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Online Discovery: Credit Unions Becoming More Reliant On Fee Income

NEWS RELEASE:
From CUNA Mutual Group Public Relations
www.cunamutual.com

For more information:
Rick Uhlmann 608/231-8940 rick.uhlmann@cunamutual.com
Phil Tschudy 608/231-7188 philip.tschudy@cunamutual.com

MADISON, Wis. – With the long-term trend of pressure on spread income and the expectation it will continue, fee income has become increasingly important to credit unions.  It should now be viewed as an efficient and controllable way to achieve bottom-line results, CUNA Mutual Group’s Online Discovery attendees were told Tuesday.

In his keynote address, John Lass, senior vice president, Strategy and Business Development for CUNA Mutual, told the online audience credit unions’ reliance on fee income faces challenges from regulatory and market forces.

As part of his presentation, attendees received a copy of Lass’ white paper “Let Member Value Drive Your Fee Strategy,” which explores the importance of fee income, regulatory risks and potential actions credit unions can take when evaluating their fee structures.

He said fee income comprises 20 to 30 percent of a typical credit union’s revenue and for many credit unions that has nearly doubled since 2000. Last year, the credit union system generated $13 billion in fee and other operating income.

“Today, without any fee or other operating income the credit union system could not, as a whole, generate a positive ROA. Like it or not, fee income has become increasingly important to our viability,” Lass said.

Certain categories of fee income are coming under pressure due to regulatory scrutiny and changing market conditions.  These developments could have a potential negative impact on interchange and fees tied to mortgages. The new Consumer Financial Protection Bureau may impose additional caps on other fee income sources.

Lass urged attendees to seriously review the threats to their fee income strategies given that recent credit union surveys with CEOs indicated in 2010 nearly 50 percent of credit unions’ fee income came from two sources — NSF/courtesy pay (28 percent) debit card interchange fees (21 percent). “We need to be nimble and alert to the possibility of caps” Lass said.

Lass cited a J.D. Power and Associates study that shows an increasing number of consumers are switching their primary financial institutions (PFIs). In 2010, it was 7.7 percent and 8.7 percent are expected to switch this year.

He said when reviewing fee income strategies, credit unions need to ask how changes will affect member behaviors and look at the value equation. “Member value equals benefits, minus price. A benefit is something that is both qualitative and quantitative. It’s important to remember two members may have completely different perceptions of the value a product brings.”

Fee strategy must also be weighed on how it will impact different segments of your membership. It’s important to consider how different segments of your membership will react to the fees you charge. “Segmentation that incorporates demographics, attitudes and behaviors will ultimately help you do a better job of meeting your members’ product and service needs.”

It’s important that a credit union’s fee strategy is consistent with and supports its value proposition, Lass said. “If your value is being the price leader, then your fee structure needs to be consistent with that.”

When evaluating a change in fees, Lass recommended credit unions consider several factors:

  • The value of the product to a member;
  •  A member’s cost to switch PFIs;
  •  Alignment with the credit union’s brand positioning;
  • The availability of alternatives;
  •  Potential changes in regulations;
  • Your competitors’ likely reaction;
  • Your credit union’s cost of providing a service;

Online Discovery is CUNA Mutual’s Web-based equivalent of a face-to-face conference without the associated expenses or time away from the office. The free, virtual event attracted a national and international audience of more than 1,800 credit union and league staff. The conference’s future-focused content aims to help credit unions solve problems, face challenges and address opportunities.

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual’s vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s Web site at www.cunamutual.com.

CUNA Mutual Group is the marketing name of CUNA Mutual Insurance Society, its affiliates and subsidiaries, including CUMIS Insurance Society, Inc.  Product availability and features may vary by jurisdiction and are subject to actual policy language. Corporate headquarters are located in Madison, Wis.

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