big banks have over 80 per cent
of the market," he says. "How we compare with other regional banks is not really
the point."
Denis Orrick, the communications manager with the research company InfoChoice, says Bank West, "with its lean east coast distribution model", has been making inroads into the eastern states with the launch of its Lite Credit card at 9.99 per cent - one of the cheapest products on the market - and its Lite home loan at 5.95 per cent.
Orrick says ING has a large share of the online savings accounts with its attractive deposit rate of 4.75 per cent, while Suncorp-Metway has successfully targeted metropolitan and regional areas outside
of Queensland.
Nevertheless, on the face of it, the likes of Bendigo Bank, with its community banking initiative, would appear to be hitting credit unions where it hurts most.
This is despite its home lending rates, for instance, not always being lower than those on offer from many credit unions (see the table at right).
Peter Hansen, the public relations manager with the Credit Union Services Corporation (Australia), says once people are members of credit unions they are definite converts. "Surveys show that 75 to 85 per cent of credit union members would recommend their credit unions [to others]," he says.
An independent survey released by the Australian Consumers Association's Choice magazine backs this up.
The Choice report, published in November 2002, shows that 64 per cent of credit union members are very satisfied with their institution, compared with just 11 per cent of customers of the top four big banks.
The problem is getting people to become members in the first place. Promoting credit unions can be problematic.
"There are about 187 credit unions in Australia. Each one is a different brand, with a different market and different facilities," Hansen says. "They range from very large city-based to small community-based to industry-based.
"Second-tier banks like Bendigo are making their presence felt," he concedes.
"They are tapping into community concern with community-based banks. They have a similar marketing strategy to the credit unions. Some credit unions [market] well, and some don't."
Community banking is definitely on the credit unions' "patch", but Hansen points out that it takes $500,000 to start up a community bank.
"You don't need half a million to be a credit union member," he says.
One of the greatest hurdles for credit unions, says the Australian Consumers Association's finance policy officer, Catherine Wolthuizen, is the perception by bank customers that no matter how dissatisfied they are with their bank, the inconvenience of shifting is too great to contemplate.
"Consumers still stubbornly stick to their bank and stubbornly stick to substandard service. Large banks use bundling of services to keep people entangled," she says.
"Banks are taking advantage of the lack of mobility of their customers, to have service levels that wouldn't survive in a different environment. But for very short-term inconvenience - such as having to redirect payments - you will receive substantial long-term benefits."
Those that do switch reap the rewards, and while the second-tier banks are busy making inroads into the dissatisfied big-bank customers, credit unions argue that they are not being left out in the cold either.
Indeed, if credit unions get their strategy right, the threat of a community bank opening up on their patch isn't even a concern. The WAW Credit Union, for instance, appears to have the Albury-Wodonga market sewn up. WAW's general manager, Peter Challis, says a Bendigo community bank was mooted for Beechworth but the community decided they didn't need it.
"They decided they already had a community bank in WAW," he says.
The secret, says Challis, is to take an interest in the community. "If we can assist our community to thrive, we thrive as well."
It is also a matter of knowing your market. "If an organisation tries to be too much to too many they will lose their focus and their impact," he says. "We have 22,500 members in the region. They have direct access to the people who control the decision-making."
This makes its branches different to the big-bank branches.
"Bank decision-makers are no longer in the community," says Challis. "No [big bank managers] here have the authority to do anything. All the head offices are in Sydney and Melbourne."
But if a person wants to talk to the general manager of the WAW Credit Union, they can. He compares this to the big-bank situation. "If a bank customer wanted to talk to David Murray [the CEO of the Commonwealth Bank], it just wouldn't happen."
Challis says being a regional credit union gives WAW an edge: "It is certainly easier for our message to be heard than it would be in the clutter of the city."
Using a credit union doesn't have to mean forgoing technological banking initiatives. Hansen says while credit unions may not be at the forefront of the new banking technology, there is no doubt they have all the technology that people want.
"Just about all credit unions have websites and internet banking," he says.
And some credit unions have no intention of being left behind in the online stakes.
Community First Credit Union has set up an online banking arm, EasyStreet. It has an online savings account offering 4.8 per cent that is taking on the likes of ING Direct, AMP Banking and Dragon Direct, and it also offers a range of other online banking products (see page 12).
Kerry McMorrow, the marketing manager with Community First Credit Union, says the credit union identified a different type of customer who would be suited to online savings accounts and home loans. She says the online brand has taken the credit union to a national market and caters to customers younger in profile than Community First's traditional kind. There is no doubt it will be up to each individual credit union to make sure they stay relevant to their customers, with Bendigo opening its 100th community banking branch in June.
When the big banks move out of town and a community bank is opened in its place, Wolthuizen says the community banking does gain an edge over an existing credit union. "The capital raising to open the bank happens across the whole community, so of course the community bank has a natural slot in the community," she says.
Bendigo Bank's general manager of community banking, Russell Jenkins, says: "A hundred branches and $3 billion in business is a ringing endorsement of the concept of a people's bank. We have already seen $1.9 million in benefits flowing back to communities in the form of local funding and shareholder dividends. This will top
$2 million soon and is growing quickly."
He says this shows that a community bank is about much more than simply returning banking services. It has become a way in which communities can improve their economic and social prospects.
