Published July 2021
When assessing their success with growing noninterest income, many financial institutions (FI) found that 2020 resulted in some noticeable improvements.
However, the key to expanding noninterest income lies in identifying sources of recurring revenue. From there, FIs have to optimize the experience for customers and members through friendly policies and needs-based selling to ensure that customers and members who value those products and services consistently have access to them.
If carefully managed, recurring sources will provide a steady stream of noninterest income in a variety of different economic situations.
In particular, we’ve found there are three areas where banks and credit unions can employ simple solutions to improve relationships with customers and members while driving noninterest income.
Overdraft fees: Make this service work for the people who value it
We certainly don’t advise financial institutions to encourage overdrafts, but it’s likely that some of your customers or members value overdraft services as a lifestyle choice. With the flexibility provided by this option, they may be able to manage their expenses in a way that avoids seeking assistance from high-interest payday lenders.
Honor these valued customers or members by making the policies and processes work for them. After all, we’ve found that two-thirds of overdraft income comes from just 5%-10% of FI customers and members. Losing any one of these relationships to a competitor would impact your recurring noninterest income, so make sure your process is ideally suited for the people who want to use it. In addition, it’s important to ensure your policies and processes make it easy to accommodate and acquire lifestyle users.
How to optimize overdraft processes policies for those who benefit from them
In a 2019 survey, the Federal Deposit Insurance Corporation (FDIC) found that 16.1% of unbanked households said their main reason for not having an account was because they didn’t trust banks.
Maintaining trust and integrity in your FI’s relationships is the key to success here.
In particular, we recommend:
- Maintaining stable and competitive overdraft fees: Raising fees may not increase noninterest income, because it breaches trust and encourages customers and members to seek more competitive rates elsewhere or change behavior.
- Allowing overdrafts on Day 1: Customers and members who value this service are looking for a solution they can begin to use right away.
- Improving your pay vs. return process: Consistency in the handling of overdraft items is key for those who value this service.
Interchange income: Drive card adoption and use
If using your FI’s debit card for routine purchases becomes a habit for your customers or members, this will help drive recurring interchange income. Many people are now interested in cashless payments because of the perceived benefits for hygiene and convenience. Individuals have begun paying their bills online as well as executing contactless transactions with digital wallets and using lower-touch in-person swipes.
But how do you make your debit card the top choice?
How to optimize processes and policies to drive interchange income
According to a 2020 report from Experian, the average American had three credit cards. That means most people have a fair amount of plastic crowding their wallets.
So what can you do to make sure that your FI’s debit card is positioned right at the front of the wallet?
- Get cards to your customers and members faster: The biggest banks waste no time getting cards into their customers’ and members’ hands. You have to move just as quickly. For this reason, on-site instant issue machines can have a great return on investment that includes additional revenue based on the activation and usage data.
- Explain the value of using a debit card when accounts are opened: Don’t push cards for individuals who don’t need them, but make sure front-line employees know about the benefits.
- Train staff members to recognize cues: If front-line employees notice that account holders are writing a lot of checks or have frequent cash withdrawals, it may be worth taking a moment to communicate the convenience of using a debit card for some of those transactions.
- Use promos to drive adoption: Limited-time campaigns can incentivize nonusers to become users, and drive low users to become high users. Doing these periodically will change buying behavior and ensure your debit card stays in the front of the wallet.
Value-added checking products: Bundled benefits that appeal to multiple segments
Monthly fees for standard checking aren’t the way forward. Most FIs offer fairly accessible opportunities for waiving these fees, while other banks and credit unions don’t even charge for them from the beginning.
Shrinking the number of standard accounts that qualify for fee waivers is an almost surefire way to inject an unnecessary element of frustration into your existing relationships. At the same time, such a move would likely deter new customers or members from opening accounts. In fact, when customers or members choose their next checking provider, fees will likely be one of the most important factors they consider.
Raising fees is not how you improve recurring noninterest income. However, there’s probably a certain segment of your existing relationships that would sign up for value-added services.
The complete product: Benefits Checking
By packaging several different lifestyle products together and offering them in tandem with a basic checking account, we’ve found a surprising number of people will sign on.
Known as Benefits Checking, this value-added product allows FIs a new channel for gaining monthly noninterest income. The product is available for a nominal fee to your customers or members, and it weaves together a wide range of products that appeal to a broad variety of demographics. Cell phone protection is available alongside identity theft resolution assistance and a wide variety of other services.
This product is successful because it appeals to people from many different backgrounds, and it offers them the opportunity to save by bundling services together. Plus, similar to services like Netflix and Amazon Prime, we offer more in value than we take in payment
Learn more about how to drive noninterest income for banks and credit unions
So far, we’ve just scratched the surface. At Haberfeld, we have decades of experience helping FIs grow noninterest income.
Above, we’ve outlined a few product and service innovations as well as several potential process and policy optimizations. Each item can serve as a crucial component of your multifaceted strategy.
In addition, we believe it’s crucial for banks and credit unions to grow their overall relationships. Frequently, we find that expanding your total customer- or member-base is the secret to expanding total noninterest income, especially from recurring sources.
Through targeted marketing, we can help attract more people to your FI who look and act just like your existing relationships. We are adept at identifying individuals who are likely to choose you when they switch, and we have the experience necessary to best position your bank or credit union to receive them.
Our results-oriented High Performance Growth™ Strategy leverages omnichannel marketing approaches informed by data — along with consulting, training and more — to help your operation achieve ambitious goals for new account openings. Our objective is to support your FI as you achieve sustainable results through improving your operations and acquiring new relationships.
Reach out to us today and get ready to accelerate your growth!