Capturing non-interest income (without offending your members)

Nothing rubs credit union members the wrong way quite like hearing the “F” word. That’s right, fees. Minimum balance fees, monthly service fees, account inactivity fees, ATM fees, insufficient funds fees. Imposing too many of those literal and figurative four-letter words may be enough to frustrate members and potentially push them into the arms of your competitors.

Let’s face it, though, due to our current economic environment, generating revenue from interest is currently slow going. Maintaining your credit union’s bottom line during these times requires balancing your credit union’s financial health with sensitivity to your members’ financial needs. Luckily, you can continue to drive value for your members with essential vehicle protection while capturing important revenue from non-interest income. So, before you drop unnecessary “F” bombs, let’s explore why non-interest income has become more important than ever and how you can handle the situation with care.

Times are tough for auto lending

The auto industry has recovered from most of its pandemic-era problems, but the market is still fraught with turbulence. Car manufacturers are beginning to bolster inventory and they are positioned to incentivize car sales once more. On the consumer side, however, record-high vehicle prices and sky-high interest rates have made new and used auto purchases a tough sell.

For the consumers who are able to finance new cars, credit unions managed to edge out big banks and captive finance companies for a 27% total combined loan and lease market share at the end of 2022—even though the number of loan originations has dipped considerably. Data from Equifax’s U.S. National Consumer Credit Trends Report shows that auto loan and lease originations between August and October 2022 slipped to 18.2 million, a decrease of 12.7% compared to the same time in 2021. In the same report, subprime auto lending bottomed out at 16.5%, the lowest August year-to-date subprime share since 2010.

While some members are still generating your credit union revenue through interest-bearing loan activities, the opportunities for credit unions to capitalize on them are fewer and farther between. As such, credit unions should embrace each auto loan transaction as a chance to maximize revenue by upselling innovative products that simultaneously provide member protection and widen income streams.

Record deposit losses cause further disruption

It should come as no surprise that subprime lending has taken a hit. With the ability to extend credit tied to the availability of deposit balances, and  financial institutions in the U.S. losing $472 billion in deposits in Q1 2023 (the largest decline in 39 years) the lending outlook for the remainder of 2023 and into 2024 is grim.

Members continue to struggle against stiff economic pressure that limits their spending power and erodes savings. The result is less money in their accounts at the end of each month, which is a problem for both members and credit unions.

To restore balance, credit unions with high loan-to-share ratios must focus on deposit-driving activity—or stifle lending artificially. Either way, their efforts will be diverted from essential non-interest income generation. Improving loan-to-share ratios may not equate to increased interest income. Meanwhile, steep interest rates and a highly inflationary economy are already contributing to fewer financing opportunities. Further tightening lending standards will limit the number of interest-generating transactions by making it more difficult for credit-risky members to qualify for loans.

Again, maximizing each transaction that takes place is key. Credit unions must find creative, valuable ways to upsell if they want to successfully generate non-interest income on the loans they are originating, and in ways that don’t rankle members or leave them further strapped for cash.

Driving member value (and revenue) with loan protection

Liberating your members from excess fees won’t necessarily take money off your table. In fact, prioritizing your members’ financial well-being inspires trust and helps build lasting relationships with numerous transactions along the way.

Instead of casting a wide net of upcharges, focus on meaningful upgrades that are important to your members, like protecting their new car purchases. Voluntary loan protection products like Guaranteed Asset Protection (GAP) help protect members financial well being in the event of an unfortunate accident. Depreciation coverage not only protects members from the effects of vehicle depreciation, but it also creates a powerful incentive for members to return to your credit union to finance a replacement vehicle after a total loss.

We recently enhanced our application to make the process of offering these products easier for your front line staff. It seamlessly integrates with a credit union’s existing loan origination system, creating a streamlined, automated process for loan officers to present and sell loan upgrades.

Generating non-interest income doesn’t have to come at great expense to your members. Instead of having them navigate excessive fees, offer them meaningful opportunities to protect their investments during a financially difficult time. An approach that emphasizes how much your credit union cares will be much more significant to your members long term—and your bottom line, too.

To learn more about how your credit union can start generating non-interest income by offering PowerBuy Equity Protection, visit our website.

Crystal Bullard

Crystal Bullard

As part of SWBC’s Financial Institution Group, Crystal Bullard works with lenders to increase their interest and non-interest income through programs such as AutoPilot Lending and Specialty Products. Before ... Web: Details