Non-Interest vs. Interest Income
Non-interest income (NII) is revenue that does not involve collecting loan interest from a consumer as well as collecting revenue from account related charges such as monthly fees or overdraft. NII typically stems from fee-based earnings, whereas interest income produces revenue by charging consumers interest on loans such as mortgages, student loans, and auto loans.
Financial institutions typically rely on interest to generate revenue from transactions with its consumers. When interest rates are low, financial institutions’ total revenue decreases along with profit margins. To better maintain profit margins and revenue streams, financial institutions are focusing on NII. Financial institutions can offer products which generate NII without funding loans.
NII can be more outwardly attractive to consumers as well. For instance, consumers are attracted to low costs and tend to pay more attention to a product described as having a low-to-no-cost price associated with it. An article about how to attract new customers states, “Learn to create ads that attract your ideal clients by giving them something of value for free to get them started in your funnel (1).” For example, marketing $1,000 in complementary accidental death and dismemberment insurance can be appealing to the consumer. Also, the offer may cause the consumer to consider signing up for a more robust insurance plan at an added cost. This in return increases customer loyalty to the financial institution.
Let’s look into some additional benefits offered by NII:
In conclusion, financial institutions can leverage NII products to help expand their revenue stream by adding it to their portfolio of product offerings to consumers. With the uncertainty consumers feel from the pandemic, now is the time to explore products that can help provide consumers with financial security. NII products not only enhance a financial institution’s revenue stream, they can also provide consumers an additional opportunity to thrive financially.