For years, Canada’s credit unions have lobbied Ottawa to let them go national and compete with the major banks. In July, Finance Minister Jim Flaherty released draft rules that would finally allow that. Expanded credit unions, hitherto regulated by the provinces, would be overseen by the federal Office of the Superintendent of Financial Institutions.
British Columbia’s Coast Capital Savings and Ontario’s Meridian Credit Union led the charge to move to a federal regime, a move originally announced in the 2010 budget. Unsurprisingly, they look best poised to capitalize on the proposed changes. “It’s important to have a made-in-Canada, national alternative to the large banks,” says Coast Capital CEO Tracy Redies. “Chartered banks by their nature have to be more focused on shareholders and quarterly returns. In credit unions, our customers are our shareholders.”
Credit unions’ feel-good, cooperative structure doesn’t mean they will be timid about stealing customers from chartered banks, though. Banks lag behind credit unions in customer satisfaction, according to yearly surveys by global market research firm Synovate.
“The interesting markets for us are those where there are large bank markets,” says Redies. That means Ontario, which has low credit-union membership compared to other provinces. Nationally, credit unions account for 15% of deposits, 12% of residential mortgage originations and 19% of lending to small and medium-sized businesses, according to the Canadian Bankers Association.
Federal oversight won’t change the banking landscape overnight. Rather, it’s the next step in an evolutionary process. Credit unions have long been moving away from the hyper-local, one or two-branch model and consolidating, in some cases expanding province-wide, as Alberta’s Servus did in 2008. Credit union centrals, the wholesale institutions that provide lending, payment processing and other services to credit unions, have also amalgamated in recent years.
If the changes go through, Meridian will consider a merger with another, unnamed credit union from outside the province, says its CEO, Sean Jackson. Other credit unions have already got around provincial limitations in creative ways. Desjardins is active beyond Quebec through affiliated insurance companies. And Vancity Savings, Canada’s largest credit union, operates an online banking subsidiary, Citizens Bank, in multiple provinces.
The industry has until late August to comment on the proposed changes. If adopted, a national regime will likely lead to a financial services mix that includes a few credit unions with coast-to-coast ATM networks, making them a viable option for a wider group of customers. “There are markets where customers aren’t satisfied with their banks,” says Redies. “Hopefully, the national framework in legislation will be sufficient for us to challenge them in [those] markets.”