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Membership surges as credit unions welcome banking outsiders

U.S. credit union membership has climbed sharply even as the number of credit unions has fallen in recent years. In some instances, consumers disillusioned by traditional banking options and those who simply do not qualify for conventional bank accounts are turning to credit unions for their financial needs.

Even though the number of credit unions in the U.S. has fallen from 6,976 in 2012 to 5,562 in 2018, total U.S. credit union membership rose to 116.8 million in the third quarter of 2018. At the end of 2017, that number was 111.9 million.

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Hope FCU is based in Mississippi, a state where 16% of the population is unbanked and another 22.5% is underbanked, according to a 2017 Federal Deposit Insurance Corp. national survey.

But the credit union's membership at the end of the third quarter of 2018 was 47,569, which equated to year-over-year growth of 20.41%. CEO William Bynum estimated that 35% to 40% of its members did not have a bank account before they joined the credit union, and another 20% or so were relying on payday lenders and check cashers.

"Until the traditional financial institutions change their priorities and until the laws and policies adapt to outlaw some predatory practices, we are going to remain an attractive option for many people," Bynum said in an interview.

Another factor that appears to be boosting credit union membership growth is consumer disillusionment with traditional banking options, particularly in light of incidents including the opening of unauthorized accounts at Wells Fargo & Co. that came to light in 2016.

The Federal Reserve's most recent Survey of Consumer Finances showed that households that based their choice of financial institution on safety and reputation were much more likely to select credit unions than they were in 2007. "The sharp rise in the likelihood of selecting a credit union on the basis of less tangible qualities such as safety and reputation provide a strong indicator that households view the credit union model with growing esteem," said the National Association of Federally-Insured Credit Unions in a 2018 report.

In other cases, consumers are opening accounts with credit unions and traditional banks.

First Technology FCU, based in San Jose, Calif., experienced 8.4% year-over-year membership growth at the end of the 2018 third quarter. President and CEO Gregory Mitchell said that despite some of the concerns with service experiences and other issues, Americans continue to favor large money center banks.

"While First Tech is seeing growth in new membership, with a number of new members choosing First Tech as their primary financial institution, we know that many of these members continue to maintain relationships with other financial institutions," he said.

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South Dakota saw one of the highest year-over-year jumps in credit union membership at 2.59%. The state's median household income in 2018 was $57,137.

Jeff Olson, president and CEO of the Credit Union Association of the Dakotas, attributed the growth to the health of the local economy.

"This market has experienced fast and significant economic growth in recent years due to a strong local job market [and an] abundance of educated and skilled workers," he said in an interview. "Also, it's becoming a large regional healthcare center."

And of course, some credit unions attribute their membership growth to the quality of service they provide members.

Fairfax, Va.-based Apple FCU had 207,251 members and 5.14% annual growth at the end of the 2018 third quarter.

"Our member growth is driven by how attractive our key value elements of price, service and convenience are to each prospective member," said President and CEO Andrew Grimm.

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Click here for a template that allows you to quantify the value that a credit union is delivering to its members relative to a custom peer group.

Click here to view a webinar on the member value peer score template.