Generating Non-Interest Income

Jim Jerving
February 11, 2008 | COMMENTS

In a gray financial environment inhabited by a flat yield curve, tight margins and an overabundance of financial service providers, non-interest income offers welcome green space and a garden to grow. After discussions with chief financial officers (CFOs), industry experts and economists, though, it appears that there are few innovations in non-interest income , rather creative variations on a theme.

Fee income is intertwined with both cooperative philosophy and controversy. Traditional thinking viewed fees as akin to a nasty four-letter word and held that credit unions needed to charge as little as possible in fees to differentiate from banks. It was a sound operating philosophy for an earlier time when margins were healthier.

Non-interest income and fees have become an economic necessity for many credit unions. It is true that, in many communities, members still can count on their credit union to give them a better deal than a bank regarding fees. And therein lies a market opportunity for credit unions—fees benefit members directly while fees benefit stockholders of a bank but not necessarily their customers.

Credit unions can use their approach to fees as a competitive advantage. Fee income directly benefits members in competitive savings and loan rates rather than bank shareholder returns. But marketing efforts need to be more aggressive in the community to make sure that this story is told, a posture some credit unions have been reluctant to assume.

A similar approach can be taken with mortgages. As $600 billion in resets will be made in 2008, there is an opportunity for credit unions to make inroads into this market. Consumers will be looking to mortgage lenders they can trust, after many bad experiences in the past few years. Credit unions are well positioned to offer mortgage services with their reputation of trust and local ownership.

Credit union service organizations (CUSOs) play a critical role in credit unions that have successful non-interest income strategies as the case study of Altura Credit Union indicates. The organization owns four CUSOs and participates in other CUSOs to provide members a variety of financial services.

Appointing a non-interest income committee and executive to actively manage this function is something that credit unions would do well to consider. As it is, the prominent income earner for the organization, it needs a management employee to be responsible and accountable.

This is the executive summary from a CUNA CFO Council white paper by Jim Jerving entitled “Generating Non-Interest Income.” Read the complete paper and others in the white paper section of the OpSS Council website.