Credit Card Consolidation Can Attract New Money

by Tom 26. February 2015 13:32

With the economy on the rebound and the job market improving many families are still recovering from the economic crisis, and that means they are carrying credit card debt. The Federal Research estimates that the average American household owes $7,283 on their credit cards. If you look at only those households that actually are indebted the average rises to $15,611. With the resurgence in the economy, Americans are looking for new ways to refinance their debt which presents an opportunity for banks and credit unions.

Consumers are on the hunt for promotional interest rates that will let them transfer their credit card debt for lower interest rates. According to a recent article in the New York Times, consumers could save about $1,000 by transferring their debt from high-interest cards to credit cards with more competitive rates, depending on the new interest rate. Image result for credit card

Some financial institutions are offering fee-free debt transfers, but most are offering transfers at fees between 3 and 4 percent; low enough to make moving debt from high interest rate cards worthwhile.  For example, transferring $5,000 in debt would incur a $150 to $200 fee, which means savings for consumers and new revenue for financial institutions. Some cards such as the Chase Slate card offer no interest for 15 months with no transfer fees if you transfer the money within 60 days of opening an account. Others are extending the zero percent interest period to 18 months to attract new customers.

More financial institutions are looking at low interest credit cards as a way to attract new customers in anticipation of a rise in deposit rates later this year. Many consumers like the convenience of consolidating their credit cards and banking at the same institution, especially if it makes payments easier. The revived interest in debt consolidation could prove to be a valuable way to increase both fee revenues and share of wallet.

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Banking Trends | Consumer Confidence | Credit Cards

Weekly Term Accounts APY Spread and Premium Index–Feb 23

by tom 23. February 2015 17:34

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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Time to Raise Minimum Deposits

by tom 23. February 2015 12:28

Banks need to start considering reducing fees and making up the lost revenue by raising minimum deposit balances.

Rick Barham, founder and CEO of Market Rates Insights, recently wrote this article for publication in BAI Banking Strategies.

Ahead of any rise in interest rates, financial institutions continue to hunt for new revenue sources, first from retail fees and second by increasing minimum deposits on time accounts. It’s time to consider flipping those priorities and focusing on raising deposit minimums to make up for shortfalls in fee revenue.Barham Head Shot_2015

Industry-wide, fee income has been trending down, especially since the Consumer Financial Protection Bureau (CFPB) started questioning the fees that banks charge. Meanwhile, there has been ongoing backlash from consumers who are rejecting fee-based checking and bank services. Ever since 2011, when Bank of America attempted to charge $5 per-month for debit, depositors have been resistant to pay bank fees, especially when they can access alternatives to checking such as prepaid bank cards and e-wallet services.

To put this in perspective, the CFPB reports that overdraft (OD) and non-sufficient funds (NSF) fees constitute the majority of the total checking account fees that consumers incur (71.9% and 18.9% respectively). Further, Bretton Woods consultancy and George Mason University together report that community banks depend more heavily on revenues from overdraft protection than bigger banks, with overdraft fees generating 27% of bank income at smaller banks and 12% at larger banks.  

To assess where retail fees are headed, we decided to take a closer look at NSF and OD fees. We used a national sampling drawing from our national retail fees database for benchmarking banks and credit unions.

We saw some interesting changes from last December to this January. On a national level, bank OD fees took the biggest hit, down 0.9% compared to a fall of 0.1% for NSF. Banks are clearly feeling the pressure from both customers and the CFPB and are responding accordingly.

In searching for possible offsets to higher fees, we noted that Memphis-based First Tennessee Bank is reportedly testing imposing higher balances in customer accounts in lieu of higher fees. To ascertain whether this is a trend, we explored national minimum balances by product types. Sure enough, balances on term accounts jumped 15.45% between December 2014 and this January while those on more liquid accounts, checking account and money market, fell 7.64% and 6.85% respectively. This makes sense in the face of anticipated rising interest rates.

In this regulatory environment, it’s clear that financial institutions can’t sacrifice customer satisfaction for the sake of fee revenue. It’s time the banking industry stopped relying on NSF and OD fees and started looking elsewhere for new revenue sources, such as raising minimum balance requirements. Competition for deposits is going to become fierce again once rates start to rise. Accumulating deposits now will lay the foundation for future profits.

It’s a better strategy to place the onus on customers to maintain a higher minimum balance and leverage those larger deposits acquired, either now or in the future, rather than letting those customers overdraw their accounts to penalize them with NSF or OD fees.

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Building Deposits | Fees | Market Research | Deposit Products

An Email Receipt Is No Substitute for a Handshake

by Tom 19. February 2015 16:09

As we continue to assess the impact that new technology and mobile banking has on bank branches, we noted an article in today’s American Banker that reinforces some of the thinking we shared here recently about the new role of branch banks. A new study released by the FDIC notes that the number of overall branches has dropped 4.8 percent since reaching its peak in 2009, but the per capital amount of offices is higher than ever, even higher than in 1977 when the first non-branch technology was introduced.

