Weekly Term Accounts APY Spread and Premium Index–Sep 15

by tom 15. September 2014 16:56

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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Deposit Products | CD rates | National Pricing Indicator

Will the Mobile Wallet Get Consumers to Leave Credit Cards at Home?

by tom 12. September 2014 14:44

With the announcement of Apple’s iPhone 6 this week there is renewed interest in smartphone technology, including trends in mobile payments. We have been reading the news this week and are seeking some interesting, and even contradictory trends.

A report in Wired points to the new iPhone as a “credit card killer,” noting that a new chip will make these new smartphones scannable at checkout counters. Apple is banking that its iPhone wallet will take the place of credit cards. Quoting Ben Milne, CEO of Dwolla which is working on a web-based credit card alternative:

"Apple's already got a great mobile wallet. You use it all the time when you buy something on iTunes. They already have 800 million cards on file. They're going to give people a better experience that's arguably, probably more efficient and more simple with hardware they control.”

The argument is that using services like iTunes or an “iWallet,” the credit card behind the transaction is already hidden. Why not eliminate the card altogether and use Internet transactions instead?

If anyone has the market penetration to make a smartphone wallet work it’s Apple. The company has already reached agreements with American Express and Visa so plastic may give way to smartphones.

This week the Washington Post also reported that 6 out of every 10 Millennials don’t have a credit card. Bankrate.com conducted a telephone poll and determined that 60 percent of shoppers don’t use credit cards because of aversion to debt. Many of these consumers are struggling with student loan debt and are reluctant to accumulate more.

However, the poll also revealed that younger consumers like debit cards; they save a trip to the ATM and take the cash right from their account without accumulating debt. This is another argument for using digital wallets, since the transaction is debited immediately without incurring debt.

And there was another report in Mobile Payments Today on a study by Packaged Facts that prepaid card shoppers, especially younger adults, are more prone to use mobile payments.

The study shows that 89 percent of consumers in “underbanked” households own smartphones, and even 64 percent of “unbanked” consumers have a smartphone. And the tendency is for shoppers between ages 18 and 34 tend to carry on average 2.3 prepaid cards in their wallet. These are the same consumers who are more likely to use mobile payments.

Surprisingly, American Express has admitted that its mobile wallets have seen “fairly limited adoption.” Speaking at the Barclays Global Financial Services Conference in New York, Josh Silverman, Amex's president of Amex’s consumer products and services, voiced the opinion that mobile wallets are essentially a solution in search of a problem. "It's my opinion that the swipe isn't especially broken," he told the audience. Merchants haven’t been willing to invest in new point-of-sale terminals, and consumers aren’t interested in downloading another app, so without critical mass the new Amex mobile wallet has failed to take off.

Which is why it makes sense for American Express to align itself with Apple, a company that does have critical mass with mobile users. Apple Pay is already taking hold in the banking community with Wells Fargo and six major banks aligning themselves with the new Apple digital wallet. U.S. Bancorp and Target are the latest companies to jump on the Apple Pay bandwagon.

So what is the future of mobile pay for banking? Will banks be able to offer their own mobile ATM, giving them an opportunity to charge additional fees and maintain customer loyalty, or will banks have the same experience as Amex and have to rely on Apple, Microsoft, and others to power their mobile wallet programs? What do you see as the future for the mobile wallet?

Weekly Term Accounts APY Spread and Premium Index–Sep 8

by tom 8. September 2014 17:27

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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Overdraft Fees Biggest Moneymaker and Now Under New Pressure

by tom 5. September 2014 09:57

We know that banks and credit unions have been squeezed by deposit rates in recent years, but it seems they are starting to feel the squeeze from threats to regulate overdraft fees as well. The U.S. Consumer Financial Protection Bureau (CFPB) recently issued a report criticizing overdraft fees as excessive and seeking new measures to limit fees for insufficient funds.

Account fees have hit an all-time high, and they have become the best source of account revenue for banks and credit unions. As part of the fee mix, overdraft fees have become real contributors to a financial institution’s bottom line. As noted in a story in this week’s Wall Street Journal:

Bouncing a check used to get customers kicked out of their bank. But in the 1980s, banks' view of those people began to change, said [Jefferson Harralson, a banking analyst at Keefe, Bruyette & Woods]. "They started to realize that these were the most profitable customers of the bank and they actually went after them," he said. "Bankers saw these fees as important ways to make their profit numbers."

Whenever a customer overdraws his or her account using an ATM or check, banks make money; more money than they make on other service fees. According to Moebs Services banks and credit unions made $31.9 billion in overdraft fees in 2013. Moebs indicates that larger banks ($50 billion in assets or more) charge higher overdraft fees at an average of $35 than credit unions and community banks (with assets over $5 billion) that charge a median fee of $25 for overdrafts. What analyst research also discovered is that the average overdraft is less than $24 and most consumers pay it back within three days. However, banks would rather charge for insufficient funds since overdraft fees make up more than half of all account service fees.

The trend to generate more service revenue through overdraft fees is drawing fire from the CFPB. As reported by Bloomberg, Richard Cordray, director of the CFPB, notes that charging $35 for a $24 overdraft that is repaid in a few days is equivalent to an annual interest rate of 17,000 percent.

