The Money Issue: The Co-op Bank – a model that’s gaining traction in the post-GFC world

In their first ever report on co-operatives late last year, global consultants McKinsey surmised that co-ops “may be poised to expand due to growing dissatisfaction with the short-term orientation of stock-traded companies”.
With presence in nearly every sector, McKinsey continued, “Their unique member-ownership structure and democratic governance model make for organizations that are powerfully aligned on mission and strategy, with focus on preserving long-term stability.”
The “principles before profit” approach of co-operative banking is one that has proved popular and durable elsewhere in the world. Most other countries have co-operative banks and they are particularly strong in Canada, America and Europe.
Steven Fyfe, The Co-operative Bank board chair, believes that doing business co-operatively comes naturally to Kiwis and thus the co-operative banking model is very good fit for New Zealand.
The McKinsey report found that between 2005 and 2010, co-operatives grew at nearly the same rate as publicly held organisations. The report estimated that co-operatives represent approximately three to five percent of the world’s GDP – and Fyfe considers that would be higher in New Zealand.
“Our farming industries are co-operative in nature,” he said. “I’ve dealt with several co-operative companies in New Zealand, particularly in the agricultural sector, including Fonterra and Alliance Group. I believe that as Kiwis learn more about our banking model they’ll relate strongly to bank owned by its customers.”
Chief executive Bruce McLachlan says great strength of co-operatives, in financial system context, is that fundamentally they think differently. They focus on long-term sustainability, strategic values, principles, partnerships and member voices.
“Co-operatives have different kind of connection with customers because they own the organisation,” he said. “That’s fundamental thing. Products, service and prices still need to be as good as the competition. You can’t thrive without meeting those inherent customer needs.”
The Co-operative Bank in the UK – unrelated to the New Zealand organisation – has grown significantly in recent years. It is part of the Co-operative Group, the largest co-op in the UK, with strong presence in food retail, banking, insurance, pharmacy, travel and other services. The organisation launched groupwide loyalty and branding promotion, converting its membership card to ‘loyalty card’ with additional benefits. This grew membership from 800,000 in 2005 to nearly seven million in 2012.
McLachlan said the UK Co-operative Bank’s success reflected disillusionment with the traditional financial system by the public as people increasingly move to co-operative bank with whole member ownership, member voice and values more aligned with their own.
Fyfe anticipates that The Co-operative Bank in New Zealand can grow its market share; it has 31 branches and 125,000 customers, and expects to grow both significantly in coming years.
“There’s absolutely nothing wrong with having foreign-owned banks but there’s something not desirable about having more than 90 percent of New Zealanders banking with overseas-owned banks. We don’t want to replace Kiwibank, but we do want to build more choice for New Zealanders. It would be nice if we could get to 20 percent of New Zealanders banking with New Zealand owned banks.
“If New Zealand banks behave in certain way, the Australian banks will need to be conscious of that and manage their rates accordingly. It’s force for good if you like.
“We don’t commit to having the very best interest rates at any point in time; we can’t do that in an open market, but we promise to give consistently competitive rates over the medium term and our fee charging is arguably lot fairer than the big banks.
“I think key attraction will be the dual opportunity to not only bank with an organisation where the customers own the bank – but also the bank is directly owned by New Zealanders. The customer-owners of The Co-operative Bank vote for members of the board.
“That connection with customers is one of the key points of difference and we consistently score very highly in customer advocacy and satisfaction surveys.”
The Co-operative Bank won the inaugural Canstar Blue five star award for customer satisfaction in 2011 – the most recent survey. Canstar Blue ratings are based on customer satisfaction and are delivered by Canstar, the ratings company and researcher of retail finance information for over 350 institutions including banks, building societies, credit unions, finance companies and brokers.
Fyfe said the opportunity to work with very different kind of bank, with values aligned to his own and the real potential to grow were what attracted him to the role. His banking experience included nearly 30 years with The National Bank and ANZ. Positions included CFO at National Bank and deputy chief executive of ANZ National.
McLachlan has had roles at the National Australia Bank, the Bank of New Zealand, BNZ Finance and the Reserve Bank of New Zealand. He spent more than 10 years with Westpac, most recently heading the retail banking customer-facing businesses.
Brendan O’Donovan, the most recent director to be elected, has been chief economist at the National Bank and at Westpac and has served as an advisor to Parliament’s Finance and Expenditure Committee and external advisor to the Treasury’s forecasting team.
“The philosophy of the bank, as well as the rare opportunity to be part of something this new and different is what convinced me to join,” said O’Donovan. “You have an organisation that is more than 80 years old but it’s start-up in terms of bank. It’s not often in banking that you get the chance to be in on the ground floor.
“The organisation not only has enormous opportunity, it also has marked point of difference in that its customers are the owners. So that makes our job as directors quite easy. On considering any issue, we just have to ask ourselves ‘is this in the long-term interests of our customers?’”

To view the complete McKinsey on Co-operatives report online, go to

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