Pick any charity or non–profit organisation you know, and imagine a new entrant springs up in their sector.
With similar goals and objectives, this new entrant offers direct competition for the attention and recognition of your charity’s audience. But instead of seeking supporters, this new entrant is looking for sales. The new organisation isn’t just another charity, but a strong well–funded company looking to grow rapidly and make profits.
How would your charity fare? Would they withstand the challenge and grow stronger? Or would they crumble under pressure?
For Britain’s credit unions, this isn’t just an imaginary exercise. It’s a big part of their story over the past seven or eight years.
Payday loans businesses are surrounded by controversy. Yet despite continued negative press, demand for short–term loans remains strong.
Today, this industry is worth more than £800m a year. If credit unions are to respond to the challenge, they need to build brands that can do battle with Wonga, the industry giant.
In an ideal world, nobody would run short of cash. In reality, millions do every week. Payday lenders help to get the car fixed, the flat heated and the children fed. Decisions aren’t driven by APRs or best buy comparisons. They’re about borrowing £100 now and paying back £120 at the end of the month.
Banning payday lenders wouldn’t make the issue go away – demand would still exist, and some would be pushed underground, including to rough doorstep lenders.
To succeed in this market, any organisation – whether or not they’re seeking profits – must get three things right.
First, go national
Wonga has done this, and with great effect. Though only founded in 2006, and not launching to the full market until summer 2008, Wonga has rapidly become a household name with high levels of recognition across the UK.
Above and beyond that, the firm has become synonymous with its sector. Wonga is the name the headline–writers most use. It’s not true that all publicity is good publicity – but every controversy does help cement Wonga’s name in the minds of consumers. QuickQuid, Wizzcash and others can only look on with envy.
By contrast, consider the credit unions. Can you name three? Would you turn to one if you ran short of cash? Google ‘personal loan’ or ‘short–term lending’ and you won’t come across them. Even Martin Lewis’s Money Saving Expert has them hidden away.
Credit unions are overwhelmingly small. Most are dependent on volunteers. Their marketing and communications are often poor, with little capability online. Crucially, they’re also exclusive – open to those from a particular town or industry, and firmly closed to everyone else.
Take the credit union nearest our studio in Shoreditch, for example. It’s only available to people in six of London’s 33 boroughs plus those who work for a strange list of companies including a nursery, a newspaper and a housing association.
As a result, credit unions today are not real competition for the payday lenders; they’re a peripheral distraction that can be safely ignored.
To turn this situation around, a credit union (or unions) must be serious about creating a national brand and achieving name recognition. In personal finance, there are huge advantages to being big with great returns to scale. Among other things, a national credit union could:
- Become the first place people think of when they run short of money. It could displace Wonga from the front of consumers’ minds.
- Analyse and use data as well as the payday lenders do. Lending decisions could therefore be automated, without default rates soaring. Volunteers can’t do this on a Wednesday afternoon.
- Invest in technology to allow customers quick and easy access to money online. This could replace the need for lengthy application forms or face–to–face interviews, which put most people off.
- Create a simple and straightforward user experience that’s as good as Amazon, Asos or First Direct.
Second, be clear on the offering
Wonga is extremely clear on its proposition. It targets adults who need access to cash in a hurry. And it offers them up to £400 within 5 minutes of a loan being approved. Everything is automated and available online and on mobile, 24/7.
What about credit unions? The offering varies from union to union, and one or two are experimenting with the payday model. But, for the vast majority, the emphasis is on longer–term lending, funded by members’ savings. The ethos is one of membership and participation, not suppliers and consumers. Almost all credit unions exist for needs that can be measured in months, not minutes.
If I need cash tonight or tomorrow, Wonga can help me, a credit union can’t. Credit unions may be an alternative source of funds, taking a part of the market, but most demand will be left unmet.
For any new entrant or existing player, this raises some fundamental questions about their proposition. Is it about instant cash at lower interest (which may be impossible, given the high level of defaults)? Is it sticking close to the existing credit union model? Or is it creating a new model entirely (perhaps combining easy access with longer repayment terms)?
Third, celebrate what’s different
Credit unions have huge potential and each should have a strong story to tell.
They’re democratic, based on ethical principles, and profits are shared out among members. They help people get out of debt, can be an alternative to mainstream finance, and their loans are affordable, with much lower rates of interest rates.
And yet …
In the US, a credit union rebranded with professional help but little original thought.
The credit union’s research showed that a name change made sense and would help overcome confusion in the eyes of consumers. But the new name they’ve chosen is a boring amalgamation of two dull words. The values identified were generic – Trust and Integrity. The new logo and visual identity are also easily forgotten. Overall, the rebranding exercise lets the credit union down.
Non–profits in the UK can learn from these mistakes. To do battle with Wonga or any new competition, they need to shun predictable language and imagery to identify an essence that is authentic and bold.
Brands must know their strengths, and celebrate their differences.