Often Underappreciated Fee Income Only Part of Card Income But Too Often Overlooked, Experts Say

Ondine Irving, a card analyst and consultant who works with credit unions, is zeroed in on this topic.

"I am really passionate about helping credit unions understand that there is money they could and should be collecting on their card programs which they are leaving on the table."

Much of the reason is that too many credit unions still have not really reviewed and revamped their card programs so their fee collection is out of date, along with their card platforms, rewards options, policies on credit line increases etc., Irving said.

Another reason credit unions are not taking full advantage of their fee income can be that they know their members dislike fees and that fee practices in the broader card industry have given fees such a bad reputation that they feel reluctant to put any fees in place at all.

But Irving draws a sharp distinction between practices which some bank card issuers have used to gouge their cardholders and practices which any credit union card issuer can and should put into place.

"Fee income should reasonably be between 10%-15% of their program's income," Irving said, "but most credit unions only earn between 3%-8% and then some sell their portfolios because they think they cannot make money on them," she said.

Two moneymaking fees that credit unions most often overlook or undercharge are late fees and over limit fees, Irving said. The problem with late fees is usually that they are too low and the CU takes too long to assess them, Irving said.

A late fee of $20 or $25 can be entirely reasonable in today's marketplace, Irving explained, and they need to be assessed when the payment is five days late, not 15.

"Too many credit unions still have policies where they will charge a $10 late fee when the payment is two weeks late," Irving said. "The fee needs to be $20 or $25 and it should be assessed after five days."

Likewise over limit fees need to be assessed at the point where the member takes their card over its credit limit and not at the end of the cycle, during which time the member might have taken the card over its limit once or twice, but then paid it down before the end of the cycle.

"Credit unions do this as a courtesy, allowing their members to go, say, 10% over their credit limit before the charge will be declined–and that's a good thing. But it's not unreasonable to charge something, say $20, for that courtesy."

In addition to fees, Irving noted that one of the best ways credit unions can improve their entire portfolio is to begin to offer a platinum card, if they have not done so already. According to Visa, Platinum cards have an 8% higher percentage of active cards than do Visa Classic cards and Platinum cards are used more, as reflected in the $44 per card per cycle increased interchange returns that Platinum cards carry.

There are also vendors who say they have found ways of improving upon even beginning to issue a platinum card as a way to increase interchange.

Ron Zanotti, vice president of sales and marketing for Dynamic Card Solutions, said the roughly 250 credit unions that use the firm's instant issuing solutions to issue their credit and debit cards on site, at the branches, have seen an almost 50% increase in usage and interchange. Zanotti puts the credit for the increase with the phenomenon of not just putting cards in members' hands more quickly, but of putting activated cards in their hands more quickly. "Look at this way, if you send your members a card through the mail, you are looking at about a seven to 10-day time period until they get the card," Zanotti said. "And then they have to open the envelope and call your number and activate it. With instant issuance, members walk out of the branch into the marketplace with an activated card already in their wallets–it's 100% activation, guaranteed."

And the increased activation shows up quickly in the interchange levels, Zanotti explained, particularly when it comes to debit cards because even though the interchange rate per swipe is lower, the opportunities for card use have grown so much that it makes sense to get activated debit cards into the hands of members as soon as possible.

Irving agreed with the idea of instant issuing as a card strategy and noted that the relatively small changes in fees structure as well as making changes to the platform can help credit unions really up the income from their card programs without having to change any interest rates. –dmorrison@cutimes.com