Bank Transfer Season Rolls On

By any measure, Bank Transfer Day has had a notable effect on membership growth.

April 1, 2012

Much has been made of the effect of “Bank Transfer Day” on credit union membership growth. As large banks announced dramatic fee increases on debit card accounts, a social media-inspired call to consumers to transfer accounts from large banks to credit unions drew significant attention.

This led to press coverage of the phenomenon, and questions about how many people actually moved their accounts in the fourth quarter of 2011.

Unfortunately, we’ll never know exactly how many new members joined credit unions as a result of Bank Transfer Day. Credit unions report to NCUA only the number of members outstanding at the end of each quarter, not the number of new members joining during the quarter. The difference between these two is, of course, the number of memberships closed during the period.

This issue is further complicated by the fact that account closures tend to be particularly high during the fourth quarter of most years, when credit unions close dormant accounts before year end.

Despite these data limitations, Call Report data for all credit unions as of December 2011 clearly show the effects of Bank Transfer Day. The net increase in the number of members in the fourth quarter of 2011 was 400,000. This represents 31% of the full-year 2011 increase of 1.3 million new members.

At first glance, the fourth quarter’s growth of 400,000 doesn’t appear to be that much stronger than the almost 300,000 average of the preceding three quarters. But, as mentioned, seasonal dormant account closings mean membership growth typically is very weak during the fourth quarter of a year.

In fact, in the seven years before 2011, total membership declined five times in the fourth quarter—with an average fourth-quarter membership loss during those seven years of 130,000. In other words, membership terminations usually exceed new memberships during the fourth quarter of a year, and
by a substantial amount.

Put another way, the 400,000 increase in members during the fourth quarter of 2011 was just over half a million (530,000) more than the average change in members during the fourth quarters of the previous seven years.

Perhaps a better indication of transfer activity to credit unions is the change in the number of credit union checking accounts during the fourth quarter, because Bank Transfer Day was spurred in part by large banks’ debit fee increases. During the fourth quarter of 2011, credit unions saw a net increase of 740,000 checking accounts—almost three times the 260,000 average increase during the fourth quarters of the preceding seven years.

By any measure, Bank Transfer Day has had a notable effect on credit union membership growth. And it’s not over. Large banks still face the same difficult economics as last year, and are seeking new sources of fee income. Word is spreading of more deposit fee increases. While we might not see another Bank Transfer Day, we might one day refer back to this period as a continued Bank Transfer Season.

Credit unions likely will see benefits well into the future, including:

  • Young members who’ve recently joined will discover credit unions offer the full range of services big banks do—online account access, bill paying, mobile apps, large ATM networks—but better and cheaper.
  • These members likely will tell their friends using the same social media that attracted them in the first place. This could produce an extended period of stronger than usual membership growth among young adults.
  • Credit unions will increase wallet share. Although Bank Transfer Day initially attracted new memberships and checking accounts, credit unions now can fulfill all the other financial service needs of these new members. This will show up as increases in other deposit accounts, but more important, in new loan demands from new, young members who previously might not have considered credit unions.

Thanks to big banks, we might see a new virtuous circle of membership and service growth among young adults, fueled by the powerful word-of-mouth effects of social media.

BILL HAMPEL is CUNA’s senior vice president of research and policy analysis/chief economist. Contact him at 202-508-6760.