Credit union business models are quite different from that of the traditional banks around you. However, with some special activities, financial operations, and funding policies, credit union business models still stand out from other traditional bank models. Although, you can rightly say that there are not many differences between credit unions and banks.
Are you searching for a cooperative financial institution with the potential of a bank but less expensive in its operations? Then, credit unions have got you covered. Credit Unions are like “mini banks. The only striking difference between traditional banks and credit unions is that banks are profit-oriented while credit unions are non-profit-oriented.
More interestingly, credit unions can help you invest your money and earn better interest than you could ever do on your own. By opening an account in your most preferred credit union institution, you automatically become a member. And as a member, you enjoy great financial privileges and services.
Services such as loans, mortgages, the opening of savings accounts, investments, financial ideas, and other products. Do you wish to know more about credit unions, It’s business model, and how they make money for themselves? Here In this article are the answers you seek.
What Is The Credit Unions Business Model?
You must understand the financial operations and business models of any financial institution before you become a member. Initially, credit unions operated so that only people within a particular region benefited from it. Other times, it was employees who benefitted from it.
But as things evolved, the flexibility of the credit union business model became such that anyone anywhere in the world can be a member. As a result, there are different types of credit unions worldwide. Some of them are the Consumers Credit Union, Penfed, Navy Federal Credit Union, Alliant Credit Union, and so much more. These credit unions have business models guiding them.
What exactly do credit unions stand for? What are their operations like? Credit union business models are structured in such a way that members are encouraged to save money and, at the same time, borrow money. Reason being that credit unions do not lend to members the amount of money they can not pay back. They also give out loans to their members at affordable rates.
Credit unions give very cheap interest rates, unlike banks. Paying back is also favorable as it has no hidden cost attached to it. In credit unions, you get higher interest rates through your deposits, just like banks. They also charge fewer fees for their ATM services and account check.
Low-interest auto loans and mortgages are also what the business model offers you as a member. Over the years, Credit unions have proven to be trustworthy and efficient, with their current rate of membership skyrocketing to 231 million worldwide. In addition, the introduction of internet technology gave rise to the birthing of new credit union operations.
Financial activities can now be done online freely without obstructions. With the internet, Credit union operations have become more efficient. However, the Credit Union business model requires you to deposit your money first as a member before you start enjoying the benefits that come with registering with them.
Another beautiful thing about credit unions is that they make profits through collaborations. Credit union business models always see that collaborations are extended with the help of Credit Union Service Organizations (CUSOs).
These organizations are also popular for offering insurance, lending services, and helping credit unions achieve financial scales.
These organizations help credit unions make more money at a low service cost. CUSOs also function when there’s a real estate project on sale. Especially when the loan involved is much.CUSOs help credit unions in creating new ideas and bringing solutions to the problems of members and companies.
How Credit Unions Make Money
The benevolence of credit unions as a non-profit organization might have possibly made you wonder how credit unions make money. Since there are not many differences between banks and credit unions, making money can be the same as just the way banks make money. However, there are a few extras. The extras are;
- Unlike the traditional banks, credit unions make a profit by charging higher interest rates on loans though they are still not as costly as the bank charges.
- They also create a surplus for themselves if they make more profits for their members.
- Credit unions make good use of this surplus by bringing new products for their members to patronize.
- They also create financial services such as bill payments and online banking, which makes membership more fun.
Credit unions worldwide are not after the profits. Their customers always come first, and they provide them with good opportunities to save money. This is why their charges are not as costly as that of traditional banks.
However, apart from these little extras credit unions have over traditional banks, they also make money just like traditional banks make money.
They can make money through;
#1. Inter-bank Lending
Credit unions make money through interbank lending. They borrow from other banks at a fixed interest rate. This is done most times when banks lack money to supply to their customers.
Other times, interbank lending could be just a way to create revenues for banks, which helps other banks generate revenue.
#2. Interest Rate
Credit unions charge interest though at meager rates, unlike banks. Giving out loans comes with a measure of risk. It is therefore not out of place to release such money at a cost.
However, compared to traditional banks, the interest charged by credit unions is considerably low. These interest rates are one of the main sources of income for credit unions.
#3. Financial Advising Services
Credit unions, just like banks, have very skilled employees that give customers advice on how to make money, save money and invest money. Companies can also get advice on how to go about shares, public offerings, and issue rates. This service, however, comes at a price.
Apart from lending loans to members, credit unions, just like banks, also make land investments. They also invest in government security and some other businesses. Credit unions also make money in the foreign exchange market, most especially if the trading favors them.
#5. Service Fees
There are some services that credit unions render to the members that make them generate revenue. Services such as; Auto-loans and borrowing, yearly charges for credit and debit card owners, charges for dormant accounts, charges for paper statements, charges for ATM usage. Offering high savings rates and low loan options is what makes being a credit union member worthwhile.
Credit Unions seem to be the last resort for so many in actualizing their financial goals can always be your last resort, especially if you need financial help. However, the credit union business model is designed so that financial wellbeing could be made easy for people.
They handle the funds of members in a way that everyone benefits from. Their unique operations make them stand out. Their saving rates and loan options could save you from being broke and also help you realize your financial dreams all at the same time.
Unfortunately, one of the downsides of credit unions is that they have limited options for likely banking activities. They, however, make provisions for many ATM locations and also offer their clients better charges.