Fees are a touchy topic. While they represent a meaningful revenue opportunity for most credit unions, they are hotly debated by leadership teams and can be vilified by members—even ranking as a top reason to change primary financial institutions.
In the current climate, it’s challenging to keep return on assets (ROA) where it needs to be without some element of transactional fee-based revenue. So the question isn’t “if” but “how” credit unions should include fees in their operating plans.
Many credit unions justify new transaction fees by saying they help offset the cost of new technology. The paradox here is that most new technologies create self-service capabilities.
And, being a consumer, I think if I serve myself it should be cheaper. Credit unions and other financial institutions have marketed their way around this expectation with the term “convenience fee.”
This can be counterintuitive because we expect personal service to be better and, therefore, more expensive, and we expect self-service to be cheaper. To go against this market norm you either have to have a monopoly or a novel self-service solution.
In addition, charging convenience fees actually creates a barrier to what we want our members to do.
Reconciling branch and self-service relationships
There is a plethora of research finding that branch transactions are the most costly and digital transactions are the most operationally efficient. There is also a strong body of research that shows that branch locations are still the top contributing factor in the selection of a primary financial institution.
Instead of looking at fees as a way to recover investment in new technology, credit unions should look at fees as the way to change the frequency of members’ channel use.
The real interesting data is that most credit unions I meet with report that their branch transactions are continuing to grow. They also report that mobile and online transactions are growing, typically by leaps and bounds.
So there isn’t an either/or between digital and branch. The issue is how to create an environment where both channels exist, but represent the appropriate value to the member and the credit union.
Online and mobile channels represent the least expensive way to complete common transactions. These channels are a credit union’s best opportunity to create an ongoing, high-frequency dialogue with members.
It’s not the same as asking about a member’s family or discussing the most recent high-school football game. But it can be equally valuable and meaningful if the digital dialogue helps the member live a healthier financial life.
Branch visits are often the fastest and least frustrating way to address complex transactions. They’re irreplaceable in calming an upset or confused member.
While it a nuisance to have to drive to the branch to deposit a check, if you want to talk to someone about a major financial decision, nothing replaces a face-to-face conversation.
As your credit union thinks about the challenging question of fees and the role they will play in operating plans, consider using fees to help shape the frequency members use each channel, aligning behaviors with channels to deliver both a superior member experience and operational efficiency.
Be prudently aggressive in applying service fees to those transactions where the value of personal service is clear and material. And be aggressively prudent when considering fees that could limit your ability to frequently and efficiently interact with your members.
The more frequently credit unions interact with members, the more they thrive. If credit unions can influence member behavior to increase the frequency of interactions while also optimizing operational efficiency, they will be able to serve more members with lower cost and more competitive products.