To Fee Or Not To Fee

Even in an environment where “fee” is a four-letter word, there are friendly ways to encourage member participation and increase fee income.


A couple of months ago, guest contributor Randy Karnes wrote about how credit unions price their products and services.  “Credit union leaders … need to craft a well thought-out response to the hike in and addition of checking fees by [banks],” Karnes notes in his Oct. 10 blog post. “Go beyond just railing against these fees, however, and look at the core reasoning behind their existence.”

Bank Transfer Day might have stopped the imminent addition of certain fees, but the reason banks (and credit unions, too) kicked around these fees still exists. They want more revenue. So, in an environment where it is difficult to generate interest income and traditional avenues of fee income are limited, what are financial institutions doing to earn income while keeping members happy?

Credit unions that want to (or have to) adjust pricing have ways to do so that are fair to their member-owners. Karnes, who is CEO of CU*Answers, suggests two possible strategies:

  1. Waive fees instantly based on the conditions of the individual transaction — such as amount, timing, or account balance.

  2. Waive fees based on the conditions of the member with the credit union — such as total balances, other services used, or the member’s total credit union relationship.

“We try to encourage credit unions to market to the member to ‘ask us how to enjoy fee free banking,’” Karnes says. “Then give the member a menu of options to upgrade their relationship based on their banking preferences (more savings, more loans, more service, more products, etc.) packaged in a way to avoid all fees.”

A third possible strategy includes introducing a new account with a fee, but with additional services. Peoples Bank of Marietta, OH, presented during the recent 2011 BAI Retail Delivery conference on how it implemented that strategy. First, the bank identified the most unprofitable segment of its customer base. It then upgraded those customers to its “Power Checking” account, which includes free ATM usage, free online banking and bill pay, and cell phone replacement (what a way to encourage mobile banking), among other perks. The account also requires a $6 monthly fee; however, with every debit card purchase customers make, the bank deducts 25 cents from that fee. With less than 25 purchases a month, customers pay no fee. With this account, customers have a way to enjoy free checking and Peoples Bank has a way to earn income through debit interchange.

Ultimately, Peoples Bank wanted to change customer behavior. Credit unions want to do the same, and encouraging members to more fully use the credit union is an excellent and cooperatively minded approach. After all, Member Economic Participation is one of the seven guiding principles by which cooperatives put their values into practice. Asking members to actively participate in their credit union benefits them as well as their cooperative.


Dec. 7, 2011


  • Very pleased to see that the Credit Unions are thoughfully considering how to approach these matters for their members. Also, suggestion: please make sure that when these plans roll-out for testing certain markets/members, please also consider having forums for employee engagement as this also helps iron out foreseeable problems as they are always the front line and therefore know the members. Thank you