Via some completely non Sydenham networks, I've been approached for thoughts I might have on how a Credit Union - in another part of the country - should be marketing itself. Well, I have some ideas, starting from some competitor analysis - e.g. why should people use alternatives to Credit Unions instead, such as High Street banks or organisations such as the Money Shop, which is hoping to set up at 59 Sydenham Road. The location, on the corner opposite the NatWest, has been making me wonder for while about why UK banks don't see the same profit opportunities as the US quoted Dollar Financial Corp, owner of 'The Money Shop'. http://phx.corporate-ir.net/phoenix.zht ... highlight=
And for customers, why aren't Credit Unions a more attractive offer? Any experience with them, positive or negative - probably best to pm with anything negative.
Credit Unions vs. High Street banks vs. Money Shops etc.
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
Hi Tim,
I understand banks. They invest money on behalf of their shareholders and are now generally called Santander.
I understand Building societies. They invest money on behalf of their members and are now generally called Nationwide.
In reality they are similar aside from the fact that one sucks money from the public and laughs back at them and the other one doesn't (I'm being controversial on purpose Tim!)
I don't really understand what Credit Union is (and the name credit and union kinda put me off and there are no known trustworthy brands I recognize, money and trust are important).
So I'm put off before I even try to find out more.
I understand banks. They invest money on behalf of their shareholders and are now generally called Santander.
I understand Building societies. They invest money on behalf of their members and are now generally called Nationwide.
In reality they are similar aside from the fact that one sucks money from the public and laughs back at them and the other one doesn't (I'm being controversial on purpose Tim!)
I don't really understand what Credit Union is (and the name credit and union kinda put me off and there are no known trustworthy brands I recognize, money and trust are important).
So I'm put off before I even try to find out more.
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Robin Orton
- Posts: 3380
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- Location: London SE26
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
Tim, why don't you talk to our local credit union Lewisham Plus, which started in Sydenham and is based at 262 Kirkdale? It is, I believe, thriving and expanding. See http://www.lewishampluscu.co.uk/
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
I am, and I spoke to them a while back. But I'm also interested in others' perceptions, and understanding why it's the Money Shop that is the more visibly expanding.
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blue&whitewizard1991
- Posts: 46
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- Location: Lawrie Park Road
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
Credit Union's are not for profit mutual organisations owned and run by and on behalf of their members (savers). As a result of this ownership structure they aim to strike a balance between being ethical and responsible on behalf of their members, whilst also securing their own financial stability through accruing interest on loans. This means they actively work to provide for the client group that are excluded from Mainstream banks but do so as affordably (to the customer) as possible. In this regard they directly compete with the likes of 'The Moneyshop' 'the provident' and other payday lenders, home lenders, who themselves cater for clients excluded by the banks but do so through a more predatory model.
The disparity in price is incredible. Moneyshop typically charge 260% and above APR Lewisham Plus Credit Union highest rate of borrowing is 26.9%. In a perfect market The likes of Moneyshops would not exist, but in reality there are so many market imperfections which mean that Credit Unions are restricted in their ability to compete with these other providers. These barriers include;
- Legislation and Regulation dictates that Credit Unions can only operate across a 'common bond' area. Typically this means no bigger than a local authority area. There are also several hundred credit unions that act on behalf of much smaller neighbourhood or common interest communities. This creates a fragmentation of organisations who all struggle to grow and capitalise, indeed when a credit union does grow and proffessionalise it cannot grow beyond its common bond. This legislation is soon changing and it will allow Credit Unions to provide services over much bigger areas.
- Being a mutual organisation all decisions are made democratically by there membership, this means that Credit Unions struggle to compete with private organisations in a dynamic market place. Decesions on lending policy, are made collectively and this menas that all decsions about approving loans must go through due process, unlike home lenders who provide money instantly.
- In the early years of their development Credit Unions rely on volunteers and government funding all of which slow down growth and the expansion of their service offer.
- Perhaps most importantly many customers excluded from mainstream banking suffer from poor financial capability. This means they find it difficult to compare prices, given a lack of understanding of industry terms like APR and they are much more likely to value services provided by The moneyshop that are immediate, and regularly available.
Given all these things. The moneyshop have many competitive advantages over credit unions despite there extortionate prices, hence why they grow much more quickly, and accrue so much more money through their higher margins . Until the government either legislates, or funds credit Unions or CDFIs to be able to compete with the likes of money shops in terms of scale and service offer.
