WASHINGTON—There is a solution to the revenue shortfalls that are on the horizon that will challenge CUs’ ability to keep free checking—but most CUs don’t want to use it, one analyst contends.
Odysseas
Odysseas Papadimitriou
, CEO of WalletHub and CardHub, believes credit unions can keep free checking if they begin to move their business model away from bricks and mortar to become more online institutions. Not only will that reduce costs, it will allow CUs to affordably expand their market against banks and bring in more business, he said.
Papadimitriou agrees with several experts who see the CFPB soon extending prepaid overdraft rules to checking, which is expected to dramatically reduce FI overdraft revenue—one economist predicting the average overdraft charge will drop from $30 to $1. CUToday.info has been leading coverage of this issue with a series of related stories.
Sources also see debit interchange income falling markedly due to some big box merchants moving to lower-cost PIN-less debit routing.
“It will be really sad to see credit unions not able to advertise free checking, as that has been the big differentiator for them in the last several years,” said Papadimitriou. He emphasized that credit unions can markedly reduce their operating costs, marketing expenses, and cost for account acquisition by moving into the digital space, and keep free checking.
“The digital landscape is leveling the playing field for credit unions and banks,” explained Papadimitriou. “The playing field in the past has been far from level—you needed a lot of capital to expand via branches and ATMs, which banks have.”
CUs Slow To Move To Digital
But Papadimitriou sees credit unions hesitating to embrace the digital business model.
“In my experiences with credit unions I do not see much interest here,” said the CEO of two online financial institution product websites, one which allows consumers to quickly find and compare checking products from only the credit unions they are eligible to join. “Credit unions are not focused on digital. They are kind of stuck in their old ways of doing things.”
Papadimitriou stressed that CUs must put efforts into giving consumers a digital experience that is exceptional.
“Invest in mobile check deposit, a great mobile app, a great website. Put member testimonials on your website,” said Papadimitriou. “Credit unions have the opportunity now to play much bigger than they have in the past and beat banks at their own game. They should be like Starbucks. Again, the great thing about digital is that compared to bricks and mortar it does not take a huge investment to expand. And the new generation does not care about branches or ATMs.”
CFPB Intent Clear
Papadimitriou insists there is little chance that the CFPB will not reach into checking overdrafts because banks and credit unions have “abused” the service.
“Overdraft fees have gotten a little out of control,” said Papadimitriou. “It reminds me of the mistakes the banks made in the credit card space, with over limit fees . . . They brought the CARD Act onto themselves. The same thing is happening with overdrafts. Banks and credit unions are abusing overdraft fees, the fees are not proportionate to the infraction, and therefore they will bring regulation onto themselves.”