NORTHFIELD, N.J.-With the economy seemingly on the upswing and consumer attitudes improving, deepening relationships with members is key to building non-interest income in 2012, a number of CFOs are saying.
Credit Union Journal spoke with a trio of CFOs-all members of the executive committee for CUNA's CFO Council-for their strategies related to non-interest income in 2012.
"We've been very fee-averse in the past, but we're moving toward a strategy where our member will pay fees for value-added services, so we don't look at that as a negative fee," said Bill Kennedy, CFO at Jersey Shore FCU here. Kennedy offered as an example gap and warranty coverage on auto loans, and noted both products are particularly important when credit unions can't compete on price with the manufacturers.
"We need to educate the member that when you look at the rate, the difference between 1.99% and 2.99% is really nothing," he said. "But when you can save as much on warranty and gap, you can save a lot."
With the dust settling somewhat regarding interchange, some CFOs said they had not made any adjustments to related strategies. Both Kennedy and Sonya Jaynes, CFO and strategic planning coordinator at Red River Employees FCU in Texarkana, Texas, said that they do not offer a debit rewards program because of the costs involved.
Reversal On Rewards
Similarly, Jason Peach, CFO/SVP at West Community CU in O'Fallon, Mo., said that WCCU has high debit penetration and had planned to implement a rewards program to leverage that, but ultimately reversed course in favor of a rewards program for platinum credit card members.
With 19,000 members and $147 million in assets, West Community CU has kept its primary focus on mortgage lending, with 1,518 real estate loans totaling $68.7 million as of its March 2012 Call Report. Peach said that selling most of the mortgages it originates in-house to the secondary market has also been a strong source of revenue.
One frequently cited source of non-interest income is overdraft protection (often called courtesy pay), but the three CFOs acknowledged it is a sensitive area and requires wise management.
"Even before courtesy pay, we had a large stream of overdraft revenue," said Jaynes. Instituting courtesy pay has essentially served as an enhancement to what was already a successful revenue stream for the 63,000-member, $587-million credit union. "We don't give courtesy pay to everyone and we take it away if it appears it's not in their best interest. It's been enough."
Red River Employees also offers gap and warranty coverage through its CUSO, which has helped supplement non-interest income streams.
Jaynes stressed that her CU has multiple other fees it can offer, "but we don't want to fee everybody. ... Some of our area competitors charge you to call in on the phone if you want to conduct your business over the phone instead of online. Courtesy pay was enough. It fills the gap for the loan interest income we're missing or on our investment portfolio."
Courtesy pay accounts for 5% of Jersey Shore FCU's total income, and Kennedy said his 10,000-member, $111-million credit union sees no need to tinker with a program members rely on and even like.
Finding Value In Overdraft
Meanwhile, as courtesy pay remains an important offering at West Community CU, Peach reminded that members must feel a fee has value, and that may sometimes mean altering the structure of a program to ensure it is generating the greatest value for the member. "If they can't use the program to meet their needs, they might go to other options," he said, and that includes competing financial institutions.
Jersey Shore's Kennedy believes that rather than instituting new fees, deepening member relationships remains the key to a robust non-interest income strategy.
"We need to develop a relationship with the member where we get a lot of ancillary income," he said. "Margin management is important, but it's becoming less important than the total relationship with the member."
