Tightly compacted spreads have become a new reality for credit unions. And if Chairman Bernanke’s plan to leave interest rates untouched through 2013 holds true, credit union leadership will have no choice but to exercise their creative muscles.
Much of what keeps those muscles atrophied is a fear of introducing fees – even fair ones. New, better and outside-the-box products and services almost always come with a cost to financial institutions.
How to recoup that cost is the question that impedes innovation today. That’s because many believe the simplest way to finance a new product or service is through the implementation of fees – a tactic that is off the table for many credit unions afraid of alienating members.
Of course, this fear is not unique to credit unions; it’s alive and well in community bank board rooms, as well. The financial industry has become its own worst enemy where fees – even nominal ones charged for exceptional products and services – are concerned.
Today’s consumers have been trained (by the financial institutions themselves) to expect these products and services to be free. Many have gone so far as to protest financial institutions for charging fees, an act national media are happy to expose to an even wider audience of consumers.
This national distaste for fees didn’t happen overnight, and much of the attitude stems from the hundreds of financial institutions that have made “free” a central part of their marketing messages. The old adage “You can’t get something for nothing,” has largely been laid to rest by megabanks happy to provide the illusion of “free” (and then cover their losses with the kind of behind-the-scenes penalties that brought down the heavy hand of regulation).
Credit unions, however, are in an enviable position. As member-owned institutions, their members not only have an interest in protecting their own pocket books; they also benefit from a credit union that knows how to bring in the revenue.
As well, credit unions understand the value in not pursuing an “all things to all people” strategy. Whereas mega banks are chasing down mega numbers, credit unions are working to find the right members that will not only value the cooperative, but will embrace the spirit of it.
Therefore, the introduction of new products and services will be much easier to pull off at a credit union, the membership of which will be more amenable to paying a fair price for a valuable addition to their financial lifestyle.
So what are these value-added products and how much are members willing to pay for them? The answers will, of course, be different for every credit union and will depend greatly on the credit union’s strategic plan. Here are a few ideas, however, that some of the financial institutions are working to implement.
Identity Theft Protection
When members understand that identity theft causes personal losses up to $5,000 on average – and that it can take as many as 130 hours for an individual to resolve – they become very interested in learning how to protect their identities. By offering identity-restoration products, credit unions are able to protect their members and their institutions from financial losses. As a cherry on top, the product is priced low enough that credit unions can to use it to develop a completely new source of income.
Credit and Debit Cards
Upping transactions is the name of the game in today’s cards space. Offering user-friendly rewards for shopping members and photo cards for teen members, for example, are each tactics that can not only increase credit and debit card usage; it can also be a tremendous source of new revenue when priced right. Why not charge a fair price for a personalized debit card? Remember what consumers used to pay for vanity checks? And that was years ago.
Dynamic Currency Conversion
International visitors to our country have the same need for cash as Americans. Yet a trip to the ATM is hardly as simple for them. Fluctuating exchange rates and posting dates make the mental math more than most want to confront. By building a dynamic currency conversion program into an ATM network, financial institutions provide a valuable service to travelers and – depending on the location of the ATM network and the fee schedule assigned – the institutions stand to capture a sizable chunk of revenue.
These are only three examples of many that credit unions can explore. The key is to first uncover what’s currently missing from your product or service lineup.
What are the pain points your members consistently complain about and how can you alleviate that stress? For credit unions, the solution will provide a two-fold benefit for members: 1) filling a void in their everyday lives; and 2) building a stronger cooperative. When true value is present, fair fees are absolutely possible.
To be sure, there will be criticism from some. But these are very likely the folks who view financial services as a commodity and want everything for free. Credit unions have nothing to fear from this group, as it is not composed of target members. Those credit unions that avoid the temptation to be swayed by a few will ultimately create the most successful – and sustainable – cooperatives.
Jim Ghiglieri is senior vice president of corporate communications for SHAZAM in Des Moines, Iowa.