MADISON, Wis. – Credit unions would do best to target certain non-essential fees to boost their non-interest income to help maintain member goodwill and add to their bottom lines, a new study issued yesterday by the Filene Research Institute advises.
The study, In Search of Member-Friendly Noninterest Income, seeks to prioritize fees that may be considered “member-friendly,” those that are “transparent, freely chosen, and add value to members,” which may be ripe for additional revenue opportunities.
“Improving (non-interest income) in member-friendly ways entails a careful balance,” concludes the author, Ben Rogers, research director at the credit union think tank.
At the same time, he says, “Carelessly maximizing fees holds a double danger: first, that the credit union is mirroring the unfriendly practices that landed banks in hot regulatory and PR water, and second, that as cooperatives, credit unions are abandoning their mandate if they focus too much on maximizing profits with fee income.”
The study finds there are certain fees that members don’t mind as much being increased, like those assessed for card replacement, expedited bill payment, and cashier’s checks.
Another opportunity is upgrading of checking accounts. “Fee-based basic checking is a nonstarter for most credit unions, but upgrading one version of the checking account and adding a premium fee is much more palatable,” says Rogers.
Other ‘member-friendly’ fee opportunities lie in: identity protection, ATM surcharges, skip-a-payment on loans, collections charges, augmented payment options, check-cashing, paper statement charges, prepaid/reloadable debit, second chance checking, third-party rewards, noncompliance charges and concierge services.
Some fees that may be less elastic because members may find them unsavory, suggest Rogers, are those for: debit card usage, dormant accounts, bill payment, minimum balance, accessing call centers or inbound domestic wire transfers.
The study notes that the biggest chunk of non-interest income earned by credit union, interchange and overdraft fees, amounts to as much as 70% of all NII. But the report ignores these two revenue streams because they are both regulated and highly understood.
The clear NII winners in terms of perceived value to members are those that relate to insurance and investment sales, according to the study. From the survey participants’ comments, it’s clear that credit unions both value this income and argue that, as opt-in services, these products add significant value to those who choose them. Still, the report finds there isn’t much room to play with pricing for these services.