The disparity in price is incredible. Moneyshop typically charge 260% and above APR Lewisham Plus Credit Union highest rate of borrowing is 26.9%. In a perfect market The likes of Moneyshops would not exist, but in reality there are so many market imperfections which mean that Credit Unions are restricted in their ability to compete with these other providers. These barriers include;
- Legislation and Regulation dictates that Credit Unions can only operate across a 'common bond' area. Typically this means no bigger than a local authority area. There are also several hundred credit unions that act on behalf of much smaller neighbourhood or common interest communities. This creates a fragmentation of organisations who all struggle to grow and capitalise, indeed when a credit union does grow and proffessionalise it cannot grow beyond its common bond. This legislation is soon changing and it will allow Credit Unions to provide services over much bigger areas.
- Being a mutual organisation all decisions are made democratically by there membership, this means that Credit Unions struggle to compete with private organisations in a dynamic market place. Decesions on lending policy, are made collectively and this menas that all decsions about approving loans must go through due process, unlike home lenders who provide money instantly.
- In the early years of their development Credit Unions rely on volunteers and government funding all of which slow down growth and the expansion of their service offer.
- Perhaps most importantly many customers excluded from mainstream banking suffer from poor financial capability. This means they find it difficult to compare prices, given a lack of understanding of industry terms like APR and they are much more likely to value services provided by The moneyshop that are immediate, and regularly available.
Given all these things. The moneyshop have many competitive advantages over credit unions despite there extortionate prices, hence why they grow much more quickly, and accrue so much more money through their higher margins . Until the government either legislates, or funds credit Unions or CDFIs to be able to compete with the likes of money shops in terms of scale and service offer.
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
Blue&whitewizard1991
That's really interesting and helpful.
I found this http://www.publications.parliament.uk/p ... eg/m03.htm which suggests that in anticipation of the banking crisis, the FSA decided to apply heavier touch regulation to Credit Unions, while a lighter one for the sort of High Street names which would have known what they were doing
Do you know what sort of regulator environment the likes of the Money Shop operate under?
That's really interesting and helpful.
I found this http://www.publications.parliament.uk/p ... eg/m03.htm which suggests that in anticipation of the banking crisis, the FSA decided to apply heavier touch regulation to Credit Unions, while a lighter one for the sort of High Street names which would have known what they were doing
Do you know what sort of regulator environment the likes of the Money Shop operate under?
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
So whats the difference between a credit union and a mutual building society?
I never saw the Moneyshop as an alternative to a bank/building society. Only as a way of getting short term cashflow from a legal loan shark, poised to take advantage of the most vunerable of people starting them off in a cycle of debt.
I never saw the Moneyshop as an alternative to a bank/building society. Only as a way of getting short term cashflow from a legal loan shark, poised to take advantage of the most vunerable of people starting them off in a cycle of debt.
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blue&whitewizard1991
- Posts: 46
- Joined: 23 Jul 2008 18:32
- Location: Lawrie Park Road
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
In truth there is very little to differentiate Credit Unions from Building Societies that have retained their mutual model. Its a real shame that so many Building Societies have demutualised into propreity companies, as along with Credit Unions they would able to combat illegal lending and predatory ( but legal) home lending practices.
What differentiates them is their historical origins, which has resulted in slightly different regualtory and legislative treatment. I must confess my knowledge of their consititutuional history is very shakey so probably worthy of further investigation - but it does appear that new changes to legislation 'The Cooperative and Community Benefit Societies and Credit Unions Act, 2010 ' will mean that Building Societies and Credit Unions will begin tor esemble very similar institutions anyway. The distinction as it stands at the moment includes:
- Building Societies have always been goverened by mortgage regulations as they were historically formed as mutual housing schemes, with other forms of financial product coming later. Credit Unions are principally savings/ persoanl borrowing institutions,typically they do not offer mortgages (whether they would be able to if they wished is another matter)
- Credit Unions have had to operate across smaller communities due to common bond legislation, Building Societies do not have this restriction even though they have historically retained ties to their area of origin. The relaxation of the Common bond through the act above will allow Credit Unions to broaden their geographical reach.
