Credit unions have long been known to provide a saving and lending platform for the most financially vulnerable to help them get on top of their finances. Jessica Longley speaks to Frank McKillop, communications manager at the Association of British Credit Unions, to find out if this is still the case
Today, credit unions (CUs) play a crucial role in guiding consumers away from payday lenders such as Wonga.
Frank McKillop from the Association of British Credit Unions Ltd (ABCUL) explains: “The biggest attraction that a credit union offers over a payday lender is the idea that you are not taking out a crisis loan.
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“Rather than postponing a solution by borrowing more and more money from increasingly high interest rate lenders, credit unions give you a helping hand in getting on top of your finances.”
At a CU, you can save regularly and access credit when needed. These non-profit organisations, run by members, provide low interest rates on loans to prevent spirals into debt.
McKillop insists that CUs are always the best alternative to payday loans: “The most expensive credit union loan that you could possibly get is eight times cheaper than the caps for payday lenders in the UK.”
There has been a tendency from credit unions to appeal not only to people in financial difficulty, but also to a wider demographic. By offering a range of different financial products, and a high quality of service, CUs have attracted a wider range of consumers.
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By GlobalDataAccording to McKillop, the CU sector vows to be sustainable and to consistently attract new consumers from different backgrounds.
CUs have grown significantly in the last decade. Membership has doubled, lending has doubled and deposits have tripled in this period, says McKillop.
Taking inspiration from elsewhere
CUs in the UK have not been known tfor their growth and more needs to be done before they reach a level even vaguely resembling the ones in the US, Ireland or Australia.
“In countries where credit unions are successful, there is a variety of financial services providers. We want Britain to have that similar type of landscape,” explains McKillop.
The first CU in the UK was launched in 1963, at a time where there was already a well-established banking sector. This left little space for CUs to develop.
According to McKillop: “British credit unions started at a massive disadvantage, and it is only over the last three decades that we’ve been able to attract people from different places.”
In Ireland and the US, CUs emerged at a time where some consumers had a wide range of banks to choose from, while others lived in areas not served by banks at all.
McKillop adds: “I think the credit unions’ popularity in the US is also down to a more flexible legislative landscape towards CUs, that has been round for decades. We’ve seen the scale that they’ve reached, and I think that’s very much a model that we would like to replicate here.”
CUs have managed to grow year-on-year thanks to the backing of political parties, the government, churches and also the indirect support they receive from the EU.
“The UK government has made a substantial investment over a number of years with their CU expansion project, funded by the department of working pensions. It has helped CUs modernise and encouraged them to make their services more accessible and user-friendly,” McKillop explains.
“There is a recognition that CUs are worth supporting because they bring communities together and help alleviate hardships.”
A key part of US CUs’ success is the connections they build with employers, and the way they pull resources together to develop a largely single product offering. McKillop explains that UK CUs are trying to adopt and mimic the US’s tactics to learn from its success.
“The most successful credit unions in the UK, the US, Australia and Canada are those with partnerships with employers. When you have that direct connection, in essence a workplace community, there’s a trusted element because it is attached to the employer.”
ABCUL is focusing on increasing partnerships with employers that prove to be beneficial for both employers and consumers.If consumers have access to a CU via their workplace, they can make loan repayments and save money straight from their payroll. This in turn helps a CU’s confidence in lending to consumers.
As for employers, research has shown that by reducing money worries, CUs can increase productivity and reduce absence.
The single product offering
Another of ABCUL’s priorities is to tie in different financial services across CUs to produce a single product offering to consumers.
“A number of credit unions are working together to develop shared services and products. Over the next year, we will see more credit unions that have a similar product offering. Consumers will have a better understanding of what to expect when they come to a credit union,” reveals McKillop.
Alongside copying the US model, CUs are also planning to modernise their services, improving the quality of services and ensuring ease of access. ABCUL is behind the technological push for CUs to adopt technology for increasingly digitally aware consumers.
Several CUs have looked into security and privacy considerations to potentially make their services accessible to third-party sites.
“Social media is one of the best ways to connect with both existing and potential members. Although there is a lack of budget for a full-blown national marketing campaign, there is recognition that spending money on social media marketing is money well spent,” says McKillop.
CUs were affected both positively and negatively by the financial crisis. In the immediate aftermath of the crash, the number of consumers moving money to CUs grew as a result of a loss of faith in the financial sector.
“The flip side of that is that growth of deposits hasn’t followed the growth of loans, with some CU members less inclined to borrow. Furthermore, the financial crisis has diminished another of CUs’ revenue streams. Variable interest rates meant that the reserves deposited by CUs into banks or building societies received very low returns,” says McKillop.
To counteract this lack of lending, CUs have tried to modernise services to attract a new generation of borrowers.
“CUs’ consumer base is typically skewed in favour of the older generation. However, we are trying to change that by catering to the needs of both the current as well as the next digital savvy generation. They are looking for financial products and services that can be accessed remotely, via smartphone.”
