Member News

August 28, 2015

Bay Area credit unions are upping their game to attract members through special promotions, new products and branch expansions.

The drive to get more members occurs as financial institutions grapple with growing regulations and the rising cost of talent.

As banks shed free checking in recent years, several credit unions in the region, including Patelco Credit Union and San Francisco Federal Credit Union, saw an opportunity to pitch checking accounts with no fees and no minimum-balance or direct-deposit requirements.

Pleasanton-based Patelco last year eliminated or reduced more than three dozen fees, spurring a 3 percent bump in membership as satisfied customers referred friends and family. On Patelco’s chopping block were photocopying and check-copying fees.

“The fees that were collected or not were so immaterial and were just so annoying to have them listed,” said Patelco CEO Erin Mendez, noting that the fee cuts totaled $800,000. Patelco also got rid of balance-transfer fees for its credit cards.

“Our mission is to help with the financial well-being of our members, and price is a part of that,” Mendez said. “I’m a believer in simplicity, because simplicity equals transparency and eventually transparency turns into trust.”

Next month, Patelco will debut a “no frills” credit card that won’t offer airline miles or other rewards for spending on the card. Instead, it will offer a “very low interest rate” and no annual fee so members can more quickly pay off card balances.

“In today’s world, everybody is so attracted to rewards,” Mendez said. “We’re trying to help people restructure their credit card debt. But you have to not care about rewards. You have to care about paying off debt.”

Patelco’s no-frills credit card may tap into the growing number of Americans who have decided that it’s time to pay off expensive credit card debt; the credit union’s credit card loan portfolio has been declining in recent months. Patelco said it will continue offering a credit card with rewards.

Redwood Credit Union President and CEO Brett Martinez cites its rewards program, which includes spending on both debit and credit cards, as a key contributor to membership growth. Redwood operates its own rewards program vs. outsourcing to a vendor, giving the credit union a great deal of control over the program’s features and customer service.

Redwood also cites its decision to be among the very few credit unions nationally to operate its own car dealership as another big draw for members. “Members who need a car, a loan and insurance appreciate the ease of using the service,” Martinez said. Redwood sells about 100 cars per month.

Earlier this year, Patelco debuted what it calls a “reverse money market account,” paying a higher interest rate on lower balance thresholds to reward small savers. Or as Patelco puts it, “You don’t have to be in the 1 percent to earn 3 percent.” The credit union pays 3 percent on the first $2,000, with the rate eventually falling to 0.20 percent as the balance goes over $100,000. Typically, the more a saver has on deposit at a financial institution the higher the interest rate paid. But 3 percent is well above what’s usually paid in today’s low-rate environment.

In an unusual move, Patelco automatically revamped each member’s money market account to earn the higher rates. Such specials are often limited to “new money” being deposited into a financial institution or made available only to existing customers that ask for the special rates.

“The conversion of existing accounts was the biggest surprise to the membership,” Mendez said,.

Tech CU, with more than 73,000 members, made a splash this summer with the opening of its first office in San Francisco, located near Twitter’s headquarters in the Mid-Market district. The San Jose-based credit union is also promoting unsecured loans to help San Francisco members raise the money for rental deposits, which can be a significant financial commitment in the city’s pricey rental market.

Fueling the growth of unsecured lending is the phenomenal success of marketplace lenders such as Lending Club and Prosper Marketplace.“The fintechs have enjoyed success in the unsecured market, so that is something we have taken notice of,” said Tech CU CFO Todd Harris.

Redwood Credit Union’s Martinez says it is also scouting for new branch locations in the Bay Area. But he’s not tipping his hand on where he’s hunting. Redwood’s membership growth clocks in at 5.79 percent this year vs. an industry average of 2.9 percent.

Bay Area credit unions are also participating in the rapid consolidation. In just the past decade, the number of credit unions in the region has declined 45 percent.

So even as credit union industry joins its banking brethren in mergers and consolidation, many see a bright future for the nonprofit providers of financial services. “A credit union is all about serving its member-owners and optimizing what it can do for them,” Patelco’s Mendez said.