“In 2014, there were 2.9 bank branches per 10,000 people, higher than the 2.2 figure recorded in 1970, the study said. While the population has grown 56% during that time span, the rate of branch growth over that period has more than doubled, increasing by 109%.”

The other interesting point that the study revealed is that the number of teller transactions has fallen by 45 percent between 1992 and 2013. Of course, there are fewer checks being used as credit and debit card use continues to rise. The FDIC noted that only 15 percent of non-cash transactions were by check in 2012, while 58 percent of non-cash transactions were from credit and debit cards. The total number of non-cash transactions grew by 50 percent between 2003 and 2012, even though the number of checks written declined.

Clearly, new technology and mobile banking are changing the way that people bank, but that doesn’t’ mean they are abandoniFile:Black & White Handshake - Still from the film Colour Blind (2009).JPGng the branches. The same research shows that even though they are more likely to use new non-branch technologies, 19 percent of people between 18 and 29 visited their bank branch within the last week.

Despite the predictions of experts that branch banks are on the decline, the research shows that bank branches still play a vital role in relationship banking. Much as retail stores now serve as showrooms to help consumers find products they buy online, bank customers want to have a face-to-face conversation with someone they know and trust about personal money issues, even if they make most of their transactions online. Customers will continue to demand telephone support and will increasingly use online banking, but there is no substitute for face-to-face business relations, especially when negotiating a loan, planning for your kids’ college, or mapping out a retirement strategy.

The tellers may be disappearing but the branch banker’s job is secure as long as there is a need for relationship banking.

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Weekly Term Accounts APY Spread and Premium Index–Feb 16

by tom 17. February 2015 16:42

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 | Building Deposits | APY

Deposits Are Back as a Source of Funds

by tom 12. February 2015 14:52

Although bank deposits have never really fallen from favor they are getting renewed attention from bankers to help make up for declining revenues. At least that’s the report from American Banker this week. Continued uncertainty about when the Federal Reserve is likely to raise interest rates is leaving bankers in a quandary as to how to how to balance the books and so they are focusing on low-cost deposits as being lower risk than short-term borrowings.

Banks are looking to minimize risk while waiting for the Fed to make their move. The bankers interviewed by American Banker all agree that long-terms loans are robust and they need to start looking for new depositors and new money. They also are looking to extend their current loan portfolios to long-term notes of two years or more.

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The renewed focus on deposits makes sense given the projected economic upturn. Bankers agree that the economy is going to grow, but they can’t agree as to how quickly or by how much. At the recent American Bankers Association Conference for Community Bankers, the experts offered different predictions. Some are predicting 3 percent growth this year with a drop in unemployment rates starting mid-year. Others are more pessimistic and see 2 percent growth with little employment growth. And no one can predict if or when the Fed will raise interest rates; the best guess is some time in the third quarter.

While long-term lending remains robust and the hunt for deposits is coming back, there are other strategies that community banks are considering to increase revenue with less risk.

The Wall Street Journal reports this week that community banks who are members of BancAlliance will start using Lending Club Corporation’s portfolio of consumer loans. BancAlliance is a network of nearly 200 banks and by committing to buy loans from Lending Club, they can continue to make smaller loans while minimizing the risk. Lending Club vets the borrowers and most loans under $35,000 will be unsecured. The strategy lets BancAlliance lenders compete for the smaller loans, short-term loans that the big banks are abandoning. Using Lending Club software they can analyze borrower risk and extend credit to those with lower credit scores.

One thing the economic recession has taught us is that financial institutions need to find new ways to diversify and minimize the risk from any one revenue source. As the economy improves deposits will bounce back, but smart financial institutions like those who belong to BancAlliance are going to find new ways to optimize deposit and loan products with little or no risk.

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Weekly Term Accounts APY Spread and Premium Index–Feb 9

by tom 9. February 2015 16:49

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 | CD rates | Building Deposits

Bank Branches Are Dead! Long Live the New Bank Branches

by tom 5. February 2015 18:07

The Financial Brand recently posted some interesting statistics related to what industry pundits have proclaimed as the inevitable fall of the bank branch. Apparently one in three financial institutions plan to open NEW branches this year, while 8.76 percent of banks and credit unions reduce the number of branches they currently operate:

  • 4.7 percent will increase the number of branches by 10 percent
  • 11.3 percent will increase the number of branches by 5 to 10 percent
  • 17.9 percent will increase the number of branches by 1 to 5 percent.
  • 44.2 percent are making no changes to their branch bank strategy.

Apparently only one in 11 financial institutions are planning any branch closings.

What’s going on? The news has been reporting reductions in branch banks for some time now. What can account for this reversal?

