BUILDING societies and credit unions must continue to differentiate their products and services or their success will be short-lived, according to KPMG financial services head Peter Nash.
“The key to survival … will be a combination of differentiation, product capability and cost structure,” Mr Nash said in response to a recent report.
“Institutions might choose to differentiate on geography, on customer origin or on service, or some combination of these.
“If they try to be all things to all customers in terms of product, but without any point of differentiation, they’ll just become one of the pack and fade behind the banks.”
United Credit Union CEO John Beattie said the big three WA credit unions – StateWest, Police and Nurses and United Credit – performed above the national average by using technology while building relationships with their members.
The KPMG Building Societies and Credit Union 2001 Survey found the industry was more immune to any downturn in the economy than banks because of its traditional focus on the less volatile property market, but it risked losing this niche.
“The propensity of building societies and credit unions to “stick to the knitting” in terms of new lending will stand them in good stead as we move into more difficult economic conditions,” the survey says.
Mr Nash believes the industry faces increased competition as banks offload some of their corporate clients and move towards the robust housing market in an attempt to shield themselves from bad debts.
Still of concern for the industry are the high cost structures compared with the major banks, principally as a result of maintaining branch networks and high customer service.
Although on the improve, the cost to income ratio of participants in the building society industry remains relatively high at 75.20 per cent, while credit unions averaged 79.39 per cent.
By contrast, ANZ’s cost-to-income ratio has fallen from 63 to 47.3 per cent during the period from 1997 to 2001.
Mr Beattie said the industry was not driven by share-holder returns but was customer focused, and so would not strive to achieve the low cost to income ratios achieved by the banks.
Source: KPMG Building Societies and Credit Unions 2001 Survey/compiled by Gary Kleyn
