Sweat Equity, Creativity Are Keys to Financial Services' Brave New World
Reg restructuring is not quite law yet but essentially a foregone conclusion. Time to quit whining over the loss of interchange fee income and figure out what to do about it. Face your new reality.
Replacing most of what some have estimated at $2 billion in noninterest income across the industry will not be easy. It will take not only sweat equity but creativity. The obvious place to look is eliminating free checking, but once you've given consumers something, it can be difficult to take it back. Rewards checking make a fee a less bitter pill for members to swallow. Pushing members toward online banking by setting certain e-requirements such as e-statements and so many electronic transactions per month could create such a cost savings that a fee might not be necessary. The cost of hard copy fulfillment will only go up.
To make a campaign like this work, credit unions must revisit their somewhat abandoned marketing budgets. Certainly there are cheap alternatives like social media and your website, but a lot of that is marketing to existing members. A billboard, bus stop posters and subway placards could bring in more new members; a campaign that links it all together would be even more effective.
Attracting new members is yet another way to make up for that lost interchange income. A larger membership base will help generate new income. It is of increasing importance that credit unions look at expanding their fields of membership. The grapevine is saying that hasn't been particularly effective in bringing in new members and credit unions that have expanded also experienced a decline in asset quality. Don't jump in blind. Really learn about the community, not just the demographics, but attend community days and county fairs. Drive the streets. Also, check out the asset quality of an area. (Print readers: If you were looking at Credit Union Times digital edition which is included in your subscription, that last sentence contained a live link to data, as do others.) The information is out there to make an educated decision about where to take your credit union. And then, please, learn to market to the new potential members.
If your budget can't possibly be pumped up, increase your efforts with your website. I Googled Maryland mortgage lenders and Maryland mortgage. How many credit unions came up in the first few pages (ignoring the Google ads)? Zero. But Bank of America did and Wells Fargo did. You might say, well, how are we supposed compete with them?
So out of curiosity I next Googled credit union. The first entry was Wikipedia; next was Credit Union Times. Believe me, we're nowhere near the size of BofA or Wells Fargo or probably most credit unions. Point is there are optimization practices that can pull you out of cyber-purgatory and get your credit union noticed by potential members. Incidentally, after the NCUA and CUNA, the first credit union listed was UW Credit Union followed by The Golden 1 and BECU. In the collaborative spirit, you might want to pick the brains of their IT folks.
Credit unions also need to toughen up if they're really serious about making up for lost income. If operational efficiencies can be gained from outsourcing without a loss of quality control, it's difficult to fight that. Study whether your credit union is appropriately staffed. Credit unions should consider layoffs or at least retraining employees. You can outsource collections to better recoup on delinquencies and bankruptcies, but retrain Steve who's been in that job for 20 years as a credit counselor. His salary could be more than paid for with a more effective collections program.
With the economy permanently altered, the NCUA knocking at your door to collect assessments, the loss of interchange income, the anticipated significant curbing of overdraft income and continued attacks on any kind of fee by the current Congress, credit unions truly are staring down new realities that must be met head on.
An increase in member business lending powers for credit unions, as is currently included in legislation, is absolutely a potential source of fee income, in addition to all the other services like checking and credit cards that come with it. An amendment has been introduced for a bill that is moving in the Senate and a markup has been promised in the House; this is closer than credit unions have probably ever been to getting this legislation passed. Treasury and the NCUA have supported very similar language to what's in the legislation.
Even if it becomes law, the regulation of business lending will be a determining factor in credit union's success as well. If the agency is overly spooked by what's taking place in the commercial real estate market right now or that some credit unions are having problems with business lending right now, new authorities may not be as helpful as they could be. The NCUA is in the precarious position of ensuring credit unions take advantage of any new or expanded products in a safe and sound manner and demonstrating the agency can handle new responsibilities without stifling credit unions' growth in business lending to the point it's not worth it to the institutions. Not a position I envy as some credit unions' ability to thrive hangs in the balance, but this is the new reality.
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