SAN ANSELMO, Calif.-There's a lot more room on the fee schedule to charge for services members are willing to pay for, according to two studies-one of which says the rise of mobile is driving the opportunity.
A just-released study from Market Rates Insight follows a 2012 study from the Filene Research Institute/CUNA Mutual Group that looked at consumer and financial institution attitudes about service fees, emphasizing that CUs can increase their noninterest income while preserving member loyalty by charging for services members see value in.
Many of the services members say they are willing to pay for are on the electronic front, according to Market Rates Insight, while the Filene/CMG study concluded there is significant opportunity with insurance and investment products.
'Enormous Growth Potential'
"There is enormous growth potential for both credit unions and banks," said Dan Geller, executive vice president at Market Rates Insight, whose study will be released later this month. "The desire is there. If you offer the right type of services at an optimal fee, the [revenue] potential is four times what it is now."
For Geller, the opportunity is greatest among what he termed "emerging services," such as electronic bill pay, credit score reports, ID theft protection, payment protection services and online personalized couponing. "We measured 13 emerging financial services (see chart). We did not include NSF, ATM ... all those fees that have been around for decades."
The underlying cause for the revenue growth opportunity, according to Geller, is rapidly advancing technology and evolving consumer lifestyles. "There is an array of new financial services that have come into existence in the last few years. For instance, the rise of mobile-now there is mobile bill pay and mobile deposit."
The Market Rates Insight survey received 1,500 responses and measured the percentage of consumers who have these emerging services and then compared the findings against the percentage of consumers who said they'd like to have the offerings. Geller explained that 13% of consumers surveyed said they have the new services, but an additional 55% said they desired them. "Aside from the 13% who have the services, another 55% want them. That means a potential penetration of 68%-a big group."
Both the Filene/CMG and Market Rates Insight studies stressed that for a fee to effectively generate revenue and maintain member or customer loyalty, the consumer must see value in it. According to Geller's study, the emerging services consumers see the greatest value in are credit score reports (71.4% of respondents said the service was important to them), identity theft protection (70.8%), payment protection service (64.6%) and online personalized couponing (59.6%).
The Filene/CMG study surveyed 62 CUs nationally that are doing well driving non-interest income, excluding overdraft and interchange revenue. The study looked closely to determine the "member friendly" fees that add value to members and strengthen relationships-fees that lead to sustainable financial performance for the credit union.
"With each fee we measured what we called the 'discomfort gap,'" said Ben Rogers, research director at Filene, explaining that gap represents the spread between how the CU sees the impact of the fee on total non-interest income revenue with what the credit union believes members perceive about the charge (see charts above).
"If the credit union believes members value the service well below how it rates the fee, then that is a fee to examine and be wary of," pointed out Rogers, who added this type of charge could alienate members.
Rogers said that while checking fees contributed a great deal to non-interest income according to respondents, they showed a large discomfort gap. However bill payment charges, while not a strong contributor to non-interest income, showed no discomfort gap, said Rogers. "This indicates the member sees a lot of value in the service (bill payment) and is willing to pay for it."
The Filene/CMG study showed members are OK with many charges related to insurance and investment products-such as credit insurance, GAP coverage, investment advice and mechanical repair coverage-having no discomfort gap with these products. "These are optional fees but ones people see a great deal of value in," said Rogers. "Members have freely chosen to pay the fee for a service they know helps or protects them."
Both studies indicated that consumers see greater value in paying for a bundle of services instead of a single service. Rogers indicated that several of his study's credit unions created a new core checking account that includes a bundle of services.
"These credit unions default members to the new core checking account but let members know the free account is still available. But to get the free account members have to opt out of the new core account," explained Rogers. "It appears members are amenable to this-the CU leading with the new account and the new services, and then leaving open the option for the free account."
Geller said the Market Rates Insight study showed that consumers prefer to pay for bundled services over individual services, and that they are willing to pay $8 to $12 a month. Bundles that were perceived as most valuable included ID theft, prepaid cards and overdraft protection, he added.
