Weekly Term Accounts APY Spread and Premium Index–Oct 20

by tom 20. October 2014 16:44

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | Market Research | CD rates

The 2014 Report Card on Our Prediction for Deposit Interest Rates

by tom 16. October 2014 09:35

Market Rates Insight tracks trends in deposit rates, but what constitutes a trend?  This article was written by Dr. Dan Geller, executive vice president for Market Rates Insight, for BAI Banking Strategies with a prediction of what’s ahead for deposit interest rates.

Last January, we published in BAI Banking Strategies our estimates for deposit interest rates in 2014. Now that we’re three quarters into the year, it’s time to ask: How did we do?

Let’s start with the big picture, the overall economy. We predicted, “From a macro perspective, we are likely to see gradual and sustained improvement in the economy in 2014.” Indeed, that has been the case. As Federal Reserve Chair Janet Yellen noted at the end of the Federal Open Market Committee meeting on September 17, “Economic activity is expanding at a moderate pace.”

Specifically in regard to deposit interest rates, we stated, “Rates of term accounts are projected to increase in a general linear pattern.” Additionally, “The increase in rates of deposit products is going to be moderate, gradual and volatile” and, “Expect national average rate increases to range from one-half to one basis point per month per product.”

Here are the actual figures:

  • In the first nine months of this year, the national average for five-year certificates of deposit (CDs) increased by four basis points – from 0.86% in January to 0.90% in September.
  • Similarly, the four-year CD rate increased by three basis points during the period, from 0.60% to 0.63%.
  • The three-year CD rose by one basis point, from 0.47% to 0.48%.

As for rates on liquid accounts, we projected an “increase in a general down-curved pattern.” That meant that we expected that rates for checking, savings and money market accounts would likely decrease slightly before increasing. Although no actual decline in the rates of liquid accounts was observed in the first nine months of this year, the rates of checking, savings and money market accounts remained flat at 0.07%, 0.09% and 0.09% respectively. The fact that rates of liquid accounts have remained flat thus far is an indication that these rates are likely to exhibit a downward curve before they will rise again.

Our last projection was: “Since the starting point of the rate increases, i.e. current rates, is so low, it will take much longer for deposit rates to reach their pre-recession level.” This has, indeed, been the case. We have seen so far this year that the rate increase of the long-term CDs is very slow and moderate and this will be the case even when the Fed increases the Federal Funds rate. In other words, as the projection stated: “Deposit rates are not likely to exhibit big jumps month over month.”

So what does all this mean? It means that we are on track for rising rates, barring of course, any unpredictable major event that will derail the economic recovery. It also means that tracking pricing trends should be expanded to include monitoring rates of your entire market, not just within your competitive set, because statistically speaking, larger samples produce more reliable results.

If you are interested in banking trends, you can see the latest new bank and credit union products to help build deposits. Market Rates Insight maintains a weekly newsletters, ProductBuilder Alert, that highlights the newest promotional ideas for deposits, loans and fees. It’s free so please subscribe.

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Banking Trends | Market Research | Building Deposits

Weekly Term Accounts APY Spread and Premium Index–Oct 13

by tom 13. October 2014 16:13

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | CD rates | Deposit Products | Market Research

Prize-Linked Savings–Using Gamification to Promote New Deposits

by tom 9. October 2014 22:15

Even with the economy rebounding, consumers still aren’t saving. Personal savings are still in decline following a high of saving 15 percent of personal income in the 1970s.  The U.S. is facing a retirement savings crisis, with more than 36 percent of workers having less than $1,000 saved, 69 percent with less than $50,000, and 11% having saved more than $250,000.

To encourage saving, credit unions are adopting new prize-linked savings (PLS) initiatives to entice members to put their money aside. Some ask if this is gamification or gambling (to quote Credit Union Times), but PLS programs such as Save to Win have helped create 50,000 new accounts and save $94 million since 2009.

Credit unions are committed to offering tools to help members realize their financial goals, so creating a savings lottery as an incentive may not be that far-fetched. Of course, most credit unions are forbidden by law to offer prize-linked savings promotions since legislators say it promotes gambling, even though the savings accounts themselves are secure. But credit unions in Michigan, Washington, North Carolina, and Nebraska have been using PLS promotions for some time, and the law has recently changed in Illinois, Connecticut, and New York to allow PLS plans.

As reported by CU Times, the argument is that by offering prizes with some real cash value, it encourages people to really save. It’s the same as appealing to low-income families to save their money and gamble on getting a cash prize from their credit union rather than buying lottery tickets.

