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Connexus : Issue 38
banks while still acting in ways that are sustainable for their organisations and maintain non-interest income. At Encompass Credit Union, 70 per cent of its 20,137 members already pay no fees on their transaction accounts. Under a fee policy introduced in 2007, any member with a mortgage pays no transaction fees. It also offers a monthly transaction fee reward to members, capped at $25 for those with at least a $100,000 end of month balance in their combined saving, loan, credit card and term deposit accounts. Ways to avoid paying transaction fees are actively promoted in its fee brochure. Baden Shanley, Encompass’s risk and IT manager, says that, to remain competitive, the credit union has looked at developments such as accounts that are transaction fee- free as long as at least $2,000 is deposited monthly. But, for now, profit considerations have meant deciding against introducing a similar product. “ We want to give the best value to members, but we need to cover our costs, and that’s a consideration that always comes into this equation. How much can you give away without having costs you can’t cover by any other means?” He says mutuals shouldn’t just resort to duplicating the banks’ fee-free strategies without first encouraging members to change their behaviour and embrace lower-cost transaction methods. Wider challenges For the ACT and NSW-based Service One Credit Union, the wider challenges facing the mutual industry will unavoidably have an impact on any decision on fees. Its fee take has dropped from $3.6m to $1.9m in the past four years as a result of changes in the payments system, reductions in exception fees and its efforts to make sure members are getting long- term value. Chief executive Peter Carlin says Service One tries to ensure its 31,000 members are getting more free banking with every review of its fee schedule. Since 2000, it has charged a membership service fee, currently $5. However, the fee can be waived depending on the member ’s average relationship balance. Only about 12 per cent of members pay the fee. Members with an average relationship balance of at least $125,000, a mortgage package or a student account are entitled to unlimited free withdrawals over the counter and via EFTPOS, personal cheque, rediATMs and direct debit. For the others, limits to free withdrawals apply. About 20 per cent of members pay transaction fees. Service One would like to introduce a $5 all-you-can-eat account to compete with the banks on simplicity and fee certainty. “[However], we are hamstrung to a certain degree by computer systems that don’t make that sort of thing easy, ” says Carlin. “The banks have the grunt to be able to bring in systems or tweak their systems, and it’s a shame for the image of credit unions that the banks are making the running on fees and we’re just chasing them.” He says the fees debate highlights a larger predicament for the industry: how to remain competitive when the regulator ’s capital requirements alter mutuals’ ability to channel profits back into member benefits. “One of the reasons the number of credit unions is dropping is because it is getting harder and harder to remain competitive without access to scale in some form. For most credit unions so far, a merger is all they have looked at to achieve scale. Are there any other options out there? I think that’s what credit unions are going to have to look at.” – Christine Long is a freelance writer. Baden Shanley 24 connexus www.abacus.org.au NEWS 24 connexus www.abacus.org.au “We want to give the best value to members, but we need to cover our costs, and that’s a consideration that always comes into this equation. How much can you give away without having costs you can’t cover by any other means?” Encompass Credit Union’s risk and IT manager Baden Shanley