The "Davids" of the HSA Market

I recently attended an credit union roundtable session that focused on the health savings accounts (HSAs). This was my first professional exposure to the credit union industry, which introduced me to an entirely new lingo including "SEGs" (Select Employer Groups), "dividends" (interest) and "CUSOs" (Credit Union Service Organizations). By talking with the roundtable participants, I came to respect their dedication to their communities, something that I often find missing when I talk with bankers. Whereas banks try to "go wide", credit unions often don't have that option and instead try to "go deep" by offering more services to their customers (I even heard a story of a credit union that opened a used car lot to sell discounted automobiles to its customers!). The credit unions also won my respect in the healthcare banking context. The number of credit unions that offer HSAs is increasingly rapidly -- from 244 in Dec '06 to 585 in Dec '08. During the same period, HSA assets grew from $53 million to $139 million. However, in a growing HSA market, the threat of the credit union industry "Davids" would appear to be of little concern to the bank industry "Goliaths". After all, credit unions only hold about 2% of HSA assets market-wide. Howevever, embedded within the credit unions' success, there is a cautionary tale for banks. As the HSA market matures and account holders become more aware of their portability options, any rollovers between credit unions and banks will largely flow one way -- to the credit unions. The reason for this is the community presence that credit unions hold. All else being equal, account holders looking to rollover a more prone to choose a local financial institution over a remote one. However, all is not always equal, including interest rates, which are often higher at credit unions. Combined, these factors will likely work to credit unions' advantage. Proof of this is already emerging; one of the roundtable participants announced that it had won a rather significant block of account holders away from one of the largest HSA custodial banks in the country. David's slingshot is beginning to hurt...