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Are New Members Different?

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These are challenging times for financial institutions but it’s tough for individuals too.  Setting aside employment woes, managing personal finances has become especially difficult with the stock market in flux and dismal returns on deposits.  As financial institutions shift strategies to adapt to the environment, customers are reacting by looking for a better deal.  A March survey by Bankrate.com found that 64% of respondents would consider switching to a different checking account provider if their financial institution raised checking account fees.  So now that checking account fees are becoming a reality, who is shopping your credit union these days and why?

Right below the survey results on the Bankrate.com page, there is a prominent link to an article called “Credit Unions are Free Checking Champions.”  It’s interesting that most credit unions aren’t actively trying to compete on price alone, but that’s where they’re left standing, in many cases.  This credit union perception pulls in rate shoppers who might look like contributing members.  After all they are opening a checking account, which has traditionally been considered the cornerstone of a deep member relationship.  But are these new members purchasing secondary products such as loans, which make the potential loss-leader checking account profitable for the credit union?

It is important to study how member behavior is changing by reevaluating the data and quantifying exactly how much checking accounts cost and how many other products newer members are purchasing because it may be different than members who have joined in the past.

It isn’t easy to adapt to the rapidly changing landscape, but keeping these three questions in mind should help:

  1. Do you understand your members’ changing needs and behaviors?
  2. Do your products and services satisfy those needs?
  3. Are you able to provide those products and services in a profitable and sustainable way?

Source:
www.bankrate.com/finance/consumer-index/march-2011-checking-fees.aspx

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Do You Have A Clear Philosophy On Fees?

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With fee income under fire, it is becoming more important than ever for credit union boards and managements to be able to articulate their philosophies on fees.  Simply saying, “We don’t like to fee our members” is not enough.  Most credit unions are already considering, if not implementing, new fees and fee increases—not because they want to fee their membership, but because they feel that replacing lost fee income and/or offsetting increasing expenses is a financial necessity.

Consider the following when discussing fees and fee pricing:

  • Cover Costs—Fees can be implemented to put the burden on the party that is incurring the costs rather than making the entire membership carry the costs.  Take the example of check-cashers.  Check-cashers typically are not contributing members but use a lot of credit union resources.  One answer to this dilemma is to decide that it’s okay to cash checks as long as the costs are covered with a fee.  In this case, it must also be okay to have the check-cashers go elsewhere if they decide that they don’t want to pay the fee
  • Strategy—The fee structure and pricing must support the credit union’s strategy.  A credit union that is building its mortgage business may choose to charge mortgage fees that do not cover all costs.  The rationale could be that the costs will be covered with future interest income while charging more fees today could drive potential borrowers away.  The important thing is that the fees align, and are not in conflict, with the strategy
  • Member Behavior—Some fees are intended to change member behavior.  An example is paper statement fees.  The purpose of these fees is to encourage members to get statements online, enabling the credit union to reduce expenses directly attributable to paper statements.  In addition, the credit union may hope members will shift to using more electronic services, reducing branch and phone transactions
  • The Bottom Line—Fees are sometimes instituted to improve the bottom line, although this is often only part of the reason.  Improving the bottom line often goes hand-in-hand with covering costs and altering member behavior
  • What the Market Will Bear—As a practical matter, fees that most institutions charge are included on many credit unions’ fee schedules simply because the market expects to pay them.  This approach is also used in deciding fee pricing as opposed to pricing to cover costs.  However, it is important to understand the hard costs.  It should be a conscious decision to charge a fee that does not cover the cost

This is the perfect time to discuss and clarify the credit union’s fee income philosophy.  Having decision-makers on the same page will help align upcoming fee structure changes with the credit union’s philosophy and strategy.