By now, your strategic planning for 2011 is undoubtedly completed. Yet at this point, it is difficult for any of us in the credit union world to tell how effective our planning will be. After all, we're still recovering — however slowly — from the Great Recession while at the same time facing the uncertainty posed by the passage of the Dodd-Frank financial-services reform act.
Make no mistake about it: the credit union industry is navigating through shifting waters. However, as we shall see, there are ways to chart a safe course. One of the keys to success will be thinking of planning as an ongoing activity, rather than a once-a-year or once-a-quarter exercise. As the rules of the game change, we must all change our game plans-and that will require nearly constant fine-tuning of our blueprints for the future.
One of the key uncertainties today is exactly what the passage of the Durbin Amendment will mean for credit unions. The amendment requires the Federal Reserve Bank to determine whether the current structure for interchange fees is both "reasonable and proportional" to the true cost of processing debit card transactions. The Fed will issue rules to achieve the amendment's objectives, but those rules are currently almost impossible to predict. So what are we, as relatively small financial institutions, to do?
No matter what the final regulations look like, they will most certainly have an affect on the income of credit unions, which will more than likely be negative. In fact, the reduction in fees has been estimated by some to be as much as 20 to 50 basis points per POS transaction. Until we know more, perhaps the best we can do is remain vigilant and evaluate a range of potential solutions.
What's To Be Done?
All CUs can consider the following ways to counteract the expected impact of the Durbin Amendment:
• Reduce or eliminate debit card rewards, as they can be expensive items. Or, revise your rewards program(s) to create incentives for increased debit card activity.
• Modify free checking accounts to attract new business from the banks that will be seizing the opportunity to charge their clients. Or, perhaps offer a low-cost account for those who have minimal relationships with you and maintaining free accounts among your most loyal members.
• Make the most of Internet PIN-debit. This income source is projected to realize rapid growth in the near future, and it's available to credit unions right now.
• Offer debit card products that allow for revenue recovery while permitting members to continue using their cards. Even now, some are charging for debit cards while sweetening the deal by offering additional services such as a limited number of free foreign transactions.
• Add a credit feature to the debit product.
We can also think about the potential of two large but mostly untapped markets: unbanked consumers and Generation Y. The former could possibly be brought into the fold by offering simple-to-understand, cost-effective products. For the 18-to-34 year olds of Gen Y, this group typically underutilizes their cards and is eager to adopt new technologies such as mobile banking. While I'm sure targeting both of these groups is already part of your 2011 strategic plan, it may be time to pull out the big guns and be more aggressive than ever before.
Until we know more about how the pending Federal Reserve plans, there is little we can do but wait-and plan. Again, it's important to think of planning as an ongoing process rather than as a periodic event. So in your planning, it may be wise to consider these possible steps for the short term:
• Take a fresh look at all your pricing, including checking, paper statements, foreign ATM transactions, home banking, bill pay and others.
More To Consider
• Consider expanding the horizons of your debit program through PIN debit and POS.
• Think about offering prepaid cards more actively. While many CUs offer them, the cards are not promoted aggressively.
• Support CU-owned organizations, as this keeps that money in the CU movement, thereby enhancing the movement to the benefit of all.
No matter where the shifting waters of federal regulations try to steer us, there are still ways to navigate to safe, profitable waters, and the secret lies in smart and ongoing planning.
Mansel Guerry is Chief Executive Officer of BrightView Credit Union in Jackson, Miss., and serves as Chairman of Credit Union 24, a CU-owned ATM and point-of-sale network.
