by Joseph Tripalin, IZALE Financial Group
What options do you offer? Taking a bird's eye view of the credit union environment in early 2016, shows a vibrant marketplace with credit unions effectively meeting the varied needs of their members. Credit unions are growing in both assets and members and the effects of the Great Recession are definitely in the rear view mirror.Having said that, there are some lingering effects of the Great Recession. There is a heightened regulatory environment, consider the Risk Based Capital Rules being implemented, and the pace of mergers between credit unions continues at a brisk clip. For many credit unions, lending is still not where it should be posing challenges for investment of excess liquidity in this low interest rate environment. Another challenge is balancing services with earnings.
One example of this service challenge is the availability of "free" checking accounts. Many credit unions offer this product feeling it is something the members want and something that cements a relationship with their members. But many credit unions are now examining this offering. This phenomenon is not limited to credit unions. Banks have severely curtailed the use of free checking. Gail Marksjarvis in her article for the Chicago Tribune, "Banks' free checking on the way out" starts her commentary with the stat that only 46 percent of banks are even still offering this as an option. Credit union use is higher, but that is changing.
In fact, Moebs Services a research firm, indicates that free checking offered by credit unions has fallen from 84.9% in 2009 to 73.6% today. In the last year, the number of credit unions offering free checking dropped 6%. What's behind this decline? As with any change like this, there are many factors, but three that stand out are the costs of dealing with fraud, compliance costs of new rules and regulations, and maybe the most telling, is the amount of transactions incurred in the free checking accounts.
The number of transactions in the checking accounts have risen dramatically since people started using debit cards. Today, the average person does 50 to 60 transactions per month in their free checking account versus 20 to 25 in the 1990's. In addition, many of these transactions are for small amounts on their debit card. Buying a soda and a candy bar and using a debit card for payment is not uncommon. These transactions are expensive for the credit union to process.
Many credit unions ask about how to move away from free checking in a way that is a win for both the credit union and the member. Part of the answer is to give the member something of real value in the checking account they are now paying for each month. There are programs that provide members identity theft protection, access to credit scores, and access to discounted dining and entertainment deals. All these can be included in a monthly checking fee of five or six dollars, with the credit union still earning several dollars per account.
As with any change, it is important how a credit union presents the change and the advantages to the members, and if done properly, the vast majority of members will stick with the checking account and be happy with the new protections and options provided. The credit union will have solved an expense problem with a profitable new checking option. So, if your credit union is struggling with rising costs associated with free checking, there are options that can solve this problem and give your members access to great new services.
One example of this service challenge is the availability of "free" checking accounts. Many credit unions offer this product feeling it is something the members want and something that cements a relationship with their members. But many credit unions are now examining this offering. This phenomenon is not limited to credit unions. Banks have severely curtailed the use of free checking. Gail Marksjarvis in her article for the Chicago Tribune, "Banks' free checking on the way out" starts her commentary with the stat that only 46 percent of banks are even still offering this as an option. Credit union use is higher, but that is changing.
In fact, Moebs Services a research firm, indicates that free checking offered by credit unions has fallen from 84.9% in 2009 to 73.6% today. In the last year, the number of credit unions offering free checking dropped 6%. What's behind this decline? As with any change like this, there are many factors, but three that stand out are the costs of dealing with fraud, compliance costs of new rules and regulations, and maybe the most telling, is the amount of transactions incurred in the free checking accounts.
The number of transactions in the checking accounts have risen dramatically since people started using debit cards. Today, the average person does 50 to 60 transactions per month in their free checking account versus 20 to 25 in the 1990's. In addition, many of these transactions are for small amounts on their debit card. Buying a soda and a candy bar and using a debit card for payment is not uncommon. These transactions are expensive for the credit union to process.
Many credit unions ask about how to move away from free checking in a way that is a win for both the credit union and the member. Part of the answer is to give the member something of real value in the checking account they are now paying for each month. There are programs that provide members identity theft protection, access to credit scores, and access to discounted dining and entertainment deals. All these can be included in a monthly checking fee of five or six dollars, with the credit union still earning several dollars per account.
As with any change, it is important how a credit union presents the change and the advantages to the members, and if done properly, the vast majority of members will stick with the checking account and be happy with the new protections and options provided. The credit union will have solved an expense problem with a profitable new checking option. So, if your credit union is struggling with rising costs associated with free checking, there are options that can solve this problem and give your members access to great new services.
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