Credit Unions Are All Grown Up
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Here's your money briefing for Tuesday, December 3rd. I'm J.R. Whalen at The Wall Street Journal in New York. Credit unions are no longer just a small group at work that can get you a good interest rate on a car. They've grown to the point where they're buying small banks. But can they survive a recession? We'll ask a Wall Street Journal reporter to explain. First, some money in market news you should know. If you start seeing more pop-up shops around, don't be surprised. Industry analysts say that pop-up shops, those small, short-term brick-and-mortar locations for digitally native brands, are becoming an increasingly important part of the $3.8 trillion U.S. retail scene. That's because they allow brands to use data about their customers to figure out the best time and place to set up a real-world presence and then close within a few days or weeks before losing profitability.
Digitally native brands pulled in an estimated $27.1 billion in revenue this year. That's up $4.5 billion from 2018, and they represent 4% of all online sales. And how frustrating is it to grab a loaf of bread in your kitchen cabinet only to wind up throwing it out? because it's gotten moldy. A survey this year by the American Bakers Association found that nearly three-quarters of Generation Z and millennial consumers ages 18 to 41 are bothered by wasting bread, and more than 20% said they often or always skip buying bread on their next trip to the store after throwing bread away. And more than half said they would buy more baked goods, including bread, if they came in smaller portions. Bread companies and grocery stores are listening.
They're putting smaller loaves on the shelves, and that could mean a whole lot less wasted food.
Credit unions are all grown up. For decades, they were seen as a small down-home slice of the world of consumer finance. But now their growth rate has rivaled banks. In fact, some credit unions are buying small banks. So what has sparked their growth?
Why are pop-up shops becoming important for digitally native brands?
Wall Street Journal reporter Ben Isen is here to explain. So Ben, since 2009, some credit unions have seen a higher growth rate than many banks. How did that happen?
So you've seen a bunch of different things really propelling this. Credit unions growth has been going on for a long time, but it really took off after the financial crisis. And there are a number of things at play. People became disenchanted with banks and decided to switch to credit unions. Regulators also didn't crack down on credit unions as much as they did on banks in many respects. And what you saw is that credit unions really started to compete aggressively. They're able to offer lower rates sort of by nature of the way that they operate. And they use that to move into all sorts of different types of loans and really kind of gain a good market share there.
And those rates can be very attractive, but it really depends upon what you buy or what you want to loan for.
And so unlike a bank, a credit union doesn't answer to shareholders. It answers to its members, which all collectively own the credit union. And what it does with its profits is it returns them in the form of lower rates on borrowing or higher interest on deposits. And so that's why you can see a credit union offering a lot lower rates than a bank on certain types of loans. And when you look at something like a personal loan or a HELOC, credit unions often compete very well in that area. They don't always offer lower rates. Right now they have slightly higher rates on new cars, according to recent averages. But generally on the whole, that's the reason that credit unions are able to compete as well as they do.
You mentioned HELOC, a home equity line of credit.
Yes.
You know, a lot of banks have pulled back on making car loans, but the credit unions have not.
Yeah, what you saw over the past four years or so is that banks really pulled back a lot, and credit unions kind of came in and took a lot of that market share. So in 2008, they made about 23% of auto loans, and now they make almost a third of auto loans.
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