Credit unions feeling the chill from state-owned Kiwibank

By Christine Nikiel

Friday 7th December 2001

'I'm not saying there'd be a revolt, but there are more than a couple of hundred New Zealanders who use credit unions....'

- Doug McLaren

The country's credit unions say they will sink under competition from Kiwibank unless the government changes outdated legislation.

The two financial groups will compete for the same people's bank market, and credit unions say the state-owned bank has an unfair advantage.

The $250,000 investment limit and the common bond restriction means the two will not be on a level playing field, New Zealand Association of Credit Unions (NZACU) chief executive Doug McLaren said.

"We're a little buggered the government is putting $80 million into it and we still have to operate under legislation created in 1982," he said. "This was fine back then ... but the financial services industry has been deregulated and it's a more openly competitive market now."

Kiwibank has already shown its hand in promoting itself as the people's bank. Credit unions have long since been community focused, and will now face direct competition from the govern- ment-financed and nationally focused investment alternative.

The consequences of competing under the current legislation did not bear thinking about, Mr McLaren said. "How could we compete? I'm not saying there'd be a revolt, but there are more than a couple of hundred New Zealanders who use credit unions and there will be an awful lot of upset people around."

NZACU had a total income of more than $7 million in the last financial year. It has over 200,000 members, including 65 of the country's 78 credit unions. It has $400 million in mainly plant and equipment assets.

He said a point of difference the organisation had over Kiwibank was its ability to tailor services to specific regions. A regional approach meant the organisation did not have to broad brush everything.

Some areas were very family based, and Christchurch had a lot of technology people as customers, he said. Although aiming for middle New Zealand, the organisation had attracted a lot of younger people in the past few years, probably because of its low fee structure, Mr McLaren said.

The organisation's $5 million advertising budget was better spent on a focused regional campaign rather than a national one.

The last national television campaign, fronted by former Labour prime minister David Lange, worked well, Mr McLaren said, but there was no return on a national campaign.

"All our research has shown the best advertising has been word of mouth anyway."

Competition with Kiwibank will also mean cost cutting.

The organisation will centralise its administration in the more populated regional areas, meaning some small staff cuts, Mr McLaren said.

Although the credit unions have had to introduce all the services of a normal bank, including internet banking and eftpos cards, he said the level of personal customer service sets them apart from other banks.

Internet and phone banking was a way of making sure people never saw the face of the bank, Mr McLaren said, something most people appreciated.

But the trend for people to do their banking online was increasing.

Being "decimated" by Kiwibank was not something the credit unions were greatly concerned about, Mr McLaren said, but as a niche market in the retail banking area, competition would be tough.

The legislation change is probably not high on the government's priority list given the struggle it took to set up Kiwibank.

A review is expected next year.

The country's first credit union was the Sydenham Money Club, set up in 1882.

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