RICHMOND, Va. — Striking a balance between offering value-added services to members and the necessity of generating noninterest income is something Virginia Credit Union Inc. continues to strive for.
The $1.5 billion credit union has taken a multi-tiered approach to amassing noninterest income whether through its mortgage and title CUSO, property and casualty insurance CUSO or mutual funds offered through MEMBERS Financial Services, said Bob Warren, senior vice president/CFO.
"Most credit unions are starting to see the value and necessity of noninterest income," Warren surmised. "Most are seeking opportunities for value-added service as opposed to just growing noninterest income to raise fees."
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Established late last year, VCU's property and casualty CUSO is off to a strong start as it offers members access to multiple carriers with what Warren believes is "the best coverage for the best prices." Add-on products such as GAP waivers, extended warranties, and life and disability insurance are sought after by members. Equally as strong is the growing number of loan prospects through its mortgage titling CUSO. By far, debit and credit card interchanges are among the largest providers of noninterest income, Warren said.
The use of CUSOs as a means to generate noninterest income remains elusive for most credit unions, said Jim Jerving, a financial services writer and author of Generating Non-Interest Income, a CUNA CFO Council white paper released in January. Jerving has worked in editorial and management positions at CUNA, WOCCU and currently serves as vice chairman of Heritage CU in Madison, Wis.
"One of the competitive advantages credit unions have that banks lack is the ability to collaborate in joint ventures through CUSOs," Jerving said. "While many credit unions would benefit greatly from participating, many chose to forego joint ventures."
Of the nation's 8,300 credit unions, only some 2,100 credit unions participate in CUSOs, Jerving said. To increase those numbers, views on noninterest income as well as fees may have to shift.
"Fee and noninterest income are sometimes viewed by directors and management through a prism of the past, when margins were healthier and fee income was a less critical need," Jerving said. "We need a rethinking of fee and noninterest income in order to enhance the member and serve more members because the times demand it."
Just like CUSOs, Jerving said credit union participation in wealth management services is still minor despite the 35 million baby boomers starting to retire and $20-$25 trillion of wealth that is estimated will be transferred during the next 20 years. For many credit unions, offering such services would not mean having to start from scratch.
Jerving said some credit unions already offer educational programs, financial planning and investments. Products like reverse mortgages, for example, can be packaged to be part of a wealth management service portfolio. While trust services were too costly to consider in the past, there are now affordable options through CUSOs and partnerships. Managed money accounts and long-term care insurance are other value-added options and sources of noninterest income.
"Credit unions have a number of affordable wealth management options available in cooperative partnerships," Jerving said, adding offering financial planning is a viable first step. "The benefits are numerous–fee income as well as keeping members in the credit union family and attracting new members."
In preparing to write the white paper, Jerving said CFOs wanted to know if there were any new sources of noninterest income out there. Through his research, he found that there wasn't. The options currently available to credit unions are not getting the heavy rotation they deserve, which creates a service disadvantage with the financial services realm.
"We should be more aggressive in the marketplace," Jerving said. "We should let consumers know about the credit union difference. Yes, we charge fees, but let's get the message out on how they're different and the payoff goes back to members not shareholders."
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