MADISON, Wis.-With three bogeys on the horizon threatening non-spread revenue, Dave Colby thinks the best ways to attack those potential problems are to increase the volume of activity on transaction accounts and simply grow loans.
At a time when credit unions' dependence on non-interest income as a percentage of total income has reached a high point-27.3% through Q3 2012, up from 19.7 % in 2005-the CUNA Mutual Group chief economist said CUs should be paying attention to three forces likely to disrupt this growing revenue stream:
* The Consumer Financial Protection Bureau's focus on overdrafts.
* A further reduction in debit interchange for FIs below $10 billion in assets.
* The threat of the payments markets being turned upside down as a result of new players and technologies.
A payments system overhaul from new, disruptive forces could be the biggest threat of all, noted Colby, saying that while the Durbin Amendment and any other moves by the CFPB may chip away at payments income, the entrance by non-bank players-like Google, large phone companies, and big-box retailers such as Target-could steal huge chunks of the payments business from CUs.
"I think we are at a major inflection point in the payments markets," observed Colby.
As far as immediate strategies to address any debit shortfalls, Colby suggested what many credit unions have been doing-growing transaction volume. "You grow in number of members, get plastic in their hands as well as in the hands of your existing members who don't have your card. Get them all using your card more. There is a huge well of payment revenue right inside the existing membership we can tap."
An Effective Countermeasure
Not only get members using the CU's card, but build strategies to increase usage per card. While rewards and rate incentives can go a long way toward achieving the goal, Colby thinks that in the not-too-distant future credit unions may turn to a card and credit protection strategy, similar to LifeLock-to differentiate and get members to use the CU's card more.
Perhaps the best countermeasure, according to Colby, is just growing loans. "That not only helps the credit union replace some of that non-interest income at risk, it helps members a lot. Sometimes we have to realize that fees are what they are and challenges are what they are, so why not just grow loans?"
Colby views credit cards as offering strong growth potential. "And go rewrite members' loans. A lot of people out there have gotten loans as a result of convenience and not rate, especially auto. Find them, as well as the short-duration, high-equity mortgage refinance opportunities that you can hold on your books that will give you spread. There is plenty of opportunity to grow more loans, which is what we should be doing all the time."
For info: CUNA Mutual Group, www.cunamutual.com
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