Using technology to increase the bottom line – whether it's through fees or new revenue streams – is at the top of many credit unions' business strategies.
In addition to providing revenue for credit unions, services such as identity protection and payday loan alternatives lead to better member value and greater loyalty.
"We are shifting more and more from a traditional portfolio builder, and a financial institution relying on interest income and margin, to a financial institution that is relying on fee income generation," Ray Shams, EVP and COO for the $943 million, El Segundo, Calif.-based Xceed Financial Credit Union. Shams is also president/CEO for the credit union's CUSO, Global Enterprise Resource Group.
"Noninterest income is very important to us," Shams added. "We have made the effort to make sure we increase our noninterest income without negatively impacting our members. One of the main ways, based on our business model, is to improve our core competencies, such as the talent base we have, our efficiencies and our accuracy."
He also explained that working with the right vendors and partners helps as well. To that end, Xceed Financial works very closely with Fiserv as a user of its DNA core system.
Core systems from the Monett, Mo.-based Symitar, a Jack Henry company, provide the foundation for two credit unions that offer members payday lending alternatives.
The $2.5 billion, Olympia, Wash.-based Washington State Employees Credit Union created a loan platform, QCash, in 2004 to meet the short-term lending needs of members who were requesting large money orders to pay off payday lenders.
"We decided we could do something better that would leave more money in their pocket and move them upstream to more financial services," Ben Morales, CEO of QCash Financial and chief technology and operations officer at WSECU, said.
WSECU also discovered that offering members small-dollar, short-term lending options at very competitive rates provided a consistent revenue stream in return. WSECU's QCash program books more than 30,000 loans annually, maintains loan loss rates in the 6% to 8% range, provides financial education for members and generates an annual net income of $4 million.
The $2.8 billion San Antonio Federal Credit Union used Symitar's PowerOn to find members who were borrowing $1.2 million a month from payday lenders at an average interest rate of 313% after modifying its core processing system with user-defined inquiries.
"We researched ACH warehouse items and noticed some obvious transactions involving payday lenders," Adele Glenn, emerging channels innovation architect at SACU, recalled. "It did not identify all of them, but what shocked us the first time we ran the report is we pulled 90 days of history and saw a little under $2 million going out in payment."
The credit union set out to get these members out of the payday lending loop with a soon-to-be-launched alternative called MobileFirst. SACU plans to charge a nominal interest rate and one-time application fee for this service, which together would fall under the 28% APR cap required by its federal charter for short-term loans.
Another new revenue stream relates to the risk of fraud associated with the increased use of mobile banking and digital payments, Matt Cullina, CEO of Scottsdale, Ariz.-based cybersecurity firm IDT911, said.
"IDT911 partners with credit unions to manage their membership based fraud issues," Cullina explained.
For example, the $48.3 million, Mohegan Lake, N.Y.-based Hudson River Financial Federal Credit Union offers members IDT911's FraudScout. If the service detects potentially unscrupulous activity, members receive an alert from IDT911 fraud specialists.
"It is a risk-free, revenue-generating stream for the credit unions," Cullina said.
Read more about how credit unions are using technology to boost revenue in the March 2, 2016 print edition of Credit Union Times.
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Roy Urrico
Roy W. Urrico specializes in articles about financial technology and services for Credit Union Times, as well as ghostwriting, copywriting, and case studies. Also: writer/editor of a semi-annual newsletter for Association for Financial Technology since 1997 and history projects funded by the U.S Interior Department, National Park Service and Warren County (N.Y.).
