The Difference Between Banks and Credit Unions
// January 29th, 2010 // Banking, Banks, Credit Union, Jeff Stephens
I had an interesting thought today, sparked by several tweets, blog posts, and a conversation with a potential client. It was about the common discussion in our industry: the differences between banks and credit unions.
We all know, there is indeed a difference. It’s not that one is inherently better than the other, but there are differences for sure: legal charters, ownership structures, regulatory differences, etc. There are thousands of websites (like this one from CUNA) with information about how credit unions are different. Still, people don’t widely understand these differences, and frequently make mistakes about them. Most consumers confuse the two, and the media clearly confuses them routine–they often call credit unions “banks” in news stories.
So here’s the interesting question:
Why is it only credit unions who get pissed about this misunderstanding and confusion between banks and credit unions?
Shouldn’t the banks get just as angry? After all, lumping the two together is a mixup that adds just as much confusion about what banks really are, as it does to what credit unions really are.
Sure, I understand that credit unions are called banks more frequently than banks are called credit unions. But think about it: both banks and credit unions alike have every reason to be aggravated by this continued and frequent mixup. So why don’t we hear more uproar from banks? How come there are no chants about “the bank difference” like there are for “the CU difference”? Shouldn’t both sides be equally interested in clarifying their qualitative differences and arming consumers with accurate information?
In other words, why aren’t banks offended when credit unions are lumped in with them?
(BTW, I honestly don’t have an opinion I’m trying to sell you, on this topic. I just find it extremely interesting and would love to hear your theories.)
11 Responses to “The Difference Between Banks and Credit Unions”
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IMHO, banks don’t mind because credit unions have historically been perceived as the poor kid on the block. Banks have the ability to raise capital, which allows them to offer more technologically sophisticated products and services. In every way, banks feel superior to credit unions and in some ways, where money makes things easier, more efficient, and faster, they are.
I think you’re onto something with that superiority comment–there can definitely sometimes be a sentiment of “those cute little credit unions are fine, but leave the real banking up to us.”
[...] • The Difference Between Banks and Credit Unions [...]
I think that there are three reasons:
1) Most banks don’t care. They have the lion’s share of the market, and the confusion won’t have any negative tangible impact on the banking industry.
2) They don’t believe that there is a significant difference between banks and credit unions. To the ABA, credit unions are pretty much banks that unfairly receive tax exemption.
3) Credit unions are much more protective of their brand, due to the comparative lack of public awareness of the features that make credit unions distinct. Much of the credit union brand is dependent on their separation from banks (describing how the credit union business model is structurally different from the banking model people are already familiar with). There is no collective effort around building a “bank brand,” so the bank industry as a whole is less concerned about the establishing a difference.
Those are just some of my thoughts.
@Jeff – I believe the fundamental reason why this is a one-way street is that banks don’t care very much about their “story” as it relates to gaining more business, while credit unions in general, do care about their story in gaining more business. It’s simply more fundamental to their very existence. I also think perhaps both parties might agree that credit unions have a fundamentally better story. But I could be way in left field on this.
@Tiffany – I disagree with your assessment that banks’ ability to raise capital gives them a technological advantage. That might be true for some banks, but I know of several credit unions that offer technologically sophisticated products to their members, and their small size is actually a benefit in doing so. There are numerous studies that show that credit unions often lead banks in their technology offerings to members/customers. Especially in today’s rapidly changing environment, capital investment in technology shouldn’t, and perhaps can’t, lead to a sustainable competitive advantage. In fact, it might very well be the other way around.
The real reason banks don’t talk about the “bank difference?” They don’t want to draw attention to what it is credit unions do well, and banks don’t. Additionally, many in the banking industry (not all) believe that credit unions really shouldn’t be treading on banking turf in any way. As for credit unions: I think they are frustrated. They know they have a great product, and their members (nearly 93 million) generally think so too. But CUs honestly believe that everybody should belong to a credit union, and everybody should understand what a better deal they get there. These are passionate people — there’s a reason many call it a “movement.”
Added to both of your comments is the inherent need to refer to the services that credit unions offer as “banking services”. By having to use this terminology the implication is that CUs are simply copycats of banks. CUs can’t really use “credit services” because the word “credit” doesn’t encapsulate the services offered. If CUs had started with a snappier distinguishing brand, maybe for the sake of argument “crunions”, we’d be at a point where we could say CUs provide “crunion services”! Ultimately, the public would have to have a basis for understanding what that meant.
If you mistake Brad Pitt for me, I’m cool with that. If you mistake me for Brad Pitt, well…. Brad might not be too happy.
But OK, more seriously: Why SHOULD they care?
Distancing themselves from banks seems to be core to the differentiation CUs are trying to achieve. Banks are trying to differentiate themselves from other banks.
Hold on. I think I might have said that backwards about me and Brad Pitt.
@Everyone Thank you all for the thoughtful comments—I’m glad to know people are reading!
@ Elliot I definitely think this issue is primarily the result of the comradery that’s felt between credit unions, which isn’t the case with banks.
@Ron Shevlin I agree with that. Any kind of miscommunication about credit unions is taken as slander by the credit union community as a whole…because it’s like one big family and the individual identities of the credit unions is almost secondary to the industry’s group identity. Banks, by comparison, are more of a series of individual institutions rather than a collective that has banded together. A slam on Acme Credit Union would piss off the whole credit union industry. A slam on XYZ Bank would likely only piss off XYZ bank (generally speaking of course).
@Morriss I agree largely with that—I would say, at least, that many credit unions inherently understand the potential value of their brand story more than banks do (another gross generalization, but true on the whole).
@PK I know what you mean about banks not wanting to draw attention to the differences, but in my opnion that implies a more calculated approach than I think is actually happening. My guess is that banks don’t tend to get mad about this because they don’t see it as a serious issue.
Another interesting observation–it’s almost entirely credit union advocates who have responded to this post. I’m not sure whether to call it “ironic” or “expected,” but the one-sided response further supports the main issue I raised in the post.