Fees on members’ deposit accounts and loans contribute to credit unions’ noninterest income.
In 1991, noninterest income accounted for 7% of credit unions’ total income. That nearly doubled to 13% in 2001, and nearly doubled again to 24% by 2011—it’s highest level ever, according to CUNA’s economics and statistics department.
If noninterest income had been removed from the equation for the past decade, “credit unions’ return-on-assets (ROA) would have been negative by a substantial margin,” explains Mike Schenk, CUNA’s vice president of economics and statistics.
In a just-released white paper by the CUNA Operations, Sales, & Service Council, credit unions and industry experts discuss the fee landscape and suggest alternative revenue sources and strategies. From advantage programs to student loans to serving underserved consumers, credit unions are developing service strategies that still boost the bottom line, further their mission, and deepen member relationships. Some examples:
►Fewer fees translate into more revenue at GTE Federal Credit Union, Tampa, Fla. The $1.5 billion asset credit union relies on the traditional cooperative business model: the more business you do with the organization, the more value you receive.
Its Member Advantage program, for instance, has 25% of the 180,000 members qualifying automatically if they sign up for services, such as free checking or e-statements; if they have additional services such as a mortgage or credit card; and if they perform eight debit card signature-based purchases monthly or three virtual banking transactions.
In return the member receives benefits including earning more on deposits, fewer fees, and lower interest rates on loans. If members elect to have paper statements, they’re charged $3 monthly. About 30% of the membership still receives paper statements.
►State Employees’ Credit Union, Raleigh, N.C., launched an investment program because it determined members were “better off doing business with us because everything we do is guided by the members’ best interest,” says Bill Umphlett, senior vice president, financial advisory services. “We offer value, guidance and advice.
“After one year of offering investments, we found that many members were coming in to see us,” he says. “Our older members in particular had multiple accounts, no consolidated asset allocation, and little understanding of their holdings. Many were risk averse with no need to assume the market risk of securities. On our advice, many moved their funds to insured deposit accounts.”
All of State Employees’ staff is salaried and no commissions are paid.
“Most credit unions don’t do it this way as they partner with broker dealers,” says Umphlett. “Our business model took a lot of time to set up.”
►Mutual Credit Union, with $160 million in assets, focuses on reaching younger members. The credit union in Vicksburg, Miss., has about 65% of its 20,000 membership that are less than 45 years old. And its marketing efforts are backed by products and services friendly to younger members.
The credit union offers a free checking account with debit card and after opening this account, young members are eligible to open an investment account—a money market account—which usually requires a $2,500 minimum, but the minimum deposit for young members is $50.
They also court young members to refinance their autos, especially those with rates of 18% or more.
Visit the CUNA Operations, Sales, & Service Council website for more information.