A Strategy To Build Non-Interest Income One Transaction At A Time

How an Iowa credit union increased its interchange revenue by 41% over four years.

The University of Iowa Community Credit Union($3.3B, Iowa City, Iowa) is no stranger to finding new ways to boost non-interest income and lower its cost of doing business. But the most interesting strategy it has adopted is one that is not only unique to its market but rarely found anywhere else.

Contrary to standard credit union operating procedure, UICCU charges its members $1 for point-of-sale PIN transactions as well as those made at a foreign ATM. The practice isn’t new, and it’s longevity is one marker of its success: the 140,000-member institution, which has 14 branches clustered in the Iowa City/Cedar Rapids area, introduced the fee soon after it launched its debit card 20 years ago.

According to the 2013 Non-Interest Income Survey by Callahan Associates, revenue from debit-card and interchange fees made up 23.8% of total non-interest income for credit unions, making it the largest component of non-interest income among the 102 responding institutions. At UICCU, those numbers are considerably higher.


university of iowa community cu
Data as of 12.31.15

  • HQ: North Liberty, IA
  • ASSETS: $3.2B
  • MEMBERS: 140,073
  • BRANCHES: 13
  • 12-MO SHARE GROWTH: 24.91%
  • 12-MO LOAN GROWTH: 24.42%
  • ROA: 1.63%

The goal behind UICCU’s PIN fee was to increase interchange revenue, and that it has: for fiscal year 2015, checking interchange income hit close to $6 million net, a four-year increase of 41% due both to additional member use of swipe-and-sign and to an increase in card revenue that UICCU negotiated with its card provider. Signature transactions are up 29% over the same four years, from 11 million in fiscal 2012 to 14.3 million in fiscal 2015, with transactions averaging $30.

In addition, UICCU pulls in some $1.3 million per year in fees from members who still use their PIN for merchant-terminal transactions. Transactions at any of the dozens of UICCU-owned ATMs in Johnson County, IA, remain fee free.

The fee wasn’t originally designed to be an income generator, says Jim Kelly, the credit union’s senior vice president, marketing. It was designed to change member behavior. We wanted to incent them to swipe and sign using their debit card [as they would a credit card], so we would receive the interchange income from the transaction. If they use their PIN, there is significantly less income. We charge the dollar fee to encourage wider use of swipe and sign.

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According to Kelly, he cannot separate the additional revenue generated from swipe-and-sign from that generated by the lower card-provider charge, nor can he break out fees collected from use of foreign ATMs from those for point-of-sale debit-card use.

For University of Iowa Community Credit Union | Data as of 12.31.15

Avg. Monthly Signature Transactions Total YTD Signature Transactions Total YTD Signature Transactions $ YTD Avg. Ticket $ Avg. Monthly Signature Interchange Total Signature Interchange (YTD)
2012 YTD 922,100 11,065,197 $335,164,817.13 $30.29 $342,658.40 $4,111,900.76
2013 YTD 1,024,206 12,290,472 $375,224,260.02 $30.53 $384,069.49 $4,608,833.93
2014 YTD 1,097,138 13,165,656 $406,443,802.56 $30.87 $449,843.43 $5,398,121.13
2015 YTD 1,189,560 14,274,717 $434,860,166.30 $30.46 $484,360.52 $5,812,326.29

The Key To A Successful Fee

The key to implementing the PIN fee was explaining the concept to traditionally fee-averse credit-union members. As Kelly points out, members are not primed to see credit-union income as their concern.

Any time you introduce a fee, you’re going to get some pushback from members, he says. But we used it as an opportunity to educate them.

The credit union uses both its checking webpage and its staff to explain the PIN fee as well as how to avoid it. It offers a Rewards Checking account that refunds up to $10 per month in non-UICCU ATM fees and reimburses non-UICCU ATM fees. Rewards Checking members also can receive up to 2.25% APY on their account, up to an account balance of $20,000. The potential over the course of a year for the diligent Rewards member whose account meets all conditions, including a minimum of 12 posted-and-cleared, signed debit-card transactions per month, is $450. For this, there is no maximum balance.

Its Basic Checking, only for members who live outside Johnson County, includes seven free non-UICCU ATM transactions per month. But even members who opt for Free Checking can keep PIN fees at bay. In addition, UICCU will refund one fee a year if a member calls to object, and staff members use that phone call to talk about sidestepping the PIN fee.

We see big trends toward using the card as swipe-and-sign, Kelly says. It’s been a regular source of income but also a good way to push members toward using signature-based transactions. We’re always looking for ways to generate non-interest income. This is the primary income generator for checking accounts.

No Risk; No Reward

Kelly acknowledges that UICCU took a chance with its PIN-fee strategy.

It is uncommon, he says. I can’t speak for other credit unions, but I think [one reason is] their desire to offer entirely free checking accounts. Nobody has followed us in this local market.

Those free checking accounts are as much bane as boon. Industrywide, they have become less and less profitable as credit unions and banks pile on the free servicesonline bill pay, mobile banking applications, and so onrequired to remain competitive.

The challenge is to find a way to make checking accounts profitable while offering the freebies that members expect.

We give those away for free but they cost us money, Kelly says. The challenge is to find way to make checking accounts profitable while offering the freebies that members expect.

Nonetheless, the credit union did consider adding other fees.

We looked at services such as remote deposit capture and bill pay and determined those would have to be free services because we would be alone in this market, Kelly says. This would be it for us in terms of unique fees.

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Kelly puts UICCU’s growth rate on checking accounts at approximately 6%.

By industry statistics, which we get from Callahan Associates, that is fairly average for credit-union checking accounts, he says. Could we grow a lot faster if we didn’t charge that fee? I would say yes.’ But would we want to grow an account that is marginally profitable or not profitable? We’re happy with our growth rates right now.

What made the PIN fee palatable was the UICCU’s clear position that it would rather not collect it. The credit union knew it would generate more income, whether by fee or behavior was up to the members, but it was shooting to increase income by increasing interchange income.

So what does Kelly concede is a drawback to this strategy?

It does make it more challenging to sell our checking accounts, he says. But we seem to be doing OK in that regard.

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