LOMBARD, Ill.-Saying credit unions can't continue to rely as heavily on non-interest income as they have in recent memory-and certainly not the same sources-Bill Handel is urging CUs to lean on their abilities to price effectively and leverage CUSOs to keep the bottom line intact.
The VP of research and development at Raddon Financial Group sees many signs that non-interest income will not continue as it has, citing the CFPB's attention to fees, interchange swipe fees and overdraft revenue falling, and that CUs have leaned heavily on non-interest income in the last decade, which he called a "historical anomaly."
Foremost, it will take credit unions getting back to pricing better, said Handel, therefore managing margins better. "I think as non-interest income grew we relaxed some margin attention. For the long term, we will have to get better at creating effective pricing models and sticking with them."
What Handel says is also a more lasting solution is more CUs moving into investment brokerage services and insurance sales via CUSOs. "Especially with the CFPB's focus on fees paid by consumers to financial institutions, it's probably not the best long-term strategy to see where we can add fees," said Handel. "We need to look at new businesses that won't fall under the purview of the CFPB. Insurance is a strong possibility."
The Role of Reputation
Noting that many now offer credit and credit life products, Handel said CUs must expand broadly into the insurance space through CUSOs, pointing out credit unions have the reputation to succeed here.
"It takes a while to build this type of business, but this could be very lucrative for credit unions. The level of trust people have with insurance companies overall is not great, but members trust their credit union."
Handel said credit unions enjoy the same reputation advantage when it comes to brokerage services offered through CUSOs. "There is a burgeoning population of Baby Boomers moving into retirement, rolling over 401(k)s and IRAs. There is a lucrative income stream that comes off those lump-sum rollovers."
