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Credit unions can employ the following techniques to boost non-interest income:
•Adding or enhancing a reward program (ideally one that combines debit and credit);
•Promoting credit line increases and promotional rate pricing;
•Deploying Platinum cards;
•Consolidating debit network affiliations and maximizing debit interchange revenue and fees;
•Implementing a comprehensive small business program with credit/debit, insurance and other
services; and
•Offering both instant issue gift and reloadable prepaid cards.
Rewards programs are essential to boosting card usage. Today’s reward programs offer something to satisfy every member’s interest—from cash back to exotic vacations, brand-name electronics and other merchandise. We have seen credit unions increase interchange income by as much as 35% by a rewards program to its signature-based debit card
transactions.
Offering rewards to credit cardholders is equally effective. A survey of PSCU Financial Services member-owners found that adding a rewards program created the following gains over a 12-month period:
•22.9% growth in gross active credit card accounts;
•17.4% increase in transactions per active account; (an average of 23 additional transactions a year);
•43.8% boost in interchange income; and
•38.9% gain in outstanding balances.
Many credit unions have opted to allow members to combine points from credit and debit programs to boost higher usage of both cards and to use their cards exclusively. Publicizing rewards redemptions in flyers, newsletters and Web site banners also energizes usage. When one of your members earns a big-screen TV or a family vacation, everyone gets excited about accumulating points for their desired reward.
One of the fastest and safest ways to boost transaction volumes (and outstanding credit balances) is to proactively increase credit lines for eligible members.
Credit unions need to evaluate cardholders regularly and assign appropriate credit limits. In most cases, cardholders’ limits are too low, not too high. It’s time for the industry to take a proactive approach and encourage members to use a credit-union-branded card. Automated solutions do most of the work by evaluating cardholders based on each credit union’s standards for payment history, last increase date and length of card ownership, credit scores and other factors.
For maximum results, credit line increases are often combined with a promotional rate offer that builds cardholder loyalty by offering low interest rates on transactions and balances. Launching frequent rate promotions not only stimulates card usage, but simultaneously builds higher balances and a larger cardholder base. Adding Platinum cards to the portfolio also boosts non-interest income since these cards typically carry higher credit lines and post higher transaction volumes.
Debit cards not only contribute valuable interchange revenue to a credit union, they also drive a significant portion of checking account fees, including foreign (non-CU) ATM fees and overdraft fees assessed as a result of debit card transactions being paid into overdraft.
It’s also important to pay attention to expenses—specifically the cost of maintaining outdated and unnecessary network affiliations. Credit unions can now gain national coverage with a single network affiliation, and use an additional network for international coverage. Also, take advantage of network priority routing rules that can maximize your PIN POS interchange revenue and purge the portfolio of proprietary debit cards.
Small business owners represent an untapped gold mine. Micro-businesses with annual revenue under $1 million comprise more than 90 percent of all U.S. businesses. According to CheckFree, and industry research, small business clients present a tremendous opportunity for credit unions since they are generally three times more profitable than a typical non-business member and are willing to spend more money on financial products and services.
A business debit card program, for example, offers added convenience to members while simultaneously delivering business transaction fees and more favorable interchange fees to the issuing credit union. When you add in the reduced costs related to check processing, the gains are even greater.
Small business owners respond well to attractive debit and credit card offers, especially those with rewards and appropriate credit lines. Promotional rates on purchases and balance transfers can allow owners to consolidate balances and use a credit union’s cards as their primary method of payment. In addition, owners are also attracted to other income-producing financial services including insurance and retirement/broker services.
Gift cards are much more than a sideline product for holiday gift-giving. These cards earn interchange income while satisfying member needs. Both instant issue gift and reloadable prepaid cards are increasingly popular with members. Credit unions can boost income by launching seasonal promotions for Mothers Day, Fathers Day and graduations along with strong marketing messages around the holidays and targeting key segments like young adult and travelers with reloadable cards.
Building a strong revenue stream from non-interest income is not difficult, but it does require credit unions to proactively examine their product portfolios and focus on activities that drive increased transaction volumes. An added benefit is that many of these programs will also boost interest income as a by product of efforts to increase non-interest income.
