Credit Unions are losing the war for domestic deposits

Key insights

• Credit union deposit growth has materially lagged domestic deposit growth of the Big 6, Tier 2 and Schedule II banks over the past five years
• While credit unions are collectively #3 in domestic deposits, they are about to be passed by BMO 
• CU deposit products are highly competitive, which points to retail and commercial distribution as a key opportunity

Behind the numbers

Who is gaining market share in Canadian financial services? Deposits are a good measure to use, as they are consistently reported and by definition are restricted to deposit-taking financial institutions.
Canada's Big 6 banks (TD, RBC, BMO, Scotia, CIBC and National) dominate the market, but their figures include significant international holdings. To understand who is winning the battle for Canadians' deposits, we need to look at just their domestic business.
In the charts below, the Canadian Personal & Commercial business lines of each Big 6 Bank and Desjardins are presented. The definition of P&C varies somewhat between FI, but deposits are deposits. Tier 2 banks (all non-Big 6) and Schedule II banks are based on total deposits reported to OSFI, while credit union total deposits are reported by CCUA.
This isn't a perfect comparison, but the definitions are consistent year over year and allow us to draw meaningful conclusions.

Who's winning?

In the period 2017-2022:

• Big 6 domestic deposits grew from $1.3-1.9T, a 48% total increase / 8.1% annually
• Tier 2 banks grew $136-199B, 46% total / 7.9% CAGR
  
• Schedule II banks grew $100-159B, 58% total / 9.6% CAGR
  
• Desjardins Group and its caisses grew from $138-212B, 54% total / 9.0% CAGR
  
• Credit unions grew $184-251B, 36% total / 6.4% CAGR

This period includes both the significant increase in deposits during COVID and the post-COVID recovery. The impact of higher inflation will be reflected in FY2023. Note that Tier 2 banks disproportionately benefited from COVID cash injections in 2020, but could not sustain this growth in 2021. Other financial institutions were much steadier in their deposit accumulation over the same time period. This includes credit unions, who were unable to match the pace of Desjardins and their bank peers.

When looking at pure market share it is important to recognize the sheer size of the Big 6. While their total deposits comprise over 90% of Canadian FIs, limiting to domestic P&C deposits still results in 70% market share. Cooperative FIs command 17% share, while non-Big 6 banks  round out the remaining 13%. This means faster growth by the banks will have an outsized impact on the market, further consolidating their position.

At an individual FI level, the market power of RBC, TD, Scotia and BMO is evident. Each are growing their deposits quickly in both real and percentage terms. CIBC has struggled to grow deposits, which is reflected in their current cash-constrained environment.
Interestingly, credit unions hold the #3 spot in the domestic deposit market. If CUs were to flex their collective muscles and go to market as a unified entity they would exhibit power similar to BMO, Desjardins or CIBC. However, slower CU growth means that they are due to be passed by BMO in 2023.

What's the opportunity?

1. Distribution is key
Credit unions manufacture their own deposit products, which means they have full control over pricing and terms. Generally this results in attractive and highly-competitive retail and commercial products. Credit union CDs, HISAs and similar products are often materially better than Big 6 alternatives. However, CUs are still not gaining market share.
This points to distribution as a key challenge/opportunity. Credit unions must address how to more aggressively grow their deposit base using improved marketing, analytics and collaboration for both retail and commercial members.

2. Work together
When credit unions go to market as a unified entity they wield comparable domestic power to BMO and CIBC. This would allow CUs to more effectively market and distribute their products, particularly at the critical commercial level not currently reached by individual institutions. 
A unified approach would also allow credit unions to better serve as BaaS providers for unregulated fintechs to hold their funds.

3. It's not just deposits
This analysis focuses on deposits because they are easy to compare across FIs. The same conclusions are true for lending, wealth and payments. For long-term success, credit unions must get aggressive on reversing their slide in market share.