Digital Credit Unions Are Topping The Bank Comparisons - Platform Coops Beating The Banks At Their Own Game?

Leo Sammallahti

Leo Sammallahti

Nov 18, 2019

In theory, it makes sense that the best financial institutions for ordinary people would be online credit unions. If you don’t have physical branches to maintain and you distribute your profits to the customers instead of the shareholders, it allows them to offer better rates. This seems to be the case in practice too, as the two examples below demonstrate.

Alliant Credit Union

Alliant is the 8th largest credit union in the US. It is fully digital - there are no physical branches. It therefore fits the criteria of a platform cooperative. It was also the NerdWallet 2019 "Best-Of" Award winner in the categories of Best Banks, Best Banks for Savings and Best Banks for Checking. In fact, Alliant was the only financial institution to be recognised in all three banking awards categories. According to CNBC comparison, it also offers the best cash-back credit card in the country. Their mobile app and online banking services have also won numerous awards.

It seems that arguably the best financial institution, in the world’s largest economy, is a platform cooperative.

My Community Bank

My Community Bank is the only fully digital credit union in the UK. According to The Consumers' Association (the largest consumer organisation in the UK), it offers the best savings account in the country.

The story of UK credit unions is an inspiring one, as briefly described in the tweet below. My Community Bank also proves that it can adapt and outcompete its competitors as banking becomes more digital.

Dark Clouds Over The US Credit Union Movement

I’m a big fan of US credit unions and as part of the “Coop Fact Of The Day” marketing campaign for Coop Exchange, I have posted many facts celebrating how awesome they are; such as the fact they were much more likely to survive the financial crisis than their competitors and that, while overall lending to small and medium sized businesses decreased by $100 billion, the credit unions lending to them doubled from $30 to $60 billion between 2008 - 2016 in the US. Indeed there’s a whole collection of facts celebrating US credit unions here. 

However, there are dark clouds over the movement - for the first time in recorded history, credit unions in the US no longer have higher customer satisfaction rates than banks and no longer pay better rates deposits than money centre banks (although when controlling for the type of deposits, the credit unions still outperform their competitors). I would guess that part of the reason for lower customer satisfaction is the better online services offered by banks, and having larger branch structure diminishes the ability to pay better deposit rates.

Alliant proves that the credit union as a model is not outdated or incapable of adapting and outcompeting the banks. I’m not knowledgable enough to say whether the credit union strategy of maintaining branches more than banks has been good or bad - but it is an important discussion, and Alliant seems to suggest that fully online credit unions might be the future of the movement.

Platform Cooperative Movement And The Digital Credit Unions

I would love to see the wider platform cooperative movement get involved with these two big platform cooperatives.

 I’m sure that the movement includes people who could come up with brilliant ideas on what the credit unions could do; how they could support the cooperative commons, build more member engagement, build member-to-member relationships, etc.

This might mean a proposal to move their website from using Google Analytics to a more privacy respecting alternative, such as Matumo (I don’t know if they use Google Analytics). They could start using participatory budgeting, where members submit and vote on where their charitable donations go to - perhaps towards socially beneficial, free and open source software. Perhaps they could experiment with mutual credit systems. Ideally, after articulating some of those ideas, there would be people standing in their credit union board elections pushing for implementation of those ideas.

The possibilities are endless. It would be incredible to see us in the platform cooperative movement use the existing imperfect democratic mechanisms in those credit unions to grasp them.