BOSTON — Credit unions that want to improve their non-interestincome numbers need to strike a balance between reversing all feesand taking a zero-tolerance approach, according to CEO Paul Muse of the $580 million 1stAdvantage FCU.

The leader of the Yorktown, Va.-based institution discussed hiscredit union's non-interest income strategy during a Thursdaybreakout session at NAFCU's 46^th Annual Conference inBoston.

“Our approach had been to give it all back, which didn't helpthe credit union or encourage users of services like overdraft orcourtesy pay to look for other solutions that would save themmoney,” Muse said.

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That willingness to work with members to understand theirsituation and what happened in their lives that caused them togenerate the fee is an important part of the credit uniondifference, the Virginia CEO said, and one that credit unionsshould mention when talking to lawmakers.

However, as interest margins have compressed, credit unions havebecome increasingly reliant on non-interest income, and mustmaximize the performance of current products and services thatgenerate fees, Muse said.

He suggested working with NAFCU preferred business partners whocan recommend new income sources or ways to enhance currentperformance.

“You can't sit back and wait for things to return to the waythey were in the past,” he said. “We are at a point in our industrywhere we need to take action and make changes.”

The Filene Research Institute's Brent Dixon, who along withPULSE President Dave Schneider joined Muse on the session panel,said non-interest income has increased from 61 basis points in 1990to 131 basis points in 2011. At the same time, ROAA minus feeincome has decreased from 34 basis points in 1990 to negative 63basis points in 2011.

“Regardless of where you fall in the philosophic conversation,it's clear that credit unions have to rely upon non-interest incometo survive,” Dixon said.

Financial institutions that irresponsibly fee customers not onlycreate a public relations and regulatory nightmare for themselves,they affect the entire financial services industry, the Fileneresearcher said.

He referred to the results of a 2012 Filene study that explored how credit unions can bring in morenon-interest income revenue while adding value for members.

Transparency of fees was a theme that came up frequently in thestudy, Dixon said. He noted that he discovered last year whenresearching predatory lenders that their customers know they arebeing taken advantage of, but they're OK with it because they knewthe cost up front.

“And they said if I go to a bank or credit union, those feesmight not be as transparent,” he said.

Augmented payment options like PayPal present a huge opportunityfor credit unions to generate non-interest income, Dixon said.

“A lot of people are de-banking themselves to use these productsbecause they are easier to use than some of the tools offered atfinancial institutions,” he said. “If you can partner with some ofthese groups, it provides another opportunity.”

Schneider agreed.

“There's a list a mile long of companies like Google, Isis andPayPal who are looking to expand their relationship with yourmembers, and that can be at your expense if you're not in thegame,” the PULSE president said. “So partnering with them is way toget into the game and meet that consumer where they want tointeract with you, because that's critical.”

Mobile payments will be the “next big thing”, Schneider said,but the payments executive said it will happen more slowly thanothers predict.

“I remember when I got into payments in early 80s, the end ofchecks was right around the corner. Everybody was saying paper wasgoing away,” he said. “But the reality was, things like that take along time.”

Schneider said in addition to the time it takes to changeconsumer behavior, payments platform changes are slowed by the needfor infrastructure to catch up. When it comes to mobile payments,he said there are still many different solutions and the industryhasn't yet settled on a universal model.

“But that doesn't mean you shouldn't be thinking about it, anddoesn't mean there won't be early adopters,” he said. “So youshould be trying some things out with members, and lining uppartners.”