Apple Pay Now Claims Support from 90% of Credit Card Market

by tom 18. December 2014 17:00

On Tuesday of this week Apple announced the latest cadre of banks and businesses to adopt Apple Pay. Among the new Apple Pay supporters are Barclaycard, Sun Trust, and USAA, and 10 more banks including TD Bank North America and Commerce Bank.

With these new commercial and bank partners, Apple now claims that Apple Pay is supported by the same cards that represent 90 percent of the purchase volume in the United States.image

Many pundits see Apple Pay as the magic bullet that will launch the mobile payments industry. Forrester Research estimates that the volume of mobile payment transactions in the United States alone will reach $142 billion by 2019, and Apple Pay e-commerce volume will reach $34 billion. Not bad for the newest kid on the mobile payments block.

People love Apple products and Apple Pay seems to be no exception.  The New York Times reports that Apple Pay is now accepted at Winn Dixie and Albertson’s, and Staples now accepts Apple Pay at 1,400 locations in the United States. Whole Foods reports that they handled 150,000 Apple Pay transactions in October, and McDonalds said Apple Pay accounted for 50 percent of its tap-to-pay sales in November. That’s an auspicious start.

What consumers and vendors both like about Apple Pay is its simplicity, which is the hallmark of all Apple products. For food and beverage sales at locations such as  the concession stands at Amway Center, home of the Orlando Magic , Apple Pay speeds up counter transactions and improves service. (It also could forestall some retailers from having to upgrade from the old mag card readers to the new EMV card systems – the changeover is mandated by October 2015.) But what do bankers like about Apple Pay?

Financial institutions are betting that Apple Pay and services like it will increase credit card transaction volume without customers having to actually using the credit cards. Banks gain more revenue from more credit card transactions, since every Apple Pay transaction from that Starbucks latte on up is usually backed by a credit card. If banks are paid by the number of credit card transactions, they are likely to make more money faster as more consumers and retailers adopt Apple Pay. 

The fact that this new e-payment system was developed and backed by Apple gives consumers, retailers, and bankers more confidence. This could be the killer app that launches e-payments into the mainstream, outpacing Google Wallet and similar smartphone payment systems. And the more banking partners Apple can sign, the more credit card revenue will flow into bank balance sheets from a single source, Apple Pay.

It seems it could pay for retail banks to serve as a middle man and some banks may find it more profitable to support third-party transaction services like Apple Pay than to offer their own credit and debit cards. Who knows, someday you may get a free Apple Pay account with every new checking account. As long as Apple stays in the technology business and banking stays in the money business, the Apple Pay transaction model should prove a winner for Apple, the banks, and customers.

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Banking Trends | Credit Cards | Mobile Banking | New Products

Weekly Term Accounts APY Spread and Premium Index–Dec 15

by tom 15. December 2014 16:34

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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Memo from Banks to Institutions: “We Don’t Want Your Cash"

by tom 12. December 2014 12:49

An important trend in banking was reported by the Wall Street Journal this week – big banks like JOP Morgan Chase, Bank of America, Citigroup, and HSBC are telling their corporate clients that their cash is no longer welcome.

Large depositors such as corporations and hedge funds are being told that banks will start charge fees for large deposit accounts that were previously free. The move is to combat new regulations designed to make banking safer. The big institutional depositors now pose a risk to financial institutions since  deposits can be withdrawn at any time leaving banks cash-strapped in the event of a change in the market. (It brings to mind the bank “runs: of 1929 on an institutional scale.) As the Wall Street Journal article states:

“The change upends one of the cornerstones of banking, in which deposits have been seen as one of the industry’s most attractive forms of funding, said more than a dozen corporate officials, consultants and bank executives interviewed by The Wall Street Journal.”

With persistently low deposit rates, many banks aren’t able to offer loans at rates that maintain profitability. There are fewer loans being made at lower interest rates, and as a results banks have too much money on deposit. The solution is to reduce the amount on deposit by making it less attractive to large depositors, and to start offsetting the lack of loan income with fees for institutional deposits.

Many of these banks are going further, charging their institutional clients fees for holding euro deposits. With the European Central Bank now charging for deposits, banks such as BNY Mellon are following suit, charging 0.2 percent for euro deposits.

So what will be the impact on consumers?

