Why credit unions are rebranding
With so many credit unions changing their names, we ask what this means for members and customers.
Over the last three years more and more credit unions have registered to change their trading names with the Australian Prudential Regulation Authority (APRA).
One of the latest credit unions to follow in this trend is Greater Building Society, now known as Greater Bank, which switched brands earlier this month. Chairman Wayne Russell said the focus of the name change was to strengthen the brand and build a sense of trust normally associated with traditional financial institutions.
“Using ‘bank’ takes the work out of explaining what we do as it is well understood and makes sense to customers of all generations,” Russell said in a press release.
Similarly, Queensland Police Credit Union (QPCU) CEO Grant Devine said the decision to change the credit union’s name to QBANK was based on the public’s understanding of the term "credit union".
“The term ‘credit union’ doesn’t mean as much to people these days, and we believe our new trading name will clearly explain what we do and who we serve,” he told Australian Broker. The new trading name QBANK is expected to be effective from 1 July 2016.
But is there more to it than a name change? We take a look at the top credit unions in Australia and why they may be heading in this direction.
What’s the difference between credit unions and listed banks?
The key difference between credit unions and banks is that credit unions are customer-owned while banks are owned by shareholders. Historically, credit unions were set up to help workers access banking services and products without incurring high rates and fees associated with banks.
When you sign up to a credit union, you become a member and owner, but when you sign up to a bank, you are a customer. Member savings and deposits are put into a pool which finances their member’s loans. Generally, rates and fees associated with credit unions are also lower than banks.
What happens when credit unions trade as banks?
When credit unions change their trading name, it doesn’t necessarily mean ownership moves to shareholders (as with banks). In fact, the largest customer0owned bank, Heritage Bank, started as a credit union. Formerly known as Heritage Building Society, in 2009 it passed $7 billion in assets, and in 2011 it changed its name to Heritage Bank.
Customer-owned banks (sometimes called mutual banks) are owned by their members. They offer consumer bank services such as loans, savings accounts, internet banking, term deposits and more.
Data released by the Customer Owned Banking Association (COBA), the industry advocate for Australia’s mutual banks, shows it is now a $92.3 billion sector. This suggests mutual banks are becoming more commonplace in Australia.
Credit unions that are now trading as customer-owned banks include:
Common reasons for rebranding
There are various reasons why credit unions move towards trading as banks.
Typically, credit unions or any deposit-taking institution in Australia (ADI), must qualify to trade as banks. One qualifying factor is that the ADI must have a minimum of $50 million in assets. This suggests credit unions request to trade as banks from this point in order to receive the necessary support in managing growing assets.
Consumers often ask, is it safe to open an account with a credit union?
Yes. Credit unions and all ADI’s are regulated under the Banking Act which means they are bound by the same regulatory bodies as banks.
There has been research to suggest that the terms "credit union" or "building society" may be too ambiguous for the general public. Although credit unions may offer a range of financial products and services loans, savings accounts and credit cards, their role may not be clear to others looking for a place to manage their funds.
The Defence Bank, formerly known as the Defence Force Credit Union, has seen an 11% growth in lending over the last five years. This can in part be attributed to its trading name change which also occurred five years ago. Defence Bank chief executive, Jon Linehan told Australian Banking Finance that there is a “perception that banks are more secure than credit unions”.
In other cases, the need to keep up with the changing environment brought on by technology has been cited as a reason credit unions may need to trade as banks. Lineham believes more credit unions will consider the change in order to support growth.
“Inevitably, you will get the overwhelming majority of credit unions becoming banks since the bank title offers such big advantages," he said.
With consumer banking services increasingly taking place online and most recently on smart devices like Apple Watch, merging may be necessary to support product development in line with this trend.