PHOENIX-There are five steps credit unions can take to offset the regulatory pressures affecting fee income in two areas, according to a pair of analysts.
Jan Southern and Cheryl Lawson of John M. Floyd & Associates in Houston said those steps to cut expenses and increase income need to be taken at the same time there is a new emphasis on clear communication and giving consumers what they want.
Southern, JMFA's engagement manager, noted the two noninterest income stalwarts for credit unions, debit card interchange fees and overdraft/NSF fees, have been squeezed regulations over the past several years. In response, Southern and Lawson offered these five tips to attendees at the CUNA CFO Council annual meeting:
Tip 1. Do not hang on to an unprofitable product just because a few people think it will satisfy members. "Constantly review product profitability to determine if a product has passed its time," she counseled.
Tip 2. Look outside traditional revenue boxes, and make sure the CU offers products beyond checking and savings. "Is the loan portfolio mostly auto and signature loans? If so, add other products to drive more income."
Tip 3. Review every aspect of expenses and avoid the pitfall of, "That is the way we have always done it." Consider discontinuing printing hard copies of reports. Check if the CU is buying or leasing equipment, as sometimes leasing makes more sense. Examine staffing to determine if it is driven by hours open, or by busy times. "It might not be necessary to have five tellers present at 9 a.m. all five days a week."
Cross Sales & Traditions
Tip 4. Change the credit union's delivery to sales and service. Train the staff to cross-sell peripheral products that result in increased revenue. Have only financial services representatives who are universal-meaning they can open accounts, take loan applications and provide all member services. Base compensation on production. This means a lower base salary with the possibility of incentives.
Tip 5. Said Southern, "If your CU is planning to build a 'traditional' branch, don't!" She cited technology-based alternatives, such as dialogue teller pods.
"There might me an initial technology investment, but in the long run it will save money," she assessed. "Gen Y and Millenials are not coming in to branches. Of course this depends on market and membership, but the future branch is a smart phone. Almost everything that a credit union offers to its membership soon will be done via technology."
Lawson, JMFA's EVP of compliance review, urged a thorough review of every aspect of the credit union's operations, and added, "I am firm believer in listening to the marketplace. If credit unions do not increase revenue the industry will suffer."
According to Lawson, CUs should practice Institutional Growth Tactics: Offer what members want, reduce expenses, increase non-interest income, service members and be competitive.
"But how to increase non-interest income given regulatory pressures and competition is the big question," she said. "Credit unions cannot pass on inefficiencies in this market."
Recommendations for improving efficiency included:
* Realize operating costs and product pricing are not in separate silos.
* Improve productivity.
* Reduce costs of product launches.
* Optimize cost of human capital.
* Relating to the latter, Lawson said, "It is a difficult time to find the best possible workers. Make sure the right person is in the right role, and if someone is not needed, let attrition take care of it."
Finding Fee Income
Fee income can be found in a number of categories, Lawson continued. While traditionally fees have been tied to checking accounts, she said new opportunities can be realized in deposit-related income and loan-related fee income.
"Basic deposits and withdrawals can lead to activity and/or minimum balance fees, overdraft privilege fees, stop payment fees, and ATM surcharges," she said. "Overdraft is not specifically income, it is a relationship opportunity. It can lead to a conversation, which in turn builds a bridge."
And while CUs historically have had lower NSF fees than banks, Lawson said sometimes credit unions are too nice. "Waiving fees is a profit leak," she said.
