Invention Test

Australian retail cash deposits are at a record high of $560 billion, an 8.9% increase for the year to March and 1.5% increase for the quarter to March, according to the latest CoreData Australian Cash report.

Credit unions, interestingly enough, have been growing at an above system rate of 10.1% for the year to March and 1.6% for the quarter to March 2011.

The CU market share, however, has remained at around 7.9% for the past five quarters having peaked at 9.0% in 2006 and 2007 before the onset of the GFC and the flight to the safety saw considerable leakage to the big four.

With the introduction of the Federal Government’s Deposit Guarantee, the outflow to the majors was stymied somewhat and depositors began to return to credit unions.

CoreData’s Investor Sentiment Index (ISI) suggests there is growing concern over another economic downturn – despite a booming mining sector.

It seems the rising interest rates, flat investment and housing markets, a possible double dip recession in the US and huge sovereign debt problems in Europe are concerning investors and many are comfortable watching from the sidelines with their portfolios heavily weighted to cash.

Additionally, the results of the ISI in recent quarters points to a change in consumer behaviour with (apologies to Ubank), saving now the new spending.

Consumers are increasingly frugal with their money, credit card debt is on the decline, retail spending is flat and conservatism is taking over.

This brings us back to the credit unions, traditionally a haven of quality service and low fees with all profits returned to members.

The banks have wised up, however, with many now offering fee-free banking. Plus, with the increasing dominance of internet banking, the need for personalised retail banking is diminishing.

Further, the Government’s deposit guarantee is set to end in October of this year. It begs the question of what impact this is going to have on credit unions, as consumers place more weight on fees and utility than ever before.

Will the removal of the deposit guarantee scheme see further leakage from credit unions to the perceived safety of the majors?

While deposits with credit unions have been on the rise recently, this is likely due to the traditionally older (baby boomer) membership reaching retirement age.

Credit unions must re-invent themselves to appeal to a new, younger demographic or risk becoming irrelevant in a fast-moving market.

The younger, tech savvy depositors care little for personalised service and are far more interested in the utility of online saving accounts enabling simple and easy access to high interest rates that are basically at call.

Give a Gen Y-er the option of banking for free, accessing high rates and doing their banking online versus the opportunity to speak to a friendly professional at a branch, it’s easy to see which option they’d choose.

Credit unions should take a lead from TV hit MasterChef and put themselves through an invention test to ensure their survival beyond the baby boomer generation.

It’s time to find out what is under the cloche.