Credit unions have often relied on income that was mainly generated from service and transaction fees. However, it's no secret that non-interest income (NII) has and continues to be threatened. Many of today's credit unions are searching to find different sources of revenue in order to lighten the burden of lost revenue streams like interchange income, overdraft fees, mortgages, and insufficient funds fees. This is exactly why your credit union should develop a long-term plan to improve efficiency and establish new streams of income.
Substituting Your Non-Interest Income
From rising interest rates and many CUs opting to eliminate overdraft fees due to member dissatisfaction and an increase in regulator suspicions, it's safe to say that the credit union industry is undergoing some significant changes. And since approximately 32% of credit union revenue comes from non-interest income, CUs are in a tough position.
Previously, credit unions would oftentimes generate non-interest income through fraud protection services, overdraft protection, loyalty programs, ATM marketing, debit cards, etc. However, many of these services have lost their luster in recent years, resulting in lost income. Nowadays, there is significant pressure, especially on overdraft protection and non-sufficient fund fees. The best thing a credit union can do is take inventory of main revenue sources and ask:
- What will happen if our primary income disappears or becomes threatened?
- If that happens, do we have other means of creating revenue?
- What else can we do to serve our members if this occurs?
Analyze The Impact
You also need to review how your credit union has already been impacted by legislative changes, increasing inflation, and the potential for the government to switch completely to digital currency. How are these things affecting you now and how can you reduce your dependence on non-interest income? It's wise to consider what you would do in future scenarios like these and determine the course of action ahead of time. Preparing for these situations now will ultimately put you in a better position later.
Think Like a Member
And of course, ask yourself what your members want and what would appeal to them most. Take a look at your products and services and see how a digital version of each would benefit your members vs. in-person. Keep in mind that if a member truly loves one of your offerings (for example unlimited overdrafts), they'll be more willing to pay a fee for them. They'll see your products and services as valuable, which will make them feel like the fee is worth paying, rather than seeming like a penalty. In addition, your messaging will shape your members' perception of your credit union, so it's critical to make good on all your promises. Instead of viewing fees as financial assets, remember to focus on whether your members would benefit from them.
Build Sustainable Income Solutions
So what do you do when your NII dries up? You adapt, transform, and discover other viable income sources. Better yet, you prepare in advance, so you aren't blindsided if your NII dips. The smartest credit unions remain alert and in constant consideration of the future. Due to the increased strain on non-interest income, it's imperative that today's CUs focus on finding other sources of revenue as protection. The traditional credit union business model is a thing of the past. Now, sustainability requires new income opportunities paired with valuable member benefits.
Here are a couple of things you can do right now to start generating new revenue streams:
- Embrace Innovation and Digital Transformation
As fintech companies continue to develop new products and alter the way some are delivered, credit unions must be able to handle the increase in consumer demand. Taking advantage of new technology like data analytics and automation and recognizing the value of fintech partnerships can not only increase member retention but also develop new income opportunities. - Increase Lending
Credit unions can also boost revenue growth through loan recapture programs, focusing on a specific group of CU members, saving valuable time, money, and energy. With plenty of loans coming in, you won't have time to worry about your minimal or nonexistent non-interest income. - Offer Value-Added Services
Your #1 goal is to offer value to your members, and you can do that by offering exclusive services, products, and programs that are specifically designed to increase loyalty and produce other revenue streams. Some of these may include loyalty reward benefits, affiliate discount programs, car purchase programs, or commercial matchmaking fees. The more value you provide, the better off you and your members will be.
Boost Revenue and Value With Smart CORE Software
FLEX is one of the few core processors with built-in tools to help CUs achieve compliance without the added costs. Our competent core system also offers overdraft privilege for added member convenience, featuring a comprehensive, automated, and self-managing program that's fully compliant and simple to use. We're equipped to help you generate new revenue and better serve your members. Are you ready to empower your members while also protecting your bottom line? Download our FLEX Member Services guide today to get started!