And apparently it works. A 2009 pilot program in Michigan with nine credit unions resulted in 6,000 new accounts in 18 weeks and an average of $100,000 per week in deposits per participating CU. A study by the Filene Research Institute suggests that gamification with prize savings accounts not only increases the accounts but also promotes member loyalty and increases engagement.

So what are we to take away from the prize-linked savings phenomenon that is encouraging CU members to save more in hopes of winning a cash prize? Clearly, banks and CUs can’t get into the lottery business, but gamification offers some interesting possibilities for financial product promotions.

What the PLS programs do achieve is they get consumers’ attention. Using the carrot rather than the stick, CUs can get members focused on saving and while they have their interest, educate them about retirement strategies and how to put money away for a new home, college, or whatever their dreams call for. This is clearly a win-win for both CU members and credit unions.

Perhaps banks can learn from the PLS strategy. While they can’t necessarily offer cash prizes, they can create incentives that appeal to customers’ competitive spirit. Social media is one of the hotbeds of gamification, with social followers competing to become mayor of a specific coffee shop or accumulating enough points to beat their peers in building virtual farms or kingdoms. While banks have been using social media for marketing, social media gamification is still unexplored territory.

Gamification has already taken off with banks in Asia and other markets, but U.S. banks have been slow to adopt gamification strategies to bring in new deposits or attract new customers. Maybe they’re missing something.

If you are interested in see the latest new bank and credit union products, Market Rates Insight maintains a weekly newsletters, ProductBuilder Alert, that highlights the newest promotional ideas for deposits, loans and fees. It’s free so please subscribe.

Weekly Term Accounts APY Spread and Premium Index–Oct 6

by tom 6. October 2014 16:14

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | Market Research | CD rates

“I am Not A Number!”: Time Get to Get to Know Your Customers Better

by tom 2. October 2014 15:46

Let’s face it, consumers have lost faith in the banking industry. After the exposure of Wall Street greed that led to the birth of the Occupy Movement and the recession of the past few years, consumers, especially Millenials, have become disenchanted with banks. One of their biggest complaints is that banks make no effort to get to know them as customers at the same time they are trying to build revenues by imposing more service fees.

Customers are Disenchanted

In an article posted by American Banker earlier this week, Derek Corcoran, Chief Experience Officer for Avoka, a global customer experience technology company, talks about the erosion of consumer trust:

“Consumer trust in banks took a big hit in the aftermath of the financial crisis, leading some people to shift away from traditional financial services. Meanwhile, some millennials are rejecting the banking sector altogether. Now a demographic that was once targeted by select financial institutions is being pursued by global powerhouses like American Express…”

Corcoran’s argument is that it’s time for the financial community to focus its attention on the younger generation and the underbanked or emerging financial service providers Like AmEx and Wal-Mart will capture those customers. These customers have no institution loyalty; a Scratch survey revealed that one-third of Millenials are willing to change financial institutions within 90 days, half are hoping start-ups change the banking industry, and 53 percent can’t tell their bank from the competition.

Smart banks are emulating the best practices of emerging competitors with mobile banking technology to attract younger customers and the underbanked. The FDIC reports that 32 percent of underbanked customers use mobile banking services as opposed to 22 percent of other bank customers.

Fees Makes Foes

Part of the problem is how the banking industry makes its revenue. As noted in a recent post in The Financial Brand, the change in the economic climate has led to a much greater reliance on fee revenue. Consumers are starting to look at overdraft fees as punitive, yet they are the single largest source of fee revenue for banks and credit unions. The reliance on fees breeds mistrust in younger customer.

According to a 2013 Think Finance survey, 45 percent of Millennials are turning to prepaid cards and payday loans to avoid transaction and overdraft fees. By promoting distrust with increased fees, banks run the risk of a mass exodus when the FDIC starts to raise interest rates later this year. One bank predicts that they may lose 8 percent of their deposit base or more than $100 billion when depositors start shopping for higher interest rates.

Promoting Customer Intimacy Through Technology

To win the loyalty of these alienated customers before they abandon ship, banks and credit unions are going to have to find new ways to connect with customers. More aggressive mobile and social media strategies may help, but financial institutions need to work harder to establish a dialogue with customers to learn what they want, and to demonstrate to customers that their needs are being met.