What differentiates them is their historical origins, which has resulted in slightly different regualtory and legislative treatment. I must confess my knowledge of their consititutuional history is very shakey so probably worthy of further investigation - but it does appear that new changes to legislation 'The Cooperative and Community Benefit Societies and Credit Unions Act, 2010 ' will mean that Building Societies and Credit Unions will begin tor esemble very similar institutions anyway. The distinction as it stands at the moment includes:
- Building Societies have always been goverened by mortgage regulations as they were historically formed as mutual housing schemes, with other forms of financial product coming later. Credit Unions are principally savings/ persoanl borrowing institutions,typically they do not offer mortgages (whether they would be able to if they wished is another matter)
- Credit Unions have had to operate across smaller communities due to common bond legislation, Building Societies do not have this restriction even though they have historically retained ties to their area of origin. The relaxation of the Common bond through the act above will allow Credit Unions to broaden their geographical reach.
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
It sounds as if the 'common bond' is key:
The economic significance will be that thanks to the common bond, Credit Unions should know their members, and the members will have an additional reason for not wanting to default. So their costs of gathering information and collecting on any problem loans will be much, much smaller than for relatively impersonal organisations, such as banks or even still mutual but big Building Societies such as the Nationwide. Such organisations can only offer credit easily if they have good security - which they used to think property was, but are now perhaps not so sure.
Since Credit Unions are more for small personal loans and savings, I guess they are in effect competing with:
* Credit card debt
* Overdrafts - from established High Street banks
* The 'Bank of Mum and Dad'
* The Money Shop and the like
If they are struggling to compete with the Money Shop it could be a reflection of the strength of effective 'common bonds' in our society breaking down, or increasing regulation - which might be justified for this very reason. And by an effective common bond, I have in mind working for an employer which is big enough to make association with a Credit Union worthwhile, and wants to have such an association.
http://encyclopedia2.thefreedictionary.com/Credit+UnionCredit cooperative formed by a group of people with some common bond who, in effect, save their money together and make low-cost loans to each other.
The economic significance will be that thanks to the common bond, Credit Unions should know their members, and the members will have an additional reason for not wanting to default. So their costs of gathering information and collecting on any problem loans will be much, much smaller than for relatively impersonal organisations, such as banks or even still mutual but big Building Societies such as the Nationwide. Such organisations can only offer credit easily if they have good security - which they used to think property was, but are now perhaps not so sure.
Since Credit Unions are more for small personal loans and savings, I guess they are in effect competing with:
* Credit card debt
* Overdrafts - from established High Street banks
* The 'Bank of Mum and Dad'
* The Money Shop and the like
If they are struggling to compete with the Money Shop it could be a reflection of the strength of effective 'common bonds' in our society breaking down, or increasing regulation - which might be justified for this very reason. And by an effective common bond, I have in mind working for an employer which is big enough to make association with a Credit Union worthwhile, and wants to have such an association.
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
I should have added anyone selling you anything with a monthly payment option. I've just renewed my home insurance, and I asked what the monthly payment terms were, and what the APR was. They said it was 14.5%, but by my calculations it was more like 35%, so I'm doing some fact checking. And this was a reputable company ...
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
As someone who for many years got paid for understanding interest rate calculations, I maybe make too much of this. Anyway, a manager at the company involved got back to me and confirmed the numbers on which I'd done the calculations, and also, inadvertently, confirmed that they didn't - or didn't want to? - understand what an APR was. What chance customers if even FSA regulated companies 'suffer from poor financial capability', in blue&whitewizard1991's language?
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Hill Dweller
- Posts: 500
- Joined: 4 Jan 2011 19:54
- Location: Upper Syd
Re: Credit Unions vs. High Street banks vs. Money Shops etc.
Just a quickie. The high interest rates would be more 'forgivable' if the lenders were the ones losing out when their bad risks go belly up and default.
I fear that it's more likely that the lenders still make their pile and the defaulters' debts are covered by other lenders that do pay up.
I'm not even sure why 'we' allow US-based companies to do their bleeding-dry here in the UK. Wasn't it Lehman that pulled that cornerstone out from the base of the debt pyramid and Dubbya that let it all fall down?
weeeeep
I fear that it's more likely that the lenders still make their pile and the defaulters' debts are covered by other lenders that do pay up.
I'm not even sure why 'we' allow US-based companies to do their bleeding-dry here in the UK. Wasn't it Lehman that pulled that cornerstone out from the base of the debt pyramid and Dubbya that let it all fall down?
weeeeep
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Hill Dweller
- Posts: 500
- Joined: 4 Jan 2011 19:54
- Location: Upper Syd
