Non-Interest Income for Credit Unions: Planning and Understanding

Traditionally, non-interest income, which includes income generated primarily by services and transaction fees, helps credit unions maintain their bottom lines.Credit unions have seen a decline in non-interest income.

With so many people feeling the most financially worse off since 2009, people are looking to save money. This means they want more services for a lower cost, which puts many businesses, including your credit union, in a difficult position.Moving forward, it's crucial for your credit union to be resourceful and innovative in generating non-interest income while also prioritizing member satisfaction.

Traditional Ways to Generate Non-Interest Income

To make informed decisions for your CU, it's crucial to understand how non-interest income works and some popular ways it's generated. Here are member-friendly ways to generate non-interest income (NII):

• Fraud protections services. First and foremost, members want to be sure their money and data are secure. Providing services like 24/7 support and credit monitoring, protections for lost wallets, push notifications and email alerts, help members feel safe and have trust in the credit union. Members are generally more content paying a fee for services that protect their data and money than for basic banking service fees.
• Overdraft protection. This service will cover a charge on a member’s account (up to a limit) if their account balance is insufficient. This prevents the payment from being rejected, which is less harmful to your member’s finances. The fee that is charged for the service generates NI-income for the CU.
• Loyalty programs. Cash back programs on credit cards are extremely popular and help attract younger members, who tend to use their cards more frequently. With cash back programs, CU’s can earn NII through interchange and transaction fees.
• ATM marketing. Every year, billions of transactions are conducted on ATM’s around the country. This makes ATM’s a perfect tool to build your relationship with your members and offer them other services and products.

Traditional ways to generate non-interest income may be less popular among younger members. In fact, 2020 saw a record number of reimbursed fees, with March being particularly notable. Addressing member concerns about reimbursed fees will be an important topic for credit unions going forward.

New Ways to Generate Non-Interest Income

In order to generate NII in an ever-evolving financial landscape, look into the following methods to see if they are right for your credit union and its members:

• Wealth management: the internet has evened the playing field. Anyone with a computer and some money can invest now. Members can find a lot of information online, but using your already-established relationship, give your members guidance they can trust with wealth management. Charge a fee for the service, while helping your members be better off in the end. 
• Legacy planning: help organize charitable giving, educate your members, and charge consultation fees. By integrating these services into your offerings, your credit union can not only provide valuable assistance to members in planning their legacies but also create new revenue streams that align with your mission of financial well-being.
• Fintech partnerships: Carefully selecting and collaborating with fintech startups will help your credit union enhance its technological capabilities, improve member experiences, and generate non-interest income through innovative services and profit-sharing.

Knowing Your Resources

New tools have been created to help CU’s analyze the revenue they generate from non-interest income in order to decide if changes must be made. One of the best resources out there was developed by Callahan & Associates, who created a tool for CU’s to upload their NII ledger data where they can track their performance compared with other CU’s across the U.S. Understanding what your peers are doing and how your CU measures up is important, especially in 2023.

Putting the Member First

Many changes are taking place in the financial world, and it’s important for CU’s to stay alert, agile and open-minded. At a time like this when everybody could use a little help, knowing what route to take is not always easy. Although non-interest income is important for credit union survival, putting the needs of your members first during such tough times should take priority. Those CU’s who generate non-interest income but lose their member’s trust in the process will not last in the long run.

That’s why it’s so important to communicate with your members and stay connected. Ask questions about what services your members want and need and respond appropriately to their answers. Use push notifications and emails to keep members in the loop, and remember, serving your CU’s members needs and keeping them satisfied should always take top priority. If you need help, many credit unions have chosen to use CU software like FLEX, which can help your CU integrate an online banking platform, as well as analyze and generate non-interest income.