What it takes to beat megabanks

CNN Money recently reported that three of the nation’s largest banks (JPMorgan Chase, Bank of America and Wells Fargo) collected more than $6.4 billion in ATM and overdraft fees from customers last year. In fact, when JPMorgan raised their ATM fees by 50 cents at the end of 2015, they increased ATM fee revenue by 22 percent in 2016. Not surprisingly, consumers are not happy about it.

But, megabanks have no plans to ease up on fees. The three banks mentioned above collected almost $300 million more in fees last year than the previous year, and it’s reasonable to expect an increase in fees this year.

According to the 2016 Kasasa Explores survey, an April 2016 study, commissioned by Kasasa and conducted online by Harris Poll among over 2,000 U.S. adults, the vast majority of consumers (96%) say ‘no fees banking’ is important when choosing a financial institution for their everyday banking needs.

Additionally, customers whose primary checking account is at a megabank are twice as likely as those whose primary checking is at a local  community bank/credit union to feel scammed by fees their bank charges (36% vs. 14%), and 23 percent of customers with a primary checking account at a megabank say more or higher fees are a disadvantage of their primary bank over other banks, according to findings from Kasasa’s 2015 Consumer Banking Insights (CBI) Study.

This is all good news for credit unions. Membership is growing at a faster rate compared to other financial institutions, according to a report last year from TransUnion. Consumer sentiment and the increase in fees imposed by megabanks may be one cause for this recent membership growth. During the first quarter of last year, credit union membership grew three times more than at other institutions. A lot of that growth is attributed to Millennials. During that same quarter, 25 percent of members were Millennials, compared to 20 percent in the first quarter of 2013.

Overall, USA Today recently reported that credit unions have gained nearly 15 million new members in the last five years, but banks still hold greater market share. However, as banks increase fees, credit unions have an opportunity to capitalize on consumers’ dislike of those fees and further increase membership. Nearly 84 percent of the nation’s largest credit unions offer free checking, and almost all do if including accounts that are free when members agree to certain criteria, such as direct deposit, according to a survey by bankrate.com. Just slightly more than a third of large banks do the same.

However, if credit unions want to continue to take on the megabanks, it will take more than just no fees. Take, for instance, Millennials (ages 18-34), which make up the largest generation in American history. Millennials are a crucial market segment for credit unions to attract, engage and retain. While one-fourth of membership growth in the first quarter of last year was attributed to Millennials, Millennial growth among non-credit unions was slower, according to TransUnion.

Millennials, however, have greater expectations beyond no fees. According to the Kasasa Explores survey, rewards are important to Millennials too. Roughly eight out of 10, or 83 percent, would switch banks if one offered more or better rewards than another, such as high interest rate on checking, cash back on purchases, and yes, ATM fee refunds. Nearly two-thirds of Millennials (65%) would be more open to switching to a community bank if it offered mobile services, like a mobile app or mobile deposit. The survey did not include the option for selecting a credit union, but we assume the preference was for smaller institutions in general (community banks and credit unions) over megabanks. Additionally, locally-owned is important to this segment. Nearly half of Millennials (46%) say local is important when choosing a financial institution for their everyday banking needs.

While no fees, rewards and location may be critical factors for increasing membership, credit unions cannot rely on Millennials – or any other generation – to become aware of local institutions on their own. It takes strategic advertising and marketing to raise awareness, which can be challenging when competing with megabanks. Bank of America, for example, spends about $1.6 billion annually on media, according to AdWeek. Credit unions can’t match that.

Instead, credit unions can partner with a nationally recognized brand to capture greater visibility. But the key word here is visibility; not acquire new members. Credit unions must get their attention, and then offer a reason to switch financial institutions. By recognizing what consumers really want and strategically marketing to them, credit unions can take back the majority market share they previously held. Meanwhile, big banks will continue to impose more fees and potentially lose more customers.