Credit Unions Will Continue to Rely on Interchange and Overdrafts
Debit interchange and overdrafts are still expected to be the top noninterest income drivers for credit unions, despite changes being made to both sources.
"It will still be these two areas leading the way, albeit at a reduced rate," said Fabio Biasella, vice president and managing director of strategic advisory services for Raddon Financial Group. "In response, I have seen credit unions begin to revisit their investment and insurance programs as alternate sources of steady fee revenue. However, there is some ramp up time with this. Debit use and NSF activity will remain predominant consumer behaviors."
Biasella said that more than 75% of a typical credit union's member base use debit cards, and that 7% of members have frequent NSF activity.
"This segment of consumers that Raddon defines as having seven or more NSFs in a year accounts for the majority of a credit union's NSF fee income," Biasella said. "We don't see this behavior changing among consumers."
The greatest opportunity to protect any potential loss in revenue for credit unions would be to accelerate checking and debit card penetration and promote active use within their member base, Biasella advised.
"It may not result in more income than they previously generated, but it will help maintain noninterest revenue," he said. "Credit unions should do a comprehensive examination of their fee collection processes, pricing and waiver policies.
With potential limitations on interchange and NSF income, credit unions should determine if other fees are too far below market, or if the collection of fees is more lenient than expected."
A current opportunity for credit unions, Biasella said, is reinvigorating their credit card line of business to generate deeper and more active relationships and to increase interchange revenue.
"With many credit unions having too much liquidity, they may want to consider managing deposit growth more effectively to keep the deposit dollars and cost of funds down until lending volume improves," Biasella advised.
Lydia Cole, industry analyst for Callahan & Associates, said that while she cannot speculate on future numbers regarding sources for noninterest income for credit unions, Callahan & Associates has seen increased credit union interest in improving/starting investment and/or insurance sales. According to Callahan & Associates, the top noninterest income drives for credit unions are at present: NSF/courtesy pay income, which accounts for 27.4% of noninterest income for credit unions; debit card interchange and fees, which account for 19.3%; credit card interchange and fees, which account for 12.1%; mortgage sales, servicing rights and RE lending fees, which account for 11.8%; ATM fees, which account for 7.1%; and investment and insurance sales, which account for 5.6%.