The American Bankers Association counters by arguing that the annual interest rate argument is irrelevant. Customers are paying overdraft fees as an option, and overdraft protection is popular with consumers.

Nevertheless, the CFPB is lobbying for an “opt-in” rule so consumers have to opt in to accrue overdraft fees. Otherwise, if there are insufficient funds in the account the transaction is declined. The CFPB’s argument is that an ATM overdraft fee is really an expensive, short-term loan for consumers that poses no risk to the bank. Given an option, the CFPB holds that most consumers would not opt in. In fact, the CFPB found that one in five opt in customers overdraw their accounts an average of 10 times per year, paying seven times more in fees.

So it seems overdraft fees may be the next competitive battlefield where banks and credit unions have to fight with regulators to keep an important revenue resource. Market Rates Insight is developing new research tools to help our clients track overdraft fees, both to give them a competitive advantage in their specific markets but also to address criticism from agencies like the CFPB. Be sure to check our website to be alerted when our new insufficient funds rate study becomes available.

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Banking Trends | In The News | Fees

Overdraft Fees Biggest Moneymaker and Now Under New Pressure

by tom 4. September 2014 21:12

We know that banks and credit unions have been squeezed by deposit rates in recent years, but it seems they are starting to feel the squeeze from threats to regulate overdraft fees as well. The U.S. Consumer Financial Protection Bureau (CFPB) recently issued a report criticizing overdraft fees as excessive and seeking new measures to limit fees for insufficient funds.

Account fees have hit an all-time high, and they have become the best source of account revenue for banks and credit unions. As part of the fee mix, overdraft fees have become real contributors to a financial institution’s bottom line. As noted in a story in this week’s Wall Street Journal this week:

Bouncing a check used to get customers kicked out of their bank. But in the 1980s, banks' view of those people began to change, said [Jefferson Harralson, a banking analyst at Keefe, Bruyette & Woods]. "They started to realize that these were the most profitable customers of the bank and they actually went after them," he said. "Bankers saw these fees as important ways to make their profit numbers."

Whenever a customer overdraws his account using an ATM or check, banks make money; more money than they make on other service fees. According to Moebs Services, a research firm in Lake Bluff, Illinois, banks and credit unions made $31.9 billion in overdraft fees in 2013. Moebs indicates that larger banks ($50 billion in assets or more) charge higher overdraft fees at an average of $35 than credit unions and community banks (with assets over $5 billion) that charge a median fee of $25 for overdrafts. What analyst research also reveals is that the average overdraft is less than $24 and consumers pay it back within three days. However, banks would rather charge for insufficient funds since overdraft fees make up more than half of all account service fees.

The trend to generate more service revenue through overdraft fees is drawing fire from the CFPB. As reported by Bloomberg, Richard Cordray, director of the CFPB, notes that charging $35 for a $24 overdraft that is repaid in a few days is equivalent to an annual interest rate of 17,000 percent.

The American Bankers Association counters by arguing that the annual interest rate argument is irrelevant. Customers are paying overdraft fees as an option, and overdraft protection is popular with consumers.

Nevertheless, the CFPB are lobbying for an “opt-in” rule, so consumers have to opt in to accrue overdraft fees. Otherwise, if there are insufficient funds in the account, the transaction is declined. The CFPB’s argument is that an ATM overdraft fee is really and expensive, short-term loan for consumers that poses no risk to the bank. Given an option, the CFPB holds that most consumers would not opt in. In fact, the CFPB found that one in five opt in customers overdraw their accounts an average of 10 times per year, paying seven times more in fees.

So it seems overdraft fees may be the next competitive battlefield for banks and credit unions. Market Rates Insight is developing new research tools to help our clients track overdraft fees, both to give them a competitive advantage in their specific markets but also to address criticism from agencies like the CFPB.

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Banking Trends | In The News | Fees

Weekly Term Accounts APY Spread and Premium Index-Sep 2

by tom 2. September 2014 16:29

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 | Building Deposits | Market Research

How to Identify a Deposit Pricing Trend

by tom 2. September 2014 12:00

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 about how to spot a trend in deposit pricing.

Tracking trends in deposit pricing involves three fundamental principles, each of which provides an additional perspective for the analysis:

Distinguishing between an event and a trend. A pricing event is a single occurrence of rate changes that may not repeat itself for a long period of time. Such an event may occur as a reaction to temporary need for liquidity or in response to competitive pressure. A trend, on the other hand, is a succession of increases over time designed to achieve a strategic goal in response to economic conditions.Dan Geller Ph.D.

Conventional deposit tracking reports are designed to show pricing events, focusing on rate changes (if any) that occurred during the previous week. However, if rates are rising in intervals of every four weeks, a conventional report will show only 25% (one out of four weeks) of the trend. On the other hand, a trend tracker report shows cumulative changes in rates regardless of time intervals, thus highlighting a trend in pricing rather than just a single event.

Enlarging the field of vision. Conventional deposit reports track a defined set of competitors, typically 10 to 15. That’s important but it is limited in scope because a pricing trend may start outside the “field of vision” of a handful of competitