There is no playbook for parenting. One of the newer challenges I've experienced as my daughter nears her sixth birthday is allowing her to take appropriate risks, letting her experience life and its failures and challenges, and knowing when to step in and just protect the little girl that she is. On a recent vacation, she was practicing jumping off a dock into Lake Michigan. She looked so little on the dock and as she got nervous, my instinct was to just suggest we run right back to the sand. The right thing to do in this low-risk situation, in which she wore a life vest, was to let her take a jump. She loved it and eventually went from sliding off the dock hesitantly to taking a running jump.
Noninterest income generation can be a similarly important conundrum for credit unions to master. Decreased loan demand, increased competition and stricter regulations have made revenue generation challenging – and more important than ever. Between 2000 and 2016, average noninterest income for all credit unions rose from 91 to 131 basis points. Today it keeps credit unions afloat.
NII is particularly important because, unlike income from loans and investments, it usually does not depend on capital for its creation, nor does it put capital at risk in its implementation. In his study "Credit Union Strategic Growth and Budgeting," Filene researcher Mike Higgins called NII that is not directly tied to an asset pure oxygen. "It goes straight to the bottom line and does not harm the capital ratio; it enhances it. This is why noninterest income is so vital to credit unions," he wrote.
The Filene report "In Search of Member-Friendly Noninterest Income" highlighted the tension between the need for NII that supports the operating costs of the organization and the imperative credit union leaders feel to charge fees that are fair and support services that add value to members. "Too many or ill-advised fees and credit unions run the risk of alienating members and losing their cooperative difference," the report said. The struggle is real.
How do credit unions strike the right balance? Ron Shevlin wrote one of the keys for generating consistent noninterest income is to invest in a combination of innovation and product design competencies. In the Filene report "Addressing the Revenue Growth Challenge," he claimed it will take innovation and credit unions that build and strengthen their own product design competencies to drive more than marginal revenue growth in the future. The report suggested credit unions should:
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Deploy debit card rewards programs or strengthen the plans already implemented; 65% of respondents said debit card rewards programs are at least somewhat effective at driving utilization of debit cards.
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Reinvent credit-related product marketing. Specifically, build services that inform and support members' shopping or decision-making process as early as possible. If they're using your tool, they'll be more likely to consider your loan.
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Build personal financial management-based services. Beyond simply deploying PFM tools like budgeting and account aggregation, credit unions need to offer payment-, advice- and insight-oriented services that are valuable enough to pay for.
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Focus on what members desire and need. In order to strengthen the product design competency, members will need to be included, to some extent, in the development process.
Shevlin's advice aligns with the thinking behind the Filene Method, which takes a human-centered design approach to innovation. Human-centered design proposes that for an idea to be successful, it must start with desirability: Solving the biggest needs our members and potential members have.
This challenge of coming up with revenue generation ideas that are fruitful and in the best interest of our members is real, but a human-centered innovation approach to building those ideas will leave your credit union and members jumping into the water happily together.
Tansley Stearns is Chief Impact Officer at the Filene Research Institute. She can be reached at 203-859-2666 or [email protected].
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