Home / Focus / Banking & Finance March 2013 / Smaller financial institutions look to single, branded checking account to expand

Smaller financial institutions look to single, branded checking account to expand

Tucson-based Altier Credit Union was the first in Arizona to offer its customers a checking account called "Kasasa." Some credit unions hope to bind together to use the branded account to expand their reach beyond the 6.7 percent of all financial assets such institutions hold now. (Photo by Ryan Cook/RJ Cook Photography)

In 2012, credit unions nationwide added 2 million new customers, earned a higher rate of return on their assets and saw delinquency rates decline compared to 2011.

The improving economy has contributed to their success, but they say the growth is also a result of their determination to grow. Credit unions have grown through mergers — borne out of necessity — and by attracting new members in greater numbers than ever before.

“We need scale in order to survive,” Robert Ramirez, president and CEO of Tucson-based Vantage West Credit Union, said in an email.

To remain profitable in a fiercely competitive, onerously regulated market, growth through mergers and attracting new members is necessary, Ramirez added.

The roughly 7,000 credit unions nationwide, however, have remained stuck for the past 20 years with a small, relatively unchanged share of the overall market.

In 1992, credit unions held 5.6 percent of all financial assets in the country, according to the Credit Union National Association (CUNA), an industry advocacy group. That figure had risen to only 6.7 percent by the end of 2012.

Although Arizona credit unions took the top spot in the nation for the amount of income they earned relative to their assets in 2012, they ranked near the bottom in terms of membership growth, according to the National Credit Union Administration (NCUA), the federal agency that regulates the industry.

Some credit union CEOs are more hopeful about membership growth, thanks to a new kind of checking account called “Kasasa.” Brand recognition is mainly what Kasasa is about.

BancVue, a Texas-based banking products and services firm, launched Kasasa to help credit unions and community banks better market themselves. The idea is that if three to nine financial institutions per state offer checking with the same name, they could pool their marketing budgets to get greater advertising reach from one large buy rather than several smaller ones.

Credit unions and community banks nationwide offer Kasasa, and BancVue is continuing to attract new institutions to the product.

Kasasa is intended to level the playing field with multi-state, mega- banks, which each have a marketing budget greater than $50 million, said Brooke Firchow, BancVue marketing director.

The credit union movement
Growing membership has always been a focus of credit unions. It stems from the industry’s cooperative nature where members are also owners.

Since President Franklin Roosevelt signed the Federal Credit Union Act into law almost 80 years ago during the Great Depression, the mission of credit unions has remained the same: people helping people to save and to borrow responsibly.

“It’s kind of a cliché term ‘people helping people,’ but that really is truly what the credit union movement is all about,” said Bob MacGregor, president and CEO of Glendale-based Credit Union West.

It started with farmers lending money to other farmers, and has grown to incorporate a broader cooperative spirit of ownership, where the managing board and audit committee are made up of member volunteers, MacGregor said.

Marketing was more grassroots not too long ago, too, with members recruiting potential members face-to-face, said Amy Graham, spokeswoman for Credit Union West.

But credit unions have changed a lot, added Graham. One of the biggest misunderstandings now is that credit unions can’t compete with banks on the technology level, she said. “There are a lot of credit unions that have a great online presence.”

Another aim of the Kasasa checking account is to move users of paper statements into doing their banking online. Bringing existing members and new members online is a reason why Harry Mateer, president and CEO of Altier Credit Union in Tempe, decided to start offering Kasasa.

“More and more growth is coming from the online banking channel, Mateer said. “And the Kasasa product fits with our direction.”

Starting in mid-January, Altier was the first credit union in Arizona to offer Kasasa. By the end of February, Altier had converted 130 of its existing members to Kasasa and had opened 30 new Kasasa accounts. Altier has about 17,000 members. A Kasasa account is federally insured and subject to the same regulations as any other account on Altier’s books.

How Kasasa works
Kasasa offers account holders a 2.5 percent interest rate each month as long the card holder uses the associated debit card for purchases at least 15 times during that month. The interest rate drops to .03 percent if fewer than 15 purchases are made, but Mateer noted that there is no penalty either way.

“It’s a true free checking account,” Mateer said. “Even if you don’t make your 15 swipes…you don’t all of a sudden find out that there are charges.”

The high rate of interest is paid in part by the roughly 20-cent fee merchants are charged each time someone uses a Kasasa debit card to pay for something, and by the money a financial institution saves when a member agrees to receive banking statements solely online. Altier saves about a dollar each month per account with online-only statements, Mateer said.

The big banks have the ability to offer a product similar to Kasasa — they realize the same revenues from debit transactions and on online statements — but they see it slightly differently. “They look at it…in terms of how much they can make from it,” Mateer said.

Mateer likes to make profits, too. Before coming to Altier, he worked for 30 years in international banking in New York City. But he says Kasasa is not intended to be so much a profit center in itself, but a tool to help his institution persuade members to use Altier for all their financial needs throughout all tiers of their life.

