Noninterest Income Can Unlock Long-Term Growth
Where does a credit union look for long-term growth today? The answer lies in noninterest income.
Historically, many credit unions have relied on lending as a primary source of income, which has built strong member relationships. There is a tremendous untapped opportunity to leverage those existing member relationships to offer solutions that members are purchasing elsewhere. Growing your percentage of noninterest income also diversifies sources of revenue.
Most important, expanding noninterest income programs can also meet member needs, creating a win-win for members and the credit union.
Noninterest income opportunities can be classified into five categories.
Opportunities from existing credit union solutions. Some examples include guaranteed auto protection, mechanical breakdown protection, debt protection, credit insurance and creditor placed insurance.
Solutions members are purchasing elsewhere. For example, a credit union can offer foreign currency for members who are traveling, AD&D insurance, identity theft protection, insurance solutions, financial planning and wealth management services, IRAs and health savings accounts, and merchant card services for business members.
Wringing income from improved operations. Many credit unions have charged off debt sitting on their balance sheets that can be sold to generate cash from a liability. Others are using sophisticated predictive analytics to generate better results from marketing to retention.
Adding value to convert existing free services to fee services. The interchange amendment touched off the debate about free vs. fee checking accounts. There are opportunities to add solutions to a basic share draft account and charge a fee to provide better overall value to members–and in the process generate revenue for the credit union.
New offerings to generate buzz and provide different value drivers. Income-generating solutions can get stale if you achieve a certain level of market presence and then growth stops–or worse, members turn to other providers. Credit cards are a great example. Market or wallet penetration is the first part of the challenge, and getting members to use their cards is another part. It is difficult for any one card to meet all needs, and offering an alternative card with different value drivers (like rewards) can often generate growth.
Embarking on a noninterest income diversification program must be strategic. Credit unions must understand how a proposed solution will fit into their long-term plans and what they need to ensure success for the future growth and health of their credit unions.
For example, look at Desert Schools Federal Credit Union. Prior to 2008, Desert Schools’ main revenue source was interest income generated by its traditional lending products. The credit union had a fully operational CUSO specializing in nonlending products. The CUSO was originally created to offer a range of investment products, but Desert Schools saw a lot of untapped potential.
The CUSO added a 401(k) rollover product and adopted an educational component to its marketing. Demand for these products soared. Average 401(k) rollovers went from $35,000 per transaction to $80,000.
Naturally, part of the strategic process is identifying which options are the best fit for your credit union.
Finally, marketing and sales are essential. It is vital for you to promote the value of noninterest income solutions to your members through a variety of channels–direct mail and email, Web, face-to-face, statement inserts and newsletter articles.
David Frankil is president of NAFCU Services Corp.