Service Charges Rise at CUs, Fall at Banks: Moebs

Service charges on deposits fell 1.7% at banks during the 12 months ending June 30, but they rose 4.9% at credit unions, according to new data from financial institutions analytics company Moebs Services.

The findings, which include data from the NCUA, FDIC and the Federal Reserve, suggest many credit unions are winning consumers away from banks, often by offering free checking and lower fees, as well as by driving higher volumes of members and transactions.

“CUs have a more traditional or old-fashion approach to deposit gathering, and it is paying off for them,” Moebs Services Economist and CEO Michael Moebs said.

Service charges included account fees, check cashing, overdrafts and penalties for early withdrawals but excluded swipe fees. They peaked for banks and credit unions in 2008, hitting $49.5 billion; they bottomed out in 2014 at $40.2 billion, the study noted.

“CUs generate good revenue by driving higher volumes of members and transactions. Measured as a percent of total assets, banks’ service charge revenue is 0.21%, while CUs’ is nearly double at 0.43% of service charges to assets,” the report said.

Consumers generated 94% of service charge revenue, it noted.

Part of the difference between credit union and bank service charge income may have to do with how they view members. Banks tend to emphasize relationships and pursue multiple accounts per customer, which allows them to use deposit balances rather than fees to fuel the bottom line; credit unions tend to pursue single-account users via free checking and lower fees, the report noted.

Banks have 2.5 accounts per household on average; for credit unions, that number is 1.1, excluding mandatory share accounts to be a member, according to the study. The relationship approach may be winning over more millennials to banks, even though millennials dislike fees more than any other age group, Moebs Services reported.

“Service charges on deposit will continue to diminish because the banks have substantially more deposit market share than credit unions,” Moebs said. “Yet, credit unions will erode more and more of the banks market share, since credit unions need fee income and can live with a single-service user or household.”

“The best direction is for a financial institution to have both relationship-oriented deposit services and transaction-oriented deposit services. If balance can be achieved, then sales and order-taking can coexist,” the report added.