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Lack of Competition in the Banking Industry

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8/3/2015 5:58:29 PM
Posted: 2 years ago
It seems that banking should be a highly competitive industry, because there are no real barriers lending and borrowing money. Banks that offer the lowest lending rates should be able to absorb all the lenders.

In practice, of course, this is not the case. This is easily seen in the dominance of banks over credit unions, which offer the best rates because they don't need to earn profits. This is typically seen as a result of banks' better marketing, technologies and global presence. Yet, credit unions could, and sometimes do, also have these factors. Why aren't they attracting customers?

The answer may lie in consumer perceptions of banks and credit unions. Research shows that consumers are more likely to buy from companies than non-profits because companies are seen as more competent. Non-profits, on the other hand, are seen as "warmer". Source:

Applying this to banking, it makes sense why consumers are more willing to borrow and save in banks than credit unions. Consumers don't want to put their money in the hands of an organization viewed as "incompetent".