Is Kasasa truly free?
Paul Hickman, president and CEO of the Arizona Bankers Association, had not heard of Kasasa before, but agreed that, barring any anti- trust problems, pooling marketing dollars is a smart idea.

“It gives them the economies of scale to compete with the larger institutions,” whether a large bank or a large credit union, Hickman said.

“There are some very large credit unions as well. I wouldn’t think that they need to pool their advertising dollars,” he added.

Hickman agrees that banks do look at things differently from credit unions. But he said the fact that credit unions are requiring an account holder to use the Kasasa debt card 15 times and agree to online banking proves that the account is not truly free.

“The innovation here is the pooling of their marketing dollars, not necessarily the product,” Hickman said. He added that big banks can and do offer free checking.

“Seventy percent of Americans use debit cards on a daily basis,” Hickman said. “To get to that point of market penetration was not cheap, and it wasn’t easy, and it wasn’t government-funded.”

Most of the technology that went into debit cards, ATMs, and online commerce was developed by the banking sector, not the credit union sector, Hickman added.

Both Wells Fargo and JP Morgan Chase Bank have a policy of not commenting on products offered by other financial institutions.

Customer satisfaction

Despite paving the way for online banking, banks in general, and particularly the big banks, still struggle with customer satisfaction when compared to credit unions. Even though customer satisfaction at credit unions fell in 2012, it still remained well above the satisfaction levels at the big banks, according to the American Customer Satisfaction Index.

Taken together, credit unions scored 82 out of 100 on the satisfaction index in 2012, down from 87 the year before. Banks, large and small, scored 77.

Of the four largest U.S. banks, Bank of America, had the lowest score at 66 in 2012. JP Morgan Chase had the highest at 74, an increase from 70 the year before.

Winning the ‘war’
Firchow, the BancVue marketing director, said the company had been planning the Kasasa product long before the 2008 financial crisis.

However, the negative press that big banks garnered during the time created a “perfect storm” for launching the account.

BancVue launched the Kasasa account in 2009 with 10 financial institutions, credit unions and community banks from Connecticut to Idaho. Today, about 150 financial institutions offer a Kasasa account. BancVue hopes to eventually have Kasasa offered at 500 financial institutions across America.

“Our mission we like to say, is to ‘win the war’ against the mega- banks,” Firchow said.

That war is being fought to a large extent with marketing dollars.

Research shows that more consumers would bank with a credit union if they thought that credit unions had products comparable to the mega- banks, Firchow said.

Kasasa is BancVue’s answer to helping break down that “misperception,” Firchow said, by giving those consumers a reason to take another look at their local credit union.


Top five credit unions nationwide by assets:

Credit Union      State      Total Assets      Total Loans

(billions)             (billions)

Navy                    VA          $46.9                    $30.8

State Emp.          NC           $23.7                    $13.7

Pentagon             VA          $15.0                    $13.6

Boeing Emp.       WA         $10.0                    $6.8

SchoolsFirst       CA          $8.8                        $3.3

— Source: National Credit Union Administration

Arizona credit unions with $100 million or more in assets

Credit Union                        Assets* (millions)        Members

Desert Schools                    $2,900                           326,401

Arizona State                       $1,295                            124,216

Arizona                                   $1,270                           171,825

Vantage West                       $1,116                             111,662

Truwest                                  $769                                56,664

Hughes                                   $559                                62,811

Credit Union West             $450                                48,087

First                                         $397                                43,819

Arizona Central                  $396                                 54,426

Pima                                        $357                                 51,282

Tucson                                   $318                                  45,786

Sunwest                                 $248                                  37,047

A.E.A.                                    $231                                   41,950

Deer Valley                         $206                                   16,606

Aero                                      $193                                    18,586

Altier                                    $163                                    17,460

American Southwest      $157                                  20,252

Tucson Old Pueblo          $133                                   13,020

Tempe Schools                 $130                                   18,516

Canyon State                     $129                                   18,218

*Rounded to nearest million

— Source: National Credit Union Administration


What differentiates a credit union from a bank?

Members must come from the credit union’s “field of membership,” typically a geographic or employment restriction.

Credit unions are not-for-profit, that is, they pay no federal or state taxes on the cooperative’s profits, but they do pay payroll taxes, real estate taxes, and other use taxes.

Account holders are member/owners who vote for the board of directors of a credit union.

The mission of a credit union is to serve members and the community, unlike stockholders who may or may not live in the community.

Profits are re-invested to lower borrowing rates and raise saving rates for members.

The National Credit Union Administration regulates, charters, and insures federal credit unions, and is an independent agency of the U.S. government.

The shares/dollars in a credit union account are insured by the National Credit Union Share Insurance Fund, which is backed by the full faith and credit of the U.S. government.

The Credit Union National Association is the industry’s advocacy group and is based Washington, D.C.


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