"To Fee, or Not to Fee," Rebuilding Profitability During the Coronavirus Pandemic

Posted by Nicholas Ceto on Jun 17, 2020

Over the last few weeks, we have covered a number of topics from steep economic challenges facing banks and credit unions to the future of regulatory intervention. We’ve also discussed the importance for financial institutions to shift their focus from customer and member relief efforts back to the critical task of regaining capital and profitability as we adjust to a new normal. One of the fundamental steps towards focusing on profitability is to review your revenue sources in detail. If your institution was seeing a lot of revenue from interchange fees or from loan interest prior to the pandemic, you might be wondering where to focus now. We recommend taking a hard look at your sources for non-interest income. Based on our 25 years of experience, we can tell you that there are often many untapped areas of opportunity for non-interest income to explore that will help your financial institution maintain stability during this unprecedented time. 

The below post is authored by our CEO and founder, Nicholas Ceto Jr. Now is the time to revisit his incredible insight as he shares how non-interest income can go a long way in gaining profitability for your financial institution.


“To be, or not to be, that is the question.”

No, this isn’t a blog about William Shakespeare’s “Hamlet,” but a blog that poses a similar question to our protagonist… the banker. In “Hamlet,” the protagonist of the play is faced with a difficult question from the opening lines of the script. In this blog, I want to pose a similar question, “to fee, or not to fee.”

It goes without saying, it’s important for community banks and credit unions to evaluate every possible source of revenue. Historically, 80 to 90 percent of a financial institution’s revenue comes from loans.

What other sources of revenue exist for the typical bank? There are fees for checking accounts, loan origination fees, credit and debit card fees, plus a myriad of other fees. Studies have shown that banks can derive 6 percent or more of their revenue from fee income, and the typical bank may have as many as 300 different sources of fees.

Look at what has happened to the airline industry. Their basic service of moving people from place to place resulted in low profits, or none at all. Then the airlines started charging fees that were related to their basic business, and these fees increased their profits significantly. Think about when you fly… there are fees associated with flight changes, and even checked luggage, to name a few. Banks and credit unions should look to airlines as an example of an industry that has optimized fee income, as it relates to their basic services.

Listed below are reasons banks and credit unions should optimize their fee income:

  • Fee income is not subject to credit risk

While all types of loans have credit risk, non-interest (or fee) income has no such risk. As we all know, loan credit risk can have severe and detrimental effects on bank profits.

  • Fee income is not subject to interest rate risk

The Federal Open Market Committee (FOMC) is responsible for setting the tone of interest rate movements. Many banks have committed fairly large amounts of their loanable funds to fixed rate loans, especially mortgages. In a rising rate environment, in spite of a good Asset Liabilities Committee (ALCO), this could have a severe and detrimental effect on bank profits. This is not the case with fee income since it provides a fairly consistent flow of income, normally based on the number of transactions, regardless of the level of interest rates.

  • Fee income grows as the institution grows

As a financial institution grows, the more customers or members there are using your products and services. This means more transactions, and thus more fee income.

  • Fee income is reliable, predictable and a stable source of revenue

Banks and credit unions should not be overly reliant on interest income. Fee income is often not re-evaluated on regular basis, and that’s a missed opportunity for any financial institution.

Finally, it’s important to evaluate all the products and services for both non-interest income, as well as interest income. There are more competitors than ever from fintechs and online banks.

Financial institutions should reassess fees on a regular basis and make adjustments that are competitively priced.


If you would like to learn more about how to balance long-term profitability and capital while still helping your customers and members during this unprecedented time, please check out our latest on-demand webinar, “How to Deal with the Coronavirus Pandemic: A Huge Dilemma for Financial Institutions.” This webinar discusses the following topics:

  • Similarities and differences from the 2008 banking crisis, and what we’ve learned from it

  • The areas that financial institutions will be squeezed, and proactive measures that need to be taken now

  • What we might expect from regulators down the road based on what we learned from the 2008 banking crisis

  • Steps you need to be taking now to rebuild liquidity and pull out of this dilemma in the future

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Nicholas Ceto

Chairman and Chief Executive Officer
Hometown: Bridgeton, New Jersey
Alma Mater: Lafayette College and The Wharton School
Car fanatic and history buff. Loves to travel, exercise and spend time with family.

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