LAKE BLUFF, Ill.-For credit unions to improve non-interest income this year, or just keep to keep that line item flat, they will need to focus on several key areas-including overdraft fees and new fees charged for the CU's service and expertise, according to one person.
Michael Moebs, CEO and economist at Moebs $ervices, emphasized that with overdrafts, credit unions must move away from focusing on price and instead address volume and limits. He said greater member OD activity comes from dropping price. "We have always seen that when a financial institution drops its overdraft price below $20, competing then with the payday lenders, it generates more volume and revenue, contains losses for the credit union, and provides an affordable safety net for members." The median CU overdraft charge is $27, while banks average $30, according to Moebs $ervices December 2012 survey of over 2,500 banks and CUs.
Moebs, too, insisted that credit unions, especially with the CFPB's focus on overdrafts, cannot place too much reliance on overdraft income to drive non-spread revenue, saying that in many cases there is overreliance here.
A large driver of income outside of overdrafts, Moebs reminded, is debit interchange. He emphasized getting more debit cards into hands of new and existing members, creating usage strategies, and going after cash and check users.
"Credit unions should be encouraging all their members to eliminate paper," said Moebs, reminding that many younger members never write checks anymore.
In the area of non-interest income generated from loans, the thinking has to be APR, not rate, said Moebs. "APR includes fees. Have the lowest rates around but charge a fee for the credit union's expertise, and the convenience of closing the loan quickly. Members will pay for that."
Rethinking Indirect Lending
The thinking applies to indirect auto lending, as well, said Moebs, who said offering dealers an extremely low rate in exchange for their normal reserve plus a fee to the credit union "gets the dealers working for the credit union. Currently credit unions are working for the dealers. This needs to change."
Moebs believes car dealerships will accept the trade, taking a low rate knowing they can make up the fee difference by adjusting the car's price.
A large number of CUs are struggling to turn a profit, with 29% reporting losses last year (Credit Union Journal, Jan. 24). Many in this category are likely struggling with non-interest income as well, observed Moebs, who said a lack of product focus is causing issues.
"Many of these credit unions have too many services, trying to be all things to all people. They should not have six checking accounts, a few Visa cards, and several share accounts and money market deposit accounts. They are diluting their limited operations, IT and marketing resources. They see BofA, Chase and Navy Federal and want to emulate them. Instead, they need to think in terms of being focused, doing fewer things but doing them better-which produces higher member satisfaction and therefore greater usage, volume and revenue from fees."
For info: Moebs $ervices: www.moebs.com.
