Successful Opt-In Campaigns May Mean Big Revenue Boosts In 2011
LAKE BLUFF, Ill.-Credit unions' successful efforts to educate members on the new overdraft rules will make 2011 a big year for CU income, one economist predicts.
"Led by overdraft, I believe 2011 will be one of the best income years in the history of the credit union movement," stated Mike Moebs, economist and CEO of Moebs $ervices. "Credit unions, and community banks, did a very good job with this. By mid-year 2011, credit unions will have enough income to offset a half-year's loss of interchange revenue, as the new interchange rules do not kick in until mid-year 2011."
Moebs sees 2012 income falling below 2011 levels due to a full 12 months' impact of the new interchange guidelines. However, overdraft revenue will continue to help offset reduced interchange income, Moebs added.
As Moebs previously stated (Credit Union Journal, April 12), after a small dip in overdraft revenue during the third quarter of 2010, interchange income will "come roaring back in the fourth quarter." Leading the charge are credit unions that have provided "greater transparency" through their overdraft communications and those that have lowered overdraft pricing, Moebs insisted.
Moebs $ervices has monitored approximately 1,100 credit unions regarding overdraft practices, and just under half (44.3%) have made adjustments to overdraft pricing. Among CUs that changed pricing, 14.8% have reduced their overdraft fees. "It is a surprising statistic," said Moebs. "In 28 years of collecting this data, we have seen only a handful of banks and credit unions decrease their overdraft pricing. And, almost to an institution, the 300 credit unions (in Moebs $ervices' survey) that decreased pricing said they are making more money now."
According to Moebs, what has increased revenue at these 300 credit unions is a change in overdraft users' behavior. Despite a drop in price that initially lowered income, the credit unions reported heavy users of overdraft have increased frequency of overdraft usage.
Also fueling CU overdraft revenue are credit unions that communicated very clearly to members about the rule changes and made sure individuals understand the credit union is providing excellent service. "Those who created greater transparency have been able to maintain if not increase their revenue," Moebs said. "They made their total approach to communication very clear. Marketing materials and agreements were redone to be written to eighth-grade levels and legalize was taken out. These credit unions also sent out e-mails and text messages, helping members see the credit union is reaching out to them, giving them a great deal of information, making it easier for them to learn about the new regulation and opt-in. Essentially, they now see (overdraft protection) as a better service."
Moebs added that credit unions seeing the greatest overdraft revenue gains are those that both decreased pricing and provided greater transparency.