Eric Levy, a financial services analyst for GFK Custom Research, envisions a new banking future where technology helps financial institutions get closer to their customers by anticipating their needs. Levy envisions a new in-branch experience where identifying the customer as he or she enters the branch and using what is known about that customer, it’s possible to provide that customer with a range of banking services and financial strategies unique to their needs.

What banks need to do is make a better effort of getting to know the needs and desires of Millennials and the underbanked and developing service strategies designed to be more appealing and rebuild trust in the bank institution.

Big data is playing an increasingly valuable role here. Using big data analytics, banks can develop a 360-degree portrait of their target customer, their habits, likes, dislikes, and financial needs, Using data stored in the bank’s CRM system combined with external data sources that reveal market trends, big data analytics can deliver real-time insight into each customer and his or her needs. Rather than adopting a relationship banking strategy that treats every customer the same way, big data makes it possible to personalize products and services, and increase bank revenue at the same time.

To remain competitive, banks and credit unions are going to have to get closer and more personal with their customers so superior customer service becomes a real differentiator.  Making customers feel special with products custom-designed for their financial needs will be the best way to revive relationship banking and to ensure the next generation of happy customers.

Weekly Term Accounts APY Spread and Premium Index–Sep 29

by tom 29. September 2014 16:22

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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CD rates | National Pricing Indicator | Deposit Products

Are Bankers Now Finding Themselves Up Against the Wal-Mart?

by Tom 25. September 2014 15:53

This week everyone is talking about GoBank, WalMart’s latest foray into banking. As reported in The New York Times, Wal-Mart us finally offering a checking account to virtually anyone over 18 with a valid ID and a pulse. 

Wal-Mart has partnered with Green Dot, which is better known for its prepaid cards, to offer checking accounts to anyone who wants to bank at GoBank. For direct deposits of less than $500 per month theWal-Mart Company Statisticsre would be a $8.95 service fee, otherwise there are no fees for overdrafts and no minimum account balance required. GoBank will go live at the end of October.

This move is the latest effort by Wal-Mart to bring financial services to its customer base. Their objective is to meet the financial needs of the 10 million households who currently don’t use bank accounts, and increase its sales at the same times. According to The New York Times report, this move is designed to help win back customers that Wal-Mart is losing to T.J. Maxx, Dollar Tree, and Target. Wal-Mart started offering pre-paid cash cards some time ago, only to be mimicked by Target and 7-Eleven. However, this is their first move to offer a checking account, although it is not being regulated or insured by the FDIC. And Wal-Mart has already started taking orders for paper checks and they are expected to develop a mobile transaction model to compete with Apple Pay.

So should banks and credit unions worry that Wal-Mart has finally gone too far? Have they crossed a line to become a more aggressive competitor?

Here’s one observation excerpted from a story in American Banker:

The decision they face is whether to fight Wal-Mart and other disruptors, or try to partner with them, said Falk Rieker, head of the global industry business unit for banking at SAP, a financial technology consulting firm. He pointed to their recently announced partnership with Apple as an example of banks opting to join potential disruptors rather than try to beat them.

"If you're a bank, you can say Wal-Mart is competitor and if we help them, we're just making them stronger," Rieker said. "Or you can say that they're not going away and I should try to get something out of it."

The truth is that banks and credit unions have been fighting the barbarians at the gates for years. New online payment models, mobile payment models, prepaid cards, and other financial services offered by non-banks have been proliferating for some time. The thing that makes Wal-Mart a threat is the same thing that makes bankers worry about Apple Pay – market share.

Wal-Mart has 4,253 stores. By way of comparison Bank of America has 5,377 branches. But Wal-Mart serves more than 100 million customers each week. Wal-Mart has the consumer foot traffic and the convenience factor.

As long as Wal-Mart targets the underbanked, they may not pose much of a threat. Some consumers will like the convenience of free Wal-Mart checking, until they need a car loan or a mortgage. However, what if the Wal-Mart model attracts new bank customers.

Consider students who are just starting to bank for the first time. If they start with a Wal-Mart account in high school or when they are off to college, it will be that much harder to win them back to conventional banking. And what about the Millennials? They are actively looking for banking alternatives, especially after the recent recession, the revelation of wrongdoing by Wall Street bankers, and the emergence of the Occupy movement. If Wal-Mart were to offer a viable banking alternative, some customers may choose Wal-Mart simply because it is not a bank.

