This piece is based off of a roundtable discussion at the CU 2.0 Brainstorm Event in January 2022. It’s not intended to be comprehensive—rather, it will provide a quick look at new opportunities for non-interest income for credit unions (and where fintechs are providing a lift).
As noted in the panel, credit unions survive by two types of income: interest, and non-interest. Yet while loans and interest income often get the spotlight and the fancy tools, non-interest income is a dependable, critical income source as well.
Furthermore, there are many threats to non-interest income… for example, market trends and regulators have their eyes set on limiting or eliminating overdraft and NSF fees. Alternative payment options from BNPL fintechs like Affirm and new competitors like Robinhood cut into credit union slice of interchange.
Yet new opportunities are out there. Supporting SMBs and microbusinesses, providing better, more flexible payment options can help credit unions succeed.
Why Improving Payment Experience for SMB Members Is a Necessity for CUs
Olivier Veyrac of Veem discusses the importance of user experience (UX) in payments. He feels that improving the payment experience is non-negotiable for credit unions to stay relevant. Ease and speed are key in financial transactions, and the inability to offer such may lose members and revenue.
Veyrac points to Zelle as a working example of faster payment options for SMB members. Peer-to-peer (P2P) capabilities like this are key to business account retention.
Unfortunately, building the infrastructure to improve payment UX can be costly and challenging. The collaboration with fintechs is an essential strategy for credit unions to reap the benefits of this challenging work without incurring the cost or labor themselves.
Why Has Earned Wage Access Become a Necessity for CUs to Remain Relevant in Their Communities?
Bruno Gremez, Co-CEO of Accelewage, remarks on earned wage access (EWA) and how it fits into the credit union ecosystem. EWA is a method of allowing employees to access portions of their paycheck before it hits their account. In some places, it’s becoming the new normal.
Notably, he mentions how EWA helps members avoid NSF and overdraft fees. Many fees are seen as punitive, and they bring regulatory, legal, and reputational concerns. EWA ensures that members are more likely to have adequate money in their accounts to prevent NSF and overdraft fees.
Large-scale employers such as McDonalds, PayPal, and Walmart are some of the many companies currently offering their employees this capability. The ability for customers to gain access to their funds prior to the end of the payroll period allows for greater flexibility on their end, and the financial institution is guaranteed repayment from the paycheck itself, meaning it is not a loan.
Another perk for credit unions is that there’s no need for a large balance sheet, so even smaller credit unions can offer EWA.
Currently, EWA is offered solely by fintechs, but Gremez predicts that credit unions will begin to offer it as well. Especially, he says, because the risk is low so long as CUs select reputable employers. Simultaneously, CUs will draw in new members who need earlier access to their paychecks.
77% of current EWA users state that they would prefer using their own financial institution rather than a third party or separate institution. Gremez predicts that in the next 1–2 years, credit unions and community banks will have taken over this business entirely.
Credit Union Survivability
Joel Schwartz, Founder and Co-CEO of DoubleCheck, discusses the ability to maintain non-interest income in the face of declining fee revenue. As important as it is for credit unions to appease their members and offer these new payment solutions, it’s equally important to maintain the foundation of revenue that credit unions rely on to survive.
Schwartz mentions how the average age of credit union customers is 47 years old, meaning that the members are about 10 years older than the average adult. As a result, the fear of members aging out is a serious concern. Being able to appeal to younger, technology-driven generations is key.
Merging fintechs and credit unions bridges this gap. He predicts that this relationship will continue to grow and flourish, allowing for a cohesive way to maintain survivability for credit unions. He also predicts that credit unions will continue to expand in their collaborations and embrace a team mentality in order to thrive.
Microbusinesses and Gig Economy Workers
Currently, micro-businesses make up 75% of all the businesses in the United States. Especially during the pandemic, millions of micro businesses exploded as people redefined their relationship to work and income.
These microbusinesses, while small, require more from their financial institutions than the average customer. At the same time, they do not need the same level of capabilities as a small business would. As a result, credit unions are presented with a huge opportunity for member expansion and increased revenue by serving microbusiness members.
Currently, 90% of microbusiness owners are commingling their revenue and personal funds in the same accounts. Credit unions can step in to assist these microbusiness owners in navigating their financial responsibilities while increasing their customer base significantly.
The Q&A section picked up after about 25 minutes of presentations. The discussion ranged from the future of NSF and overdraft fees to member friction, to communicating the value of services.
For that last one, Joel Schwartz noted that people are willing to pay for services that they opt into and enjoy. He cited subscription checking accounts and overdraft options as important services and revenue drivers. Raj Bhaskar agreed. Ultimately, people don’t like paying for surprise fees, but they don’t mind choosing to pay for things.
So, non-interest income isn’t built only in value-add services, but in the communication around them.
Join the Conversation
CU 2.0 hosts biannual Brainstorm Events featuring expert panels of the credit unions and fintech leaders. Topics range from marketing challenges, leadership strategy, and data analytics insights, to emerging technologies such as artificial intelligence (AI) and blockchain/DeFi.
Each session features ample discussion and networking time. Save your spot at our next one here.