It’s really simple, these are new branches with a new purpose and a new attitude. To paraphrase the old car jingle, “It’s not your father’s bank branch.”

The new generation of bank branches are enabling a new “brick and click” strategy Banks are instituting a new series of “smart” branches to make the most of technology and offer new types of customer service.

As reported by Jim Marous, a new guide produced by space consultants Solidus reveals that the next generation of bank branches are going to be designed with digital banking in mind. The new generation of branches are being adapted to  suit the needs of their regional market and their niche consumers. Digital and physical banking are converging in a new way that makes bank branches not only more profitable but essential.

The new branches will provide human contact to support digitally powered services. Locations will be determined by proximity to consumer centers, business corridors, and commercial zones. The size of branches will shrink to smaller spaces of less than 1,000 square feet. The whole idea is to support customer convenience.

Part of this drive to offer a new kind of human face on an increasingly digital service is what Accenture has come to term the Bank of Things. Just as the Internet of Things makes it possible to connect devices anywhere on the planet, the Bank of Things will connect financial services such as retirement planning, health care, real estate, loans, credit cards, etc. The new branch bank is providing a foundation to make that personal connection with digital consumers.

The role of the branch banker will become more that of a sales associate or advisor rather than handling transactions. The nature and types of services will expand, and the branch banker will be cross-trained in order to serve as the guide through this new digital Wonderland, helping customers navigate various options and manage their digital banking needs.

Technology will become an enabler for branch bank efficiency rather than a substitute. These new “smart” bank branches are going to show customers how to get more from their banking relationship, including new services and new ways to leverage their money. Technology will give customers the tools to access and manage these services, and the branch bank will become instrumental in educating customers about these new services.

People continue to demand human interaction and personalized services in an increasingly digital world. This financial institutions ready to compete are taking a step forward by bringing the branch of the future to a storefront near you. Personal banking services will always be a part of banking, but the role of the banker will change to enable the new digital banking revolution.

What do you seen in tomorrow’s bank branches?

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Interested in the latest product trends from banks and credit unions? Be sure to sign up for ProductBuilder Alert, our weekly sampling from our ProductBuilder database of financial product ideas. Here’s a sample from this week:

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Banking Trends | In The News

Weekly Term Accounts APY Spread and Index–Feb 2

by tom 2. February 2015 17:05

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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There Must Be Money in Mobile Banking

by tom 29. January 2015 18:30

We have been talking a lot about fee revenue recently. With the Consumer Financial Protection Bureau (CFPB) preparing to make a ruling on what they consider to be excessive overdraft and non-sufficient funds (NSF) fees, banks and credit unions are taking a closer look at their service products to determine where they might be leaving fee revenue on the table.

What about mobile banking?

Mobile banking adoption has been skyrocketing over the last few years. In fact, Mobile banking usage is outpacing online banking. Studies by the Pew Research Center report that mobile banking user doubled from 18 percent of smartphone owners in 2011 to 35 percent in 2013. To keep pace, more banks are encouraging mobile banking solutions. As of September 2014 84 percent of banks were offering some sort of mobilimagee banking services. That number is expected to reach 93 percent by the end of 2015.

What consumers love about mobile banking is the convenience. Now they can deposit checks without having to make a trip to the bank or an ATM. They can transfer funds immediately to cover a check or transaction. And many mobile banking customers are relying more on real-time notifications from their bank or credit union that impact their accounts.

What’s interesting is that with all the buzz about mobile banking, consumer adoption, and aggressive marketing of mobile services by banks and credit unions, most financial institutions are offing mobile banking for free. Our own research shows that almost 50 percent of consumers want mobile bill pay and they are willing to pay up to $4.00 per month for the service, and almost 44 percent want mobile deposit and will pay more than $6 per month for the service. Clearly the mobile channel has value so why is it available for free?

Apple has been driving the online banking phenomenon, not only by offering the most popular smartphone platform for mobile banking in the iPhone, but with the introduction of new services such as Apple Pay. Consumers are expected to use their smartphones more often for transactions – Forrester predicts that the mobile payments market will quadruple to $90 billion by 2017. Apple is banking that “swipe fees” garnered from banks supporting Apple Pay will generate a substantial return.

Clearly there is money to be made from mobile, and there are any number of potential mobile banking services that financial institutions can offer customers for a fee. If bankers are looking for new sources of fee revenue, maybe they should start by reaching in their pocket and taking a closer look at their smartphone.

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If you want to learn more about competitive fee products, be sure to subscribe to our free weekly ProductBuilder Alert where we share insights about new products from banks and credit unions. Market Rates Insight maintains ProductBuilder as an ongoing database of new bank and credit union product ideas to keep clients up to date on new revenue ideas. Here’s a sample from this week’s ProductBuilder Alert:

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Fees | Mobile Banking | Banking Technology


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