WASHINGTON–Debit card interchange and fee income comprised 30.2% of credit unions’ non-interest income in 2016, according to Callahan & Associates Non-Interest Income Survey.
Total card-related interchange and fee income, including debit, credit, and prepaid cards, accounted for 42.3% of non-interest income in 2015, Callahan’s reported.
“Evolving sources of revenue within the credit union industry are making non-interest income a complex venture,” said Callahan Senior Analyst Michelle Parker. “And without a detailed breakdown of its components on the 5300 Call Report, credit unions have limited options to benchmark their non-interest income performance and composition compared to industry peers. Our survey looked at current and emerging sources of non-interest income, policy implications on non-interest income, and priorities to enhance non-interest income.”
More than three-fourths (80%) of survey respondents offer credit and prepaid cards rewards compared to roughly one-third (34.1%) that offer debit card reward, Callahan’s reported. More than 170 credit unions partook in the survey, with an average asset size of $1.5 billion at the end of 2015.
Based on survey responses, four sources of non-interest income comprise more than 77% of total non-interest income:
- Debit card interchange fees
- Checking and savings including NSF/courtesy pay income
- Credit card interchange and fees
- Mortgage sales, servicing rights, and real estate lending fees
“Income from areas like debit card interchange shows that members are increasingly choosing credit unions as their primary financial institution,” Parker said. “Reward programs are a tool to drive usage, so credit unions that offer more reward programs tend to have higher non-interest income.”
One-fifth of respondents (18.8%) agreed that the CFPB has “motivated their credit union to change their policies and procedures.” Over half of the respondents (81.2%) noted minimal to no overdraft service impact from the CFPB policy. While most experienced minimal impact, they voiced concerns about how damaging future regulations could be to their overdraft fee income, Callahan’s said.
Callahan’s added that as financial institutions begin to bring credit card programs back in-house, they may need to revisit interest rates, guarantor requirements, and additional costs associated with servicing and reward programs. Despite concerns over the lasting implications of the CARD Act, only 25.3% of survey respondents noted noticeable impact while 74.4% cited minimal to no impact.
The top three emerging areas of additional non-interest income include real estate, insurance, and investment income. Many credit unions are partnering with CUSOs to begin or enhance these parts of their portfolio, Callahan’s said.