It Will Be All About The Pricing

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LOMBARD, Ill.-In the "post-free" era, credit unions will have to institute relationship pricing to substantially grow in 2011, according to one analyst.

Bill Handel, VP of research and development for Raddon Financial Group, described 2011 as the beginning of a financial services era in which many of the services previously provided free will begin carrying a fee. In such an environment, relationship pricing can be very effective, observed Handel.

"Relationship pricing is a really interesting thing," offered Handel. "It's hard to be successful with it in a 'free' environment. You can try to throw things in to make a product more valuable, but what is more valuable than free? That has been the challenge for the last decade. Relationship pricing did not work for credit unions because everything was priced at free."

Handel says the move away from free has begun, and free checking is at the top of the list. "We are seeing a pretty furious movement away, generally, from free in the marketplace. With the Federal Reserve ruling on debit card interchange we may even see movement away from free debit cards, and more credit cards may begin carrying annual fees, but that will happen more slowly. You may start to see annual fees come back on home equity lines."

The need to move to relationship pricing is greater today, suggested Handel, because CUs will need to focus marketing efforts more on increasing share of wallet with existing members than growing organically, with the economy not expected to grow much in 2011. "Credit unions will have to find creative ways to steal business from other institutions."

Handel believes marketing efforts will need to be focused and employ data mining tools. "You will have to understand your membership base much better. It's the same message that's been talked about for years, now it's more relevant-instead of talking to everyone once, talk to one in three members three times."

Banks' bad image will continue to present opportunities. But Handel noted that while consumers are unhappy with the big boys, they are still using them in large numbers. To encourage the movement to community-based financial institutions, Handel believes CUs must effectively position themselves as consumers' "ally. The movement away from free by banks will not be that obvious, and will seem subtle to many consumers. I think it is important to educate the market on how to be really good consumers of financial services, what to look for, and how not to get tripped up or trapped. That is a good message that will help credit unions grow."

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