A slowing economy and an inverse yield curve have combined to make this a very challenging time for America's credit unions. While opportunities still exist to grow lending portfolios, now more than ever, it's important for credit unions to generate more non-interest income. Investing in the right enabling technologies is vital to that goal and those technologies that support the following services should be in your short-range plans if they are not already in use.
oCourtesy payment. Offering courtesy overdraft already has proven to be a real "home-run" for many credit unions, though it's still controversial in some circles. Done right, it serves your credit union and your members well: increasing fee income (often substantially) while providing a valued service that can reduce costs for members and help preserve their relationships with merchants. Look for technology solutions that allow you to offer courtesy overdraft across all channels, including ATM, ACH and debit. You should provide flexibility in setting member qualification criteria and overdraft limits, including overdraft payments, fee assessment, and member notice generation. As a prudent precaution, you should track member usage regularly to spot potential abuse and intervene when necessary.
oDebit cards. We are living through a time of substantial transformation in the U.S. payments market. The debit card has already booked its place in the payments "Hall of Fame" and, while share draft growth may be flat, debit card use is on the rise and will become the predominant way that consumers make payment. With transaction volume growing rapidly, the potential interchange fees can be significant. A 2006 Callahan & Associates survey found that interchange income from debit and credit card transactions already represents 36% of non-interest income for credit unions, the largest such source. The best debit card solutions support real-time processing, enabling members to debit against a real-time balance. Also consider tying your debit card program to a rewards program that encourages frequent use by your members. Some predict debit card programs that don't incorporate a rewards component will become dinosaurs. Let us be careful not to let go of the credit card relationship, too. Yes, it is a scale business, but there are many ways to "play" in the credit card business without having scale. oCommercial processing. Member business services offer many advantages for credit unions, not the least of which is the fee income potential. On the commercial side, fees are often assessed for the number of deposits and withdrawals, the number of items in a deposit, night-bag drops, and other account activity. Whether you choose a specialty commercial package integrated with your core processing system, or commercial functionality that's built into the core system, be sure it supports must-have commercial services such as account sweeps, account analysis, cash management, and merchant capture, as well as easy calculation and assessment of fees. Remember, too, that most banks find the deposit side of a business relationship far more profitable than the lending side.
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oCredit monitoring services. With identity theft a continued threat, offering members a credit monitoring service is one way to add value to the relationship while generating monthly fee income. By serving as a reseller of the service, a credit union can help members to monitor and maintain their creditworthiness and spot potentially fraudulent activity early. ASP/service bureau solutions tend to work best for these types of services, since they enable the credit union to outsource the associated IT and administration, including member service and billing.
oHSAs. In this era of consumer directed health plans, Health Savings Accounts have emerged as a positive growth opportunity for credit unions. HSAs address the dual challenges of generating fee income and attracting new deposits. Often, institutions charge an annual maintenance fee for these accounts, much like an IRA. If you choose to assess such a fee, but are looking to deliver greater value in return, consider creating a health information portal–a place your members can turn for prescription drug pricing, comparison of medical services, and other valuable consumer services. And be sure to give members debit card access to their HSAs! oMember-centricity. Member-centricity is evident when a credit union's culture, products and infrastructure are focused on providing members with what they need, when they need it, supported by excellence in member service. "Relationship technologies" that support cross-selling and relationship pricing will help you analyze member needs, match members with appropriate product offers, encourage and reward profitable behavior, and improve the success rate of your sales efforts.
Like it or not, we live in interesting times! Making the right investments in technology can help credit unions set the stage to deliver services that add value for the member and fee income for the credit union.
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