"Wondering why so many small businesses use banks, when it seems credit unions are a match made in heaven. Comments welcome!"
My attention was drawn to this issue by "Bank Transfer Day," the latest American-based protest against financial institutions. It’s not officially related to the Occupy movement, but appears to be an off-shoot to some extent. On Saturday November 5, what started as a Facebook campaign saw an estimated 650,000 customers in the U.S. shift their money into member-owned, co-operative credit unions.
Some Canadian credit unions wondered if the American day of protest would inspire people here in Canada to do the same. The Toronto-based Alterna Credit Union decided to open its Toronto and Ottawa branches that Saturday in anticipation of a flood of new customers.
"Nothing happened," says CEO John Lahey.
What’s up? Setting aside the differing levels of outrage with financial institutions on either side of the 49th parallel, even ignoring this recent movement, it seems clear to me that credit union membership in Canada doesn’t reflect the natural affinity that exists between small businesses and credit unions.
It’s like knowing two single people who want a relationship, and they appear to be ideally suited! Maybe it’s the frustrated match-maker in me, that I can’t help but point out credit unions and entrepreneurs should be hooking up in a big way!
There’s a connection now, to be sure, but it’s not that big. According to a soon-to-be-released study conducted by Ipsos Reid, just 18 per cent of small- and medium-sized business owners/operators in Canada use a credit union for at least some of their business banking needs.
Why are four out of five entrepreneurs choosing to align themselves with giant banks, instead of smaller, more like-minded financial institutions like credit unions? The fit seems like a no-brainer.
Next to the Royal Bank, credit unions are the biggest supplier of credit to small business people in Canada. They often lend based on character, drive and passion — there’s no box to check for those attributes on the big banks’ official application forms. Yet most Canadian entrepreneurs remain unconvinced of the benefits of doing their banking with a credit union.
It is true that some have joined credit unions over the years. Research done by the Canadian Federation of Independent Business shows that membership climbed by 96 per cent over 20 years. That statistic — 96 per cent – may look impressive at first glance. But over 20 years? That’s a heck of a long time.
This just doesn’t jive for me. Of course there are some ways in which banks outperform credit unions. Not every credit union has a commercial lending specialist, for example. One entrepreneur I spoke to had the opinion that banks offer a better on-line and mobile experience than his particular credit union. But overall, I still find myself thinking about the old homily about "birds of a feather flock together."
"I like our credit union because if you need a loan, you call them up, they have your information," says Adam MacLellan, who helps run his family’s dairy farm and trucking company in Tyne Valley, PEI. "It's not like CIBC or RBC where you need to fill in applications, meet all kinds of guidelines. If we need new equipment or new truck, we know within minutes if we have that."
Regina’s Jackson Middleton feels the same. He opened his own mortgage brokerage two years ago.
"I find that the big banks are just corporate and really don’t try to help out the little guy," says Middleton. "Plus we’re in Saskatchewan and everyone uses the credit union!"
Saskatchewan…right. It’s important to point out the regional component to this phenomenon.
"Market share in places like the Prairies and the lower mainland in British Columbia is pretty high," explains John Lahey of Ontario’s Alterna. "It's a result of historical factors. On the Prairies they’ll tell you the banks abandoned them during the depression, so the credit unions there are larger and more robust financially than in Ontario."
"[Ontario's] history is very different. By and large, we emanated out of employment locations, in our case the federal civil service and the City of Toronto employee population."
But Lahey says during the 80s those big employers became less comfortable with offering employees just one institution, and since then, credit unions in big parts of the country have had to battle it out in the marketplace, going up against big banks with big marketing campaigns.
And that may be, in part at least, the answer to why credit unions are bigger in some regions of Canada.
In response to my tweet, inquiring about entrepreneurs still favouring banks over credit unions, I got this response from someone with the Twitter name "common tator1" in New Brunswick : "As a long time credit union member/director, my sense is that we haven't done a good job of telling small business."
So what about that then? Is it true that the low credit union membership in some regions of Canada is due to a failure of marketing?
"Could we do more if we had a larger budget? Sure," says Kim Andres, "But we are pretty happy with what we have accomplished with very little mass market advertising or promotion."
Andres focuses on small business for the Canadian Business Owner Strategy Steering Committee. The CBOS is an association of about 60 credit unions from across Canada, and represents over 70 per cent of the national assets outside of Quebec.
She says a national marketing campaign may be the most cost effective strategy, but that "local relationship-building" is more aligned with credit unions' focus on communities.
The credit union movement did spend on a national advertising campaign and couple of years ago, targeting small business-people. "But then we ran into the recession and it was hard for credit unions to justify the expense at that point," says Art Chamberlain of the Central One Credit Union.
Well, if Canada’s credit unions are satisfied with their growth and reach, maybe I’m being too pushy in terms of expecting more from them. My viewpoint likely comes from hearing so many entrepreneurs' complaints about banks over the years, and believing that if small businesses had better access to credit, via a more simpatico relationship with credit unions, it would allow them to do even more in terms of job creation in Canada.
It reminds me of a little plaque I saw on the desk of Citytv founder Moses Znaimer, way back in the 80s when I worked as a writer for the summer at CityPulse News. It read "A funny thing happens when you don’t promote. Nothing."