CUs Rely More on Fee Income

Continued expectation of low spreads makes noninterest income especially important.

October 05, 2011
KEYWORDS fees , income
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With the continued expectation of low spreads, fee income has become increasingly important to credit unions. It should now be viewed as an efficient and controllable way to achieve bottom-line results, John Lass, CUNA Mutual Group’s senior vice president, strategy and business development, told Online Discovery Conference attendees Tuesday.

However, credit unions’ reliance on fee income faces challenges from regulatory and market forces, he warned.

Lass said fee income accounts for 20% to 30% of a typical credit union’s revenue—nearly double 2000 levels. Last year, the credit union movement generated $13 billion in fee and other operating income, according to the CUNA Mutual white paper, “Let Member Value Drive Your Fee Strategy.”

“Today, without any fee or other operating income the credit union system could not, as a whole, generate a positive return on assets,” he said. “Like it or not, fee income has become increasingly important to our viability.”

Certain fees are coming under pressure due to regulatory scrutiny and changing market conditions. These developments could have a potential negative impact on interchange and fees tied to mortgages.

Plus, the new Consumer Financial Protection Bureau may impose additional caps on other fee income sources.

Lass urged attendees to review threats to their fee income strategies, citing surveys that indicate nearly 50% of credit unions’ fee income came from two sources: NSF/courtesy pay (28%) and debit card interchange fees (21%).

“We need to be nimble and alert to the possibility of caps,” Lass said.

Lass cited a J.D. Power & Associates study that shows an increasing number of consumers are switching their primary financial institutions (PFIs). In 2010, 7.7% of consumers switched PFIs, and 8.7% are expected to do so this year.

When reviewing fee income strategies, credit unions need to ask how changes will affect member behaviors and look at the value equation.

“Member value equals benefits, minus price,” Lass said. “A benefit is something that is both qualitative and quantitative. Two members may have completely different perceptions of the value a product brings.”

Fee strategy must also be weighed on how it will affect different segments of your membership. Different member segments will react differently to the fees you charge.

A credit union’s fee strategy should be consistent with and support its value proposition, Lass said. “If your value is being the price leader, then your fee structure needs to be consistent with that.”

When evaluating a change in fees, Lass said credit unions should consider several factors:

  • The value of the product to members;
  • A member’s cost to switch PFIs;
  • Alignment with the credit union’s brand positioning;
  • The availability of alternatives;
  • Potential changes in regulations;
  • Your competitors’ likely reaction; and
  • Your credit union’s cost of providing a service.

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Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory ( will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

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