Why Your Credit Union Needs a Non-Interest Income Strategy

A non-interest income strategy is a financial approach that credit unions and other financial institutions use to generate revenue from sources other than interest on loans. It can help credit unions diversify their revenue streams, reduce their reliance on interest rates, and provide more value to their members.

This strategy is crucial for every credit union for several reasons:

• Diversification: In a high inflationary environment, interest rates often rise, which can slow down lending and reduce interest income. By diversifying their income sources, credit unions can mitigate the impact of these economic changes.
• High Cost of Funds: In an environment with high cost of funds, credit unions may face increased expenses, particularly if they have an older membership with large certificates or high-yield tiered savings products. A non-interest income strategy can help offset these costs.
• ·Concentrated Revenue Risk: If a credit union’s revenue is heavily reliant on its lending portfolio, it faces a concentrated revenue risk. Diversifying income sources can help protect against potential losses in the lending portfolio.

What did the CFPB propose?

The CFPB recently proposed new rules to curb overdraft and non-sufficient funds fees in an effort to protect consumers from unexpected fees and promote informed use of credit. This has large implications to any credit union’s noninterest income strategy, but can also support the credit union movement’s overall goal to improve the financial well-being of members.

Traditional Approaches

So, what are alternative non-interest income strategies that credit unions could pursue in light of the CFPB proposals?

Expanding business client services:

• Offer specialized business checking accounts with features tailored to meet the needs of business clients.
• Provide cash management services, such as remote deposit capture and merchant services.
• Offer treasury management solutions, including automated clearing house (ACH) services, lockbox services, and electronic funds transfer.
• Introduce business credit card programs with rewards and benefits that appeal to business owners.
• Provide expense management tools and reporting for better financial control.

Tax advisory services:

• Provide tax preparation services for individuals and businesses.
• Offer electronic filing options for convenience and efficiency.
• Conduct workshops and seminars on tax planning for members.
• Offer personalized tax consultations to help members optimize their financial situation.
• Extend tax advisory services beyond the tax season to assist members with year-round tax planning and compliance.

Selling Insurance Products

• Partner with insurance providers to offer competitive rates and earn commissions on policies sold to members.
• Focus on relevant lifestyle offerings like life, disability, homeowners, and auto, and pet owners insurance.
• Create bundled packages that include banking services along with insurance products, providing members with added value

Wealth Management and Brokerage Services

• Partner with investment firms or develop in-house services to offer mutual funds, brokerage accounts, and retirement planning guidance.
• Cater to the needs of high-net-worth members seeking diversification and investment opportunities.

Credit Card Programs

• Issue reward cards or cards with low-interest introductory periods to attract new members and generate interchange income.
• Prioritize member financial well-being with responsible lending practices and financial education initiatives.
• Interchange fees: These are fees that banks charge merchants for processing card transactions. They are usually a percentage of the transaction amount plus a fixed fee.
• Card fees: These are fees that banks charge cardholders for using their cards, such as annual fees, late fees, over-the-limit fees, foreign transaction fees, etc.

Digital Wallets and P2P Payments

• Drive interchange fees from credit or debit card payments initiated through digital wallets or P2P solutions, such as PayPal or Venmo

Emerging Strategies

Non-traditional strategies are also emerging which could benefit enterprising credit unions willing to seize the first-mover advantage.

Subscription services

• Offer monthly or annual subscriptions for bundled services like financial planning, identity theft protection, or extended warranties.
• Provide value and convenience to members while generating recurring revenue.

Data monetization

• Leverage member data (with their consent) to provide targeted marketing or analytics services to businesses.
• Ensure data privacy and security are paramount.

Investing in credit union service organizations (CUSOs)

• Invest in CUSOs that offer services such as lending, member services, payment and electronic transaction processing, insurance, wealth management, tax advisory, and brokerage.
• Take advantage of patronage programs or structured finance vehicles that provide a return on investment

Financial technology (FinTech)

• Partner with FinTech companies to offer innovative solutions like peer-to-peer lending, robo-advisors, or budgeting tools.
• Partnering with fintech companies to offer digital solutions such as fraud protection, credit monitoring, data protection, and loyalty programs.
• Stay ahead of the curve and cater to tech-savvy members.

Community engagement

• Organize workshops, seminars, or financial literacy programs to attract new members and build loyalty.
• Position the credit union as a trusted financial partner and advisor.

Remember

• Member-centric approach:?Always prioritize member needs and value when implementing any non-interest income strategy.
• Regulatory compliance:?Ensure all practices adhere to relevant regulations and ethical standards.
• Data-driven decision making:?Analyze data to understand member behavior and tailor offerings accordingly.
• Continuous innovation:?Stay updated on industry trends and adapt your strategy to remain competitive.

In Conclusion

The landscape of financial services is evolving rapidly, and credit unions must adapt to thrive. Embracing a robust non-interest income strategy is no longer optional – it's a crucial investment in the future.

This strategic shift empowers credit unions to:

• Navigate economic volatility:?By diversifying revenue streams beyond interest rates,?credit unions can mitigate the impact of rising rates or fluctuations in lending volume.
• Fuel financial well-being:?Offering valuable additional services,?like tax advisory,?wealth management,?or business solutions,?empowers members to achieve their financial goals and fosters closer relationships.
• Stay competitive:?As consumer expectations shift,?embracing innovative non-interest offerings positions credit unions at the forefront of financial services,?attracting new members and solidifying their place in the community.

While the CFPB proposals pose new challenges, they also present opportunities for innovation. Leveraging technology and partnerships, credit unions can develop creative alternatives to traditional fee-based services that prioritize member value and financial education.

Remember, the success of any non-interest strategy hinges on a fundamental commitment – putting members first. When every decision is guided by this principle, credit unions can not only weather market uncertainties but emerge stronger, building a brighter future for themselves and their communities.

By taking proactive steps to diversify, innovate, and prioritize member needs, credit unions can solidify their role as trusted financial partners, ensuring long-term stability and growth in the ever-changing financial landscape.

#creditunion #finance #banking #noninterestincome #diversification #financialwellbeing #financialplanning #wealthmanagement #communitybanking #fintech #cfpb