The good news is that by charging fees to institutional investors banks may charge fewer fees to smaller depositors. Fee income continues to be the big money maker for banks in the current economy, and banks are now moving the fee burden to larger depositors not protected by the FDIC:

“The new U.S. rules, designed to make bank balance sheets more resistant to the types of shocks that contributed to the 2008 financial crisis, will likely have little effect on retail deposits, insured up to $250,000 by federal deposit insurance. But the rules do affect larger deposits that often come from big corporations, smaller banks and big financial firms such as hedge funds.”

According to the FDIC, U.S. banks h=have been carrying $4 trillion in uninsured deposits across 3.5 million accounts. Banks are required to hold as much as 40 percent against some types of corporate deposits and 100 percent against higher risk deposits such as hedge funds. Fees for these depositors makes perfect sense.

The likely outcome will be that institutional depositors will spread their money across multiple institutions. It also means that banks will start differentiating between operational deposits, such as for payroll or operational expenses, and holding long-term cash.

So while everyone is waiting anxiously for the Fed to start raising interest rates, the face of bank deposit and fees keeps changing. Some of these changes, such as charging institutional investors for putting banks at risk by holding large amounts of uninsured deposits, may be here to stay. Others will change with the changes in interest rates.

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Weekly Term Accounts APY Spread and Premium Index–Dec 8

by tom 8. December 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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CD rates | National Pricing Indicator

Customers Still Want Security and Personal Service of Branch Banking

by tom 4. December 2014 16:38

If you haven’t seen this particular study, a new report from Market Force Information confirms what many of you already may know – consumers still like to visit their bank branch. It seems that online or mobile banking isn’t going to displace demand for personalized banking services any time soon.

The research study polled 3,700 consumers and determined that high-touch in banking promotes customer loyalty. The study shows that 72 percent of customers visited a bank branch within 90 days. That numbers also reveal that 21 percent asked for advice from a banker and 27 percent contacted the call center.

As Forbes reports, Wells Fargo estimates that 80 percent of its retail customer transactions are made using self-service channels. That not only includes online transactions and mobile devices, but also ATMs and IVRs. The explanation:

“The banking industry, like the airlines, has done a pretty good job developing their self-service tools, in part because they’ve been working on it for a long time.”

Wells Fargo also estimates that the majority of customers visit a branch bank at least every six months. There are complex transactions that can’t be handled using self-service tools. And you can’t ask an ATM for financial or business advice.

Being able to offer friendly, personalized advice is critical to retail banking. The Market Force study also shows that of those who spoke with a banking advisor within 90 days, 57 percent said they would recommend that bank to others. Compare this to 47 percent of those who did not speak to an advisor.

Personalized service matters, and even if customers don’t use those services very often, the fact they can walk into a branch and talk to a banker offers peace of mind which in turn promotes customer loyalty.

The other factors that promote customer loyalty are financial stability, transparency, and ease of doing business. The Market Force study showed that Chase (51 percent) and U.S. Bank (49 percent) ranked highest among customer favorites when measured using a Composite Loyalty Score.

So while bank branches won’t disappear anytime soon, banks can learn a lot from retailers about promoting brand loyalty and building an omnichannel experience.  No matter what channel the customer uses to interact with the bank, the financial institution should offer the same positive experience. And as with retail sales, the lines between online and in-person interactions are blurring. It’s common for retail customers to order goods online for in-store pickup, or to return an item ordered online to a local store. As part of omnichannel banking the customer should be able to feel that same sense of fluidity and connection, such as researching and pre-qualifying for a mortgage or personal loan online and then consulting with a banker, who has access to the online information already filed.

Who knows, banks may even extend their customer loyalty programs, awarding loyalty points to longtime customers rather than saving the special deals solely to attract new deposits.

Weekly Term Accounts APY Spread and Premium Index–Dec 1

by tom 1. December 2014 16:35

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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Weekly Term Accounts APY Spread and Premium Index–Nov 24

by tom 24. November 2014 16:09

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 | Banking Trends

More Fees Mean More Flexibility–Just Ask UMB

by tom 20. November 2014 18:47

There was an interesting interview in American Banker this week with the president and chief executive of UMB Bank, Mike Hagedorn.  In the interview, Hagedorn outlines how the Kansas City bank’s non-interest income, which makes up 60 percent of total revenue, frees them to make loans to highly qualified commercial borrowers.

As Hagedorn explains, UMB has found that magic combination of generating strong fee revenue with a low-cost deposit base. UMB has become expert at finding new sources of deposit income, finding sources of funds through health-care savings account and private banking. The bank is constantly searching for new markets and new funds sources.