So what are banks doing to combat Wal-Mart. Some are adopting new banking products designed to appeal to the underbanked and the Millennials. We are continually tracking new products for our Product Builder database, which holds more than 15 years of bank product innovations. This week we reported that Citigroup has joined BofA, Key Bank, and a handful of banks offering paperless checking – digital-only accounts available free of charge (with certain restrictions). In the near future, banks will likely find themselves partnering with Wal-Mart as they already are doing with Apple, and developing their own new products to stay ahead of the competition.

(If you are interested in  learning more about Product Builder or subscribing to Product Builder Alert to get the latest about new products, sign up for Product Builder Alert.   

Weekly Term Accounts APY Spread and Premium Index–Sep 22

by tom 22. September 2014 17:02

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index
The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index
Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

image

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APY | CD rates | National Pricing Indicator | Market Research

Bankers Looking to Take a Bite Out of Apple Pay

by Tom 18. September 2014 18:23

Banks and credit unions have been trying to decide how to compete with virtual banks for some time. Internet banks and smartphone commerce are wooing consumers away from branch banks and using their ATM cards. And with the introduction of the iPhone 6 last week the latest service to enter the race, Apple Pay looks to be the odds on favorite in the eWallet competition.

So many bankers have concluded that if you can’t beat ‘em, join ‘em.

As noted in an article in last week’s American Banker:

Press reports citing anonymous sources said the large financial institutions involved in Apple Pay agreed to either deeply discount their interchange fees for transactions initiated on the platform or give the tech giant a cut. While the parties have not disclosed the terms, in interviews and public statements the banks involved said Apple Pay's enhanced security features, intuitive user experience and brand name made the platform attractive. Several participants also called the timing fortuitous, as merchants are under pressure to upgrade terminals to the EMV chip-and-PIN standard (which makes them more likely to also retrofit for mobile communication).

It’s the perfect storm for mobile commerce. Apple is clearly an important player in mobile phone arena, although Apple’s iOS is only 18 percent of the global market compared to 78 percent for Android. In the United States Android holds 61.9 percent market share compared to 32.5 percent for iOS. What makes Apple different is they sell both hardware and proprietary software; Apple iOS is not licensed for other platforms as is Android. This means Apple has much more control over who uses its technology, including the new Apple Pay platform.

At the same time retailers are gearing up for the mandatory conversion to EMV smartcards by October 2015. EMV card readers will enable more smartphone transactions. The question remains who will be the dominant player at the digital checkout stand?

Bankers are gambling that Apple Pay will become the winner, and that they will profit by holding the credit cards that power Apple Pay. Apple has already built a payment network using bank cards to power iTunes. Any consumer using iTunes to buy music, movies, apps, or any other digital content has to pay for their transaction with a registered credit card. Banks are hoping that by backing Apple Pay, the volume of credit card transactions through Apple Pay adopters will more than make up for the discounted interchange fees.

Apple has already inked deals with Wells Fargo, U.S. Bancorp, JPMorgan Chase, American Express, Capital One Bank, Citi, Bank of America, PNC Bank, USAA, Navy Federal Credit Union and Barclays. All three major credit cards - MasterCard, Visa and American Express – have committed to support Apple Pay. So the financial institutions become the wholesale providers to Apple Pay services.

Or maybe not.

David Weidner, a reporter for the Wall Street Journal and columnist for MarketWatch, predicts that the Apple Bank is only a matter of time. As Weidner writes,

Silicon Valley has been encroaching on financial services, especially retail banking, for years. There was the mobile-payment system Google Wallet, PayPal and Square, which provide access to traditional payment systems.

These systems largely aimed to solve a problem that had been plaguing traditional banks for years. That is, they sought to take cold, hard cash out of the hands and wallets of the customer and digitize them, thereby lowering transaction costs. The move to electronic payments followed an evolutionary line from the drive-through teller to the ATM to the smart card.

So the argument is that Apple Pay looks like a bank, works like a banks, but it’s not a bank because it’s not being regulated like a bank. However, as far as consumers are concerned, Apple Pay works just like their ATM card so why do they need a bank?

So how are mobile payments going to continue to shape the banking industry? Silicon Valley can continue to make their own rules and disrupt banking with new hardware and software solutions that make transactions easier, but if they continue to push banks and credit unions into the background as wholesalers, eventually the regulators will start overseeing mobile payment systems, just as they do banks. And the banking industry can either learn from their technology coopetition and find ways to better serve their customers, or they will have to reinvent themselves as financial services wholesalers. No matter how the financial market evolves, thanks to smartphones and services like Apple Pay it will never be the same again.


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