Changes in the banking landscape



Millennials are making unintended waves in the personal banking world and have even been mentioned by one of Michigan’s oldest banks as the root cause of its recent decision to close several branches in the Lower Peninsula.

In its year-end report, Independent Bank of Ionia said it was closing six branches, including one in Newaygo County’s Croton Township.

Independent Bank’s president and CEO, Brad Kessel, said, “The ways in which we interact with our customers continues to evolve. Branch transaction volumes are declining, while mobile and other electronic channels continue to experience greatly increased usage.”

He added those changes have caused the bank to “make necessary adjustments in response to these changing transaction patterns.”

Granted, millennials aren’t the only age group fixated on their smart phones, but they are more likely to be than their parents.

Millennials are making a difference at credit unions, too.

“We are a small- to moderate-sized credit union, but in the last couple of years, our membership has grown and it has been growing very much in that under-30 segment,” said John Buckley, president and CEO of Gerber Federal Credit Union in Fremont.

Buckley said there is inherently a “social mission” that every credit union lives by and “that appeals very much to millennials.”

He said the average age of a credit union member across the state is 48. “Ours is 42,” he added.

The most striking thing about the millennials is how they access their financial services, according to Buckley.

“We see that convenience is king,” he said. “They want to have access to their money on their schedule, not necessarily our schedule. The old 8-to-5 works for some folks, but for the next generation, that’s not how they are used to things. They are used to wanting it now, wherever they are, whenever.”

Millennials don’t want to have to drive to their bank or credit union to deposit a paycheck, said Buckley.

“They take a picture of their check, send it through a mobile app, and then it’s there.”

Of course, that’s true at larger credit unions, too — such as Lake Michigan Credit Union in Grand Rapids, the second largest in Michigan in terms of membership. Another large CU is Genisys, based in Auburn Hills, which has branches in Michigan, Minnesota and Pennsylvania.

At Genisys, “technology has been at the forefront” lately, according to Tom Alter, senior vice president and chief marketing officer.

“We have seen member use of our mobile apps grow tremendously in the last year. Over one-third of our checking-account holders use their mobile devices regularly to check balances, transfer funds, deposit checks and pay bills.”

Buckley said Michigan is a powerful credit union state.

“In Michigan, there is a strong credit union presence. I think about half the population of Michigan is a credit union member. In other states, it is not nearly that high,” said Buckley.

As of last Sept. 30, there were 280 credit union organizations with 4,726,090 members in Michigan, and they gained 55,355 new members during the third quarter of last year, according to Maureen Lafrinere, marketing manager at Michigan Credit Union League.

Perhaps the industrial history of Michigan is a significant factor in the state being a credit union stronghold.

Gerber FCU was founded in 1950 to serve employees at Gerber Baby Food in Fremont and was exclusive to them for about 30 years, according to Buckley. Then the company began expanding with the addition of other plants in distant states, and in 1995, other employee and organization groups were allowed to join Gerber FCU, which today has 13,100 members and total assets of just less than $126 million.

According to the federal government’s National Credit Union Administration, credit unions were first formed in Europe during the 19th century — not as profit-making businesses but as depository institutions that served their members as credit cooperatives.

The first one in North America was started in Quebec Province in 1900 by a court reporter who was aware of the outrageous interest rates charged by loan sharks. He started a credit union to provide affordable credit to working class families. In 1909, the first one in the U.S. opened in textile mill town Manchester, New Hampshire, affiliated with a Catholic church attended by many Franco-Americans.

By 1930, 32 states had adopted credit union laws, and there were more than 1,100 of them. In 1934, President Franklin Delano Roosevelt signed the Federal Credit Union Act. In 1970, Congress established the National Credit Union Share Insurance Fund to protect members’ deposits.

The NCUA reports that few credit unions failed in the past, but the financial crisis of 2008 and 2009 was an unprecedented threat to credit union stability and the entire U.S. financial industry. Many of the largest corporate credit unions had invested in the troubled mortgage-backed securities, and five corporate credit unions quickly became insolvent.

Corporate credit unions, also known as central credit unions, provide services to regular credit unions and have been referred to as “the credit union’s credit union,” according to Wikipedia.

Ken Ross, executive vice president and COO at Michigan Credit Union League, said Michigan credit unions are now adding new members from “the unbanked population as well as former bank customers” who are looking for lower loan rates and fees. About 100,000 new members were added by Michigan credit unions in 2014.

“Deposit market share is also growing, jumping from 12.3 percent in 1994 to 15.8 percent in 2003, to 19.1 percent in 2013. At a time when many Michigan banks cut back on business lending, credit union member business loans have soared from $192.7 million in 2004 to $1.4 billion at the end of the third quarter of 2014,” said Ross.

Michigan credit unions saw their year-over-year business loans increase by 17.3 percent by the end of the 2014 third quarter, according to the MCUL.

Despite the gains, no one is predicting credit unions are going to put banks out of business.

“Although credit unions have gained market share from banks in Michigan in terms of household deposits and various lending categories, on a macro basis credit unions remain very consumer-focused lenders, with less than 7 percent of all depository institution assets nationwide and less than 2 percent of total financial services industry assets,” said MCUL CEO David Adams.

According to Adams, depository institutions, including credit unions, “have given way to mutual funds, insurance companies and finance companies as well as independent mortgage lenders like Quicken Loans and the government-sponsored enterprises (Fannie Mae and Freddie Mac) who hold the majority of outstanding mortgage loans.”

“In fact,” added Adams in an email to the Business Journal, “large banks chartered outside Michigan have gained huge market share in Michigan and nationally (i.e., PNC, Comerica, Citibank, Bank of America). Locally owned credit unions have fared well, and it is true that membership and market share are growing for credit unions, but the mega-banks and non-depository financial institutions (i.e., Fidelity, Ally Bank, Quicken Loans, etc.) continue to dominate the financial services industry.

“Credit unions cater to middle-class working households who find value in the lower fees and favorable rates and high levels of services offered by credit unions,” said Adams. “But there is plenty of competition in the financial services industry, and excellent providers, regardless of charter type, will continue to do well. Consumers benefit from the vast array of providers in this very competitive marketplace.”

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