Let me share what I've learned from two USAA blogger conferences.
Even their Communications staff acknowledge that the membership criteria are confusing. Many of the changes in the last decade have been to make it easier for everyone (including the call center) to figure out the rules: "All who have served honorably, and their families".
REWahoo linked to the membership requirements. The fine print is also on the bottom of the screen at USAA.com:
The term "honorably served" applies to officers and enlisted personnel who served on active duty, in the Selected Reserve, or National Guard and have a discharge type of "Honorable." Eligibility may change based on factors such as marital status, rank, or military status. Contact us to update your records. Adult children of USAA members are eligible to purchase auto or property insurance if their eligible parent purchases USAA auto or property insurance.
Note for sea lawyers: Yes, USAA really means "honorable", not general or OTHD. I've asked, and the answer has been "Those veterans need to appeal for a discharge upgrade."
"Membership" only means "vehicle & property insurance". Anyone (not just members) can open a checking account or a brokerage account with USAA, or buy their CDs. Anyone can buy their life insurance or an annuity. Anyone can apply for a USAA mortgage.
The reason USAA opened up the membership criteria is pretty straightforward. The military sizes after WWII, Korea, and Vietnam were all bigger than the military at the start of DESERT STORM. After 1991, the military actually drew down another 25%, and is in the early stages of drawing down an additional 10-15%. Meanwhile the number of veterans of all of those wars is declining even faster than the size of the military. Out of a total pool of 66 million eligible servicemembers, veterans, & families, USAA has a little over nine million members.
USAA focuses on member services more than on profits. (As REWahoo points out, "profits" are the annual distributions to shareholders.) The company got burned badly by a 1990s computer upgrade that ended up being scrapped, and since then all major projects have had to pay their own way. This means that the debit card rewards have been cut back to pay for regulatory requirements. Business checking took several years to get going (it's coming sometime this year) because although the member demand is there, they had to figure out how to set fees to pay for the costs. I'm told there are no loss leaders. Even the TV & Internet advertising campaign had to be funded by killing off the direct-mail solicitations and cutting back on print ads. Even the NFL made USAA a better sponsorship deal than NASCAR (although NASCAR may still be signing on someday).
Ironically, one of the most expensive parts of USAA is their mutual fund fees. They don't subsidize them with soft dollars or other marketing deals. The main reason they offer mutual funds at all (instead of licensing Vanguard) is because members want to consolidate all of their accounts with a trusted military-friendly business that takes 3 AM phone calls from Afghanistan.
Some of USAA's tech is funded by licensing their patents. They hold many patents for "deposit by scanner" and mobile devices, and they continue to file new patents on other tech. A tour through their Innovation Center is like Disneyland for geeks.
The company also prices insurance at its estimated costs. For example, USAA members who are Hawaii homeowners went most of a decade without being able to buy USAA home insurance. (First-time buyers only.) The reason was that their risk was too concentrated in one area and it's been over 20 years since Hawaii's last major hurricane. The probability of "no hurricanes for __ years in a row" is gettin' pretty small. When USAA started pricing Hawaii policies again, they quoted me a rate that was nearly 6x Armed Forces Insurance. However USAA is much larger, much better funded, and has better customer service than AFI. (Our decision was to raise our deductibles and go largely self-insured.) I'm not willing to pay the price to be fully insured, and I'm not sure AFI will survive a major Hawaii hurricane.
Frankly, the biggest drag on USAA's cashflow is the "more senior" members like REWahoo getting those righteous four-figure distributions from their subscriber savings accounts... I can't wait to join that elite club in 2021!
More details are at the links. Another good place to ask questions is on USAA's Facebook page, especially their member Bryan Sproles. He's so good at answering member questions (sometimes before USAA staff could answer them) that he was invited to the last conference. Great guy.
USAA and membership growth
USAA: Military Transitions, Home Circle, Auto Circle
Reader feedback on USAA interest rates and blog advertising
USAA’s savings goals and 529 plan calculators
USAA’s retirement planner and financial goal-planning tools
Answers to USAA’s questions
USAA’s underwear secrets