Financial institutions cling to military niche

Credit unions and banks that cater to American armed forces have long enjoyed the advantage of having a well-defined customer group, one mostly located on or around military bases. Today, online competition and mobile applications threaten to erode the geographic edge as fewer people visit branches to do their banking.

To survive and prosper, these financial institutions are embracing online and mobile services while reemphasizing their understanding of military lifestyles — the frequent moves, serving on foreign soil or aboard ships, low pay and family strains — and the demands this can put on those in uniform.

“I think the future is bright so long as these institutions maintain their competitive advantage — which again is that they possess policies quite supportive of the military lifestyle,” says Tom Glatt, a credit union strategy consultant in Wilmington, N.C. Those services may include rebates of automated teller machine fees, free checking, early access to military payroll deposits and around-the-clock telephone support.

Serving those who serve the country has been a good business strategy, particularly for not-for-profit, member-owned credit unions, judging from some of the numbers. The more than 200 institutions that belong to the Defense Credit Union Council operate branches on U.S. military installations worldwide and have 18 million members, or almost a fifth of the 98 million served by about 7,000 U.S. credit unions, according to the Credit Union National Association.

Dozens of banks, including some of the country’s largest — Wells Fargo, Bank of America and JPMorgan Chase — have branches on military posts in the U.S., according to the Association of Military Banks of America. Others have offices near military bases and cater to civilian military employees, service members and their family members.

With their frequently lower costs and better rates for loans and deposits, credit unions may have an edge over banks in military communities. But big banks can outspend most if not all of these not-for-profits on new technologies like smartphone apps, so credit unions often rely on the tailored quality of the services they offer.

“A military-oriented credit union has features that support a military lifestyle, which may include frequent moves, deployments, family separations and other challenges,” says Michael J. Meese, chief operating officer of the American Armed Forces Mutual Aid Association, or AAFMAA, a nonprofit insurance and financial services provider in Ft. Myer, Va. “Different military credit unions address these needs in various ways, including extensive on-line banking, 24/7 phone support, mobile banking, rebates of ATM fees, deposits at home, and helpful educational programs or information on financial management, especially for younger military families.”

He foresees more industry consolidation as financial institutions bulk up to fund the development of technology-based products that service members increasingly demand. “This will probably mean fewer in-person meetings in a branch office and much more work done online, using a mobile device, or by phone,” Meese says.

Mechel Lashawn Glass, a Gulf War Army veteran who co-wrote The Veteran’s Money Book with Scott Credon, agrees that financial institutions gain an edge by catering to the military.

“Because they travel often, access to free checking accounts, services with direct deposit, security of private financial matters and versatility with regard to in-person and online banking is critical for armed forces personnel,” Glass says.

Institutions that cater to military personnel face a potential drawback, however. With their branches mostly located on or near military bases, it may be harder to serve customers who leave the military or associated occupations and settle far from any base or defense installation, especially if they prefer to do business face-to-face.

“The difficulty I have found is in getting a cashiers check, as well as cash,” says Brian Shumway, a former National Guard member from Austin, Texas, and an Iraq veteran. “While USAA pays ATM fees, I have found myself needing to get more than my daily withdrawal limit, as I like to pay with cash instead of debit or credit,” he says, referring to the United Services Automobile Association in San Antonio, Texas.

Like commercial banks, USAA has developed member services based on the latest technology, such as a smartphone app that deposits a check by snapping a photo of it. Members also can make deposits at 2,000 UPS stores and have free access to 60,000 ATMs. Still, Shumway prefers to do his banking at a branch office.

“Not having a branch limited my access to my funds as well as created enough of a hassle that I decided to go with another bank,” he says. Other USAA customers who aren’t near an office say they don’t mind this, and haven’t had trouble doing their banking.

Most customers prefer to bank online, according to the American Bankers Association. A 2012 ABA survey showed just 18% would rather use a branch, down from 25% in 2010, while 39% go online, up from 36%.

“The fact that I could do it without actually going somewhere was a time-saver to me,” says veteran Adam Hall about his experience with USAA.

NerdWallet is a USA TODAY content partner providing general news, commentary and coverage from around the Web. Its content is produced independently of USA TODAY.