Fresh approaches to revenue generation

Pressures on noninterest income are leading finance leaders to seek out new revenue opportunities, says Jeremy Zager, chief financial officer at $2.3 billion asset Dort Financial Credit Union in Grand Blanc, Mich.

Zagar will address America’s Credit Unions’ 2024 Finance Council Conference in Orlando. He explains how Dort Financial is diversifying its sources of noninterest income to reduce reliance on overdraft protection revenue and support the bottom line.

America’s Credit Unions: How long have you been diversifying your income sources?

Jeremy Zagar: It started about 10 years ago. We're a low-income credit union, and we noticed we had a disproportionately high number of overdraft and nonsufficient fund (NSF) fees as a percentage of our total income. So, we started to see what we could do to diversify to make sure that, should overdraft go away, we’re protected.

We quickly realized it wasn't going to be a quick thing. There's no magic bullet. We’ve looked at a bunch of projects and initiatives to build up other noninterest income streams. We've continued that to this day.

Q: What are some of those revenue streams?

A: One of the first was loan insurance sales. We were never a big credit life, disability, GAP, or warranty shop, so we put those programs in place, changed our culture, and got staff comfortable with selling those programs. It started slow, but it’s now a $1 million per year revenue line for us.

We started looking hard at interchange because of all the threats to that, but also to make sure we’re getting our fair share of transactions. We look at our debit and credit card transactions, and come up with new spend promotions almost every quarter.

We focus mostly on the credit side to make sure we're getting the high interchange recurring transactions from our cards.

We'll incentivize the member with points or some other offer so they use our card for recurring bills, cell phone charges, subscriptions, and the like. We want them to get in the habit of using our card for those transactions.

In the summer, we’ll provide incentives for spending on gas and travel. We partner with Visa for all of this, so we have the backing of their analytics. They give us the data we need on how members are spending their money to see where we want to increase these transactions.

We became aggressive in terms of getting debit cards in people’s hands and making sure the cards are active and used. We invested in instant-issue technology so members could walk out of a branch with a live card versus waiting 10 days for a new card.

We also created a high-yield checking account that’s dependent on debit card use.

As those ideas started to mature, we bought a bank, which had a money service and a business banking product line.

We started to dip our toes into cannabis banking. We’ve built a book of business on the deposit side, which creates a noninterest revenue stream. This also provides some loan opportunities for our commercial lending area because Michigan is a cannabis-legal state.

Q: So, it's not about coming up with one game-changing revenue stream, it's about adding services.

A: It's more of a bunch of singles than a home run. We’ve been looking more into credit union service organizations to see where we can make some strategic investments in products that fit what we're doing.

We want to invest in services that have the potential for a long-term equity investment. Hopefully, they’ll pay off down the road.

Q: Have you ever tried something that wasn't a good fit?

A: Merchant services had too much competition: too many people, low volume, and low margins.

If a product or service doesn’t have the potential to deliver six-figure or higher revenue each year, why waste our time on it?

Q: What’s a good first step for credit unions seeking to boost their noninterest income?

A: Be open to looking at different things and not being afraid to try something new. Your current business model may work well, but maybe you can modify it to create new revenue streams.

Look at what others are doing and see if it would be a good fit for what members want.