As a result, UMB has been able to focus on high-quality credit. UMB has seen its loan growth climb by 9 percent in the third quarter over last year’s third quarter. And loan growth is up despite the tact that net interest margins are at a historic low. Being able to count on fee revenue means UMB can go after higher-quality borrowers with more competitive rates. Says Hagedorn:

“If you were to look back historically at UMB's net interest margin, it wasn't one of the highest in the market even prior to 2008. If you're competing for the highest-quality credit on the market, by definition it's going to be on the lower end of the pricing spectrum.

“It gets back to the business model. If [credit quality] is what's important to you, how do you supplement lower yields on your loan book? You do that with the diversity that fee businesses bring to your revenue streams.”

From our own research about fees and profits to be gained from emerging financial services, we know that consumers are willing to pay a premium for convenience services that makes their lives easier. Maximizing fees on services consumers demand and structuring bundled services to deliver maximum revenue while improving customer satisfaction is the secret to increasing fee revenues.

Although we do expect deposit rate revenues to rebound, recovery is still going to require more time. Smart financial institutions are going to continue to identify new ways to service both consumers and business customers with new services that offer convenience while generating bank revenue.

A recent study by the American Customer Satisfaction Index reveals that American are generally dissatisfied with the service they are getting from the big banks – Wells Fargo and Bank of America were singled out in the poll as having the least customer satisfaction. At the same time, more depositors are gravitating toward credit unions. Why the migration? Probably because of a number of factors, including residual distrust following the Wall Street meltdown of 2008 and the fact that credit unions are perceived to offer more personalized service.

More banks need to take a lesson from UMB Bank. Building more fee revenue will free banks from their dependence on other revenue streams and allow them to do more with loan and deposit rates. Balancing multiple sources of revenue is always the best strategy to weather changing market conditions.

Weekly Term Accounts APY Spread and Premium Index–Nov 17

by tom 17. November 2014 16:59

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

CFOs Report that Depositors Tend to Stay Loyal to Online Banks

by tom 14. November 2014 10:24

We have said in the past that bank customers are attracted by better customer service rather than rates, especially when deposit rates are low. Well it seems that convenience remains king whether you are banking at the local branch or online.

American Banker reports that at a recent financial conference, both Discover Financial Services and Capital One Financial executives indicated that their online depositors remain quite loyal. Market perception has been that online banking has traditionally been for those seeking the best rates and when a better rate comes along, depositors jump ship in favor of better yields. Now that deposit rates have remained at such a low point, online banks are changing tactics and it’s paying off. Discover’s depositor retention rate has risen from 78 percent in 2010 to 82 percent in 2014.  As reported by American Banker, Mark Graf, CFO of Discover, said:

"We are quite intentionally not leading with rate. Our experience has been that once depositors come to us, they stay with us."

Discover has only one Delaware bank branch but is offering checking, savings, money markets, and CDs online. Graf indicated that their business strategy includes offering higher yields, but they are relying more heavily in direct-to-consumer deposits following the financial crisis, when other sources of liquidity disappeared. In their latest report Discover indicated that direct-to-consumer deposits totaled $29 billion, up from $3 billion in 2009.

Similarly, Capital One reports similar findings. CFO Stephen Crawford termed retail deposits as “stickier” than the industry at large believes, and they also are relying more extensively on consumer deposits. Crawford also reported that Capital One has more FDIC insured deposits, but that the average account balance is smaller than average which makes it easier to hold on to deposits. Crawford also noted that since its acquisition of ING in 2011, the company has moved away from offering higher rates to promoting relationships.

So is the depositor loyalty reported by Discover and Capital One a trend or an anomaly linked to their credit card business?

U.S. News and World Report writes that American consumers are still wary of online banks, largely because of fears of lack of control over their personal information and susceptibility to fraud or identity theft. While more consumers are trying online banking (more than 60 percent), highly publicized data breaches at Target and even Chase have made many depositors skeptical.

At the same time, the mobile and online payments are booming. Analysts predict that 40 percent of Generation Y households will adopt online banking. As the new generation of depositors that have grown up with Web technology mature as bank customers, more customers will migrate to online banking. They are used to buying on Amazon and ordering takeout food online, so online banking is just part of everyday life. The online experience will become more important than the branch experience, and smart bankers are taking a page from online retailers and working to develop an omnichannel strategy for a consistent customer experience.

At the end of the day, consumers want convenience and peace of mind, whether it’s online or in the branch. If they can find a bank that can deliver convenience and a sense of security, they are likely to stay with that bank. The days of rate chasing are behind us, at least for now, and as long as customers get the service they need and they can be assured of privacy and security, online banking loyalty is likely to continue.


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