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October 15, 2010updated 04 Apr 2017 4:16pm

Unity eyes prepaid success with ALTO

Since its foundation in 1984, UK-based Unity Trust Bank has carved out a reputation as a bank for which social responsibility and responsible lending is at the heart of its business model. As Unity Trust sales and marketing director John Brooks tells Douglas Blakey, it also makes good business sense.

By Douglas Blakey

Since its foundation in 1984, UK-based Unity Trust Bank has carved out a reputation as a bank for which social responsibility and responsible lending is at the heart of its business model. As Unity Trust sales and marketing director John Brooks tells Douglas Blakey, it also makes good business sense.

 

Line graph showing UK credit union membership and savings, Unity Trust Bank, the UK-based specialist lender for trade unions, charities, credit unions and social enterprises, has weathered the economic crisis better than most of its larger high street rivals.

Even at the height of the crash in 2008, Unity’s annual profits rose. In fiscal 2009, Unity Trust’s annual profits before tax declined by only around 7% to £6.5m ($10.1m).

John Brooks, Unity Trust’s sales and marketing director and a veteran of the UK retail banking sector with 33 years experience, told EPI the bank was in business to make a profit.

“We do not borrow money and are a small, conservatively run bank, but we are not solely in it for hearts and minds,” he said.

How the bank makes a profit is, however, at the heart of the lender’s operations.

Brooks said: “A key part of our business model is to be a socially responsible bank. The quality of how we earn our revenue is very important to us. We are very keen that we can stand over what we do with a clear conscience – people say these are noble words, but we do try and put that into practice.”

So last year, for example, Unity became the first UK lender to abolish all penalty charges for account holders.

“It was just another example of how the quality of what we do is at the centre of our business model,” Brooks added.

 

Corporate social responsibility

The launch of the ALTO MasterCard-branded prepaid card at the start of the year is, said Brooks, a perfect example of Unity’s business model in practice: a potentially profitable but socially responsible product.

Around 40 UK credit unions have already signed up to offer the ALTO card to its members with another 50 credit unions expected to debut the product in the next few weeks.

“The pace of acceleration [in ALTO sales] has been fairly exponential. It has not been a hard sell to the credit unions but has required a lot of explanation,” Brooks said.

In particular, credit unions – around half of the UK’s 450 credit unions bank with Unity – have had to educate its members to change life-long habits of dealing predominantly with cash.

Brooks is already heartened by positive feedback from Unity’s credit union customers – and excited by the product’s potential.

“We see credit unions as a viable business proposition. But the ALTO card has been pitched at the lowest price possible to make it viable for us; and we have been very careful when we considered pricing, to pitch at a level that was reasonable given whom the card is aimed at,” he said.

Bar chart showing Unity Trust Bank – profits before tax, That has translated to no monthly fee for cardholders and no charges for point of sale or online transactions. Charges apply for topping up the card (£0.50) and ATM withdrawals (£1), but Brooks maintained the typical cardholder will save money.

“Let me give you an example. I met a cardholder at a credit union based in Wales, who travelled into his credit union office every week to collect a small sum of money,” he said. “The bus fare for each visit to the credit union office was almost £7. Put that in the context of being able to access cash from ATMs and the wide availability of MasterCard acceptance – the ALTO fee is reasonable.”

Looking ahead, the trades union-majority-owned Unity Trust may benefit from an unlikely source. The centre-right UK Conservative Party has endured an awkward relationship with the trades union movement since the 1970s. But prime minister David Cameron’s promotion of the so-called ‘Big Society’ – including the support, creation and expansion of mutuals, co-operatives, charities and social enterprises – interested Brooks.

“The fact that the prime minister has raised the profile of the general not-for-profit sector can only be a good thing,” he said.

“More awareness of how such bodies can create a better society and sustain or help the creation of social enterprises can only benefit us.”

As for the suggestion that Unity might expand its range of services to target directly the UK’s 6.5m trades union members, many of whom are likely to be disaffected with their current bank, Brooks is admittedly guarded.

“In terms of scale, it is unlikely that we can ever compete with high street banks but there will be opportunities to expand our services on a niche basis,” he added.

“We are and continue to look at ways where, on a niche basis we can offer expanded services to customers, such as, for example, trades union members.”

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