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CUNA Mutual Diversity key to non-interest Income
SAN FRANCISCO (11/11/08)--Despite the economic challenges facing every aspect of the financial services sector, opportunities to survive and thrive through non-interest income continue to exist for credit unions, an industry analyst said.
Despite economic challenges, opportunities to survive and thrive through non-interest income continue to exist for credit unions, Bob Larson, financial support consultant for CUNA Mutual Group, told the California and Nevada Credit Union Leagues Friday at their annual meeting. (Photo provide by CUNA Mutual Group)
The key is minimizing exposure to one major source of non-interest income by diversifying--and maximizing--the income mix, according to Bob Larson, financial support consultant for CUNA Mutual Group. Larson delivered that message Friday to members of the California and Nevada Credit Union Leagues at their annual meeting. While Larson advocates a diversified approach to non-interest income, he acknowledged the lack of available choices and the potential changes to the three primary sources: non-sufficient funds and courtesy pay, debit card interchange income, and credit card interchange income. “One of the biggest concerns I see is action regarding the three primary non-interest income sources that could negatively impact your income,” Larson said. “I think the current economy has delayed action on these items, but they will resurface next year.” Larson referenced proposed legislation that would impact interchange income by giving merchants the ability to negotiate the fees they pay. Most credit union members and workers can remember the impact to their debit card interchange income in 2003 because of a Wal-Mart lawsuit, he said. “I worked for a credit union at the time, and we experienced a decrease of about $15,000 per month for an annual impact of $180,000,” Larson said. “The first step is to understand the impact to your income statement. What would happen if you had a 10% reduction in these primary income sources?” One way to ensure non-interest income sources are protected is to add more options to the mix, especially in light of the possible legislative challenges, he said. Developing a successful sales culture around credit protection, Guaranteed Asset Protection and debt protection products can grow income while expanding a credit union’s culture. “There are three key components for a successful sales culture--communication, accountability and tracking,” said Larson. “A credit union I worked with adopted this culture and continues to grow.” Larson suggested credit unions take advantage of the current environment by growing their real estate portfolios. Some credit unions are “picking up market share” by adding to their mortgage business. Other sources that don’t add expenses to the income statement include Accidental Death & Dismemberment, Members Auto & Home and Life, he said. “Some might not generate large amounts of non-interest income, but did you know that 10 of the largest auto insurance companies control 60% of the market, and eight of those 10 have a bank affiliation?” he said. “They’re successful using the insurance database to capture auto loans for the banks. So it impacts not only non-interest income, but also interest income as well.” Because identifying and securing non-interest income sources are critical to a credit union’s success, Larson advocates establishing an internal fee committee that examines possible sources and how to maximize them. “I know some people balk at this suggestion, but making it a priority can’t hurt,” he said.
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