Why Canadians are Choosing Credit Unions Over Traditional Banks
Credit unions are not a novel phenomenon in Canadian banking. In fact, they’ve been serving Canadians since the early 1900s. Today, over 1,600 credit unions operate in the country, providing citizens with an alternative to commercial banks.
These unions set themselves apart from traditional banks by offering affordable and people-centric financial services. They are quite good at what they do, given that over 10 million Canadians are members of credit unions.
Join us as we decode the reasons behind the popularity of credit unions in Canada.
How do Credit Unions Differ from a Bank?
A credit union is a non-profit cooperative business owned by its members. Once members join a credit union, they become not only customers but also part owners.
While traditional banks operate solely with the motive of growing deposits and earning profit, credit unions put their members first and reinvest all the gains into the union, distribute it as dividends to members, or donate it to the community.
Furthermore, these unions offer all the services a bank offers, including savings accounts, chequing accounts, low-interest loans, credit cards, digital banking services, and ATM access.
Why Canadians Prefer Credit Unions Over Banks?
Here are 8 reasons why credit unions are popular among Canadians:
1. Members Collectively Own Credit Unions
Canada’s commercial banking system comprises privately owned banks. These institutions operate primarily to earn profit for shareholders. However, when someone becomes a credit union member, they also become its part-owner, giving them a bigger stake in the institution.
A regular citizen could only negotiate interest rates or processing fees in banks. However, in unions, they have a say in the decision-making process. They get to elect a board of directors and decide exactly how the union will operate. Moreover, if the union is profitable, they get their share of the profit through dividends.
2. Excellent Customer Service
Banks have a vast network of outlets that must serve a larger customer base. Therefore, they often rely on templated customer service processes to open more accounts and sell more credit cards. But that’s not the case with credit unions, where a person’s best interests take precedence.
Credit unions often operate at a smaller scale, serving a handful of communities, allowing them to take a people-focused approach to financial services. They focus on empowering members to achieve their financial goals by offering personalized services tailored to their needs.
Even Canadians recognize the exceptional service credit unions provide to their members. In 2023, they voted Canadian credit unions number 1 in Customer Service Excellence in the IPSOS Financial Service Excellence Awards. This was the 19th consecutive win for the unions.
3. Technology Driven Banking System
By opting for credit unions, Canadians don’t miss out on the convenience of the commercial banking system. In fact, unions let members open bank accounts online via a completely digitalized process. They can also enjoy the perks like a vast ATM network and online banking.
Availing loans through unions is also hassle-free, thanks to the prevalence of specialized credit union software. Unions rely on loan origination platforms and digital lending software to streamline the loan application process for their members.
4. Affordable Financial Services
Another reason Canadians tend to prefer credit unions over regular banks is their affordability. Unions provide the same financial services as commercial banks but at a cheaper rate.
As mentioned earlier, unions reinvest the profit into the business. Thus, they can pass on the profit to members in the form of a lower service fee, application fee, account maintenance fee, and so on.
Members can also open bank accounts with unions without any deposit. Moreover, unions let their members use any ATM in their network free of charge, while banks levy heavy charges when customers use ATMs outside their proprietary network.
5. Better Interest Rates
Credit unions offer higher interest rates for savings and chequing deposits, making them popular among Canadians looking to grow their financial assets over time. By providing better interest rates, credit unions help members maximize their earnings.
Unions also extend loans to members at lower rates, be it a mortgage, vehicle loan, or personal loan. The more favourable terms can result in substantial savings for members over the tenure of the loan.
6. Flexible Eligibility Criteria
Before extending loans to borrowers, a commercial bank performs a comprehensive background check and risk assessment. They usually approve loans only for applicants with regular income and high credit scores.
Credit unions also utilize digital lending software to assess applicants’ creditworthiness. However, their eligibility criteria are more flexible than those of banks. They are more than willing to offer loans to members even if they have irregular incomes or lower credit scores.
7. Support for the Community
Canadian credit unions are renowned for their commitment towards strengthening communities. Every year, they give back, on average, 5.4% of their profits (pre-tax) to the local community. Last year alone, credit unions across Canada gave away $62.4 million through donations, sponsorships, scholarships, foundations, and volunteer hours.
8. Support for the Local Businesses
Commercial banks are also reluctant to lend to small and medium businesses. However, credit unions have always supported Canadian small and medium-sized enterprises. At present, they provide financing to around 350,000 businesses in the country. Two hundred credit unions alone make up around 11.9% of Canada’s entire lending to small and medium-sized enterprises.
Final Words
Canadians love working with credit unions because they can open bank accounts, get loans, and avail of other vital financial services at affordable rates. However, what really makes unions credible is their commitment to supporting local communities and small businesses.
Apart from that, convenience and hassle-free processes significantly contribute to their appeal. To meet these expectations, credit unions require world-class credit union software that helps streamline operations and improve service delivery. That’s where iGCB can help your union.
They offer specialized credit union softwares that enhance credit union’s SME Lending proposition, help them launch revolutionary Credit Card, Debit Card & Virtual Card solutions, drive engagement with Family Banking and empower members with Personal Finance Management Visit the iGCB website to learn more about credit union software.
References
- https://www.nerdwallet.com/ca/banking/what-is-a-credit-union#:~:text=The%20first%20credit%20union%20in,to%20many%20thousands%20of%20members.
- https://www.biv.com/sponsored/canadian-credit-unions-are-number-one-choice-small-businesses-global-conference-8272674#:~:text=Over%20six%20million%20Canadians%20outside,credit%20union%20or%20caisse%20populaire.
- https://www.ipsos.com/en-ca/ipsos-awards-top-honours-financial-services-excellence-canada
- https://www.sunshineccu.com/how-credit-unions-help-communities-thrive#:~:text=Last%20year%2C%20credit%20unions%20across,profits%20to%20local%20community%20organizations.
- https://canadascreditunions.ca/wp-content/uploads/2023/10/2022-23-CCUA-ESG-Report-Final-2.pdf
- https://www.cumanagement.com/articles/2022/06/canada-cus-and-small-business-working-together-works#:~:text=In%20fact%2C%20the%20more%20than,of%20all%20businesses%20in%20Canada