According to a 2014 PwC study, fewer than one-third of respondents said they trusted the bank that looked after their finances.
The study found that many post-2008-recession consumers were looking for alternatives to big financial institutions to keep their money.
In June, the Royal Bank of Canada (TSX:RY), Canada’s largest financial institution, along with the country’s four other major banks – Toronto-Dominion (TSX:TD), Scotiabank (TSX:BNS), the Bank of Montreal (TSX:BMO) and CIBC (TSX:CM) – announced customer fee increases even though the five banks posted combined record profits of $31.7 billion in 2014, up from $29.2 billion in 2013.
The announcement drew public backlash and more reports that consumers were going to make good on threats to take their money elsewhere.
That was likely music to corporate ears at Surrey-based Coast Capital Savings (CCS), Canada’s third-biggest credit union behind Servus and Vancity.
Amanda Welschlau, Coast Capital’s manager of sponsorships and events, said CCS hopes to benefit by offering an alternative to the Big Five.
“We invest 7% of our pre-tax earnings back into the local community,” said Welschlau, “and so the team that I work with helps to give that money out where we do business.”
As of May, CCS had 10,984 business members in Surrey, 23% of its business membership. The company also has approximately 96,000 retail members in Surrey, 32% of its retail membership.
Welschlau said Coast Capital’s Community Youth Team program, which employs Grade 11 and 12 students during summer break at the credit union, hits close to home for her.
“Full disclosure: that’s where I started with the organization 10 years ago … so it can certainly create opportunities.”
According to a recent Central 1 Credit Union study, Canada’s 694 credit unions have combined assets of $328 billion and serve approximately 10.1 million people.
Lindsay Meredith, a marketing professor at Simon Fraser University’s Beedie School of Business, said the trend of consumers taking their business to smaller companies has spread to multiple industries, including breweries, grocery stores, mortgage lenders and technology services.
Meredith said this market fragmentation is now the prevalent model used in France, the U.K., Germany and other developed European nations.
“You do see some mega-markets in Europe, but mostly you see a ton of small, local suppliers of services. You don’t see as many big chain store operations. And in Canada we seem to be seeing some type of similar animal on the move, where consumers are looking for smaller suppliers – people they can have that smaller relationship with, and if you take that to Coast Capital, their strategy has been very much along those lines.”
Meredith said one demographic factor might be driving market fragmentation.
“Consumers are falling out of love with big business. It’s not the baby boomers that are spending big money anymore. … By and large if you look at the spenders in society now it’s the millennials, and they’re going through that stage where they have to make all these acquisitions.”
Many recent studies have shown millennials – people born between 1980 and 2004 – have a low rate of customer loyalty, something larger companies could count on with baby boomers. Add in an increased awareness when it comes to things like environmental stewardship, and a general disdain for big-market capitalism, and you’ve got all the ingredients for a massive culture change, said Meredith.
“Coast Capital really adopted this model of ‘Hey, we’re not the big banks and we’re not going to nickel and dime you all over the place. We’re down home and friendly and folksy.’ And is it turning out to be successful? You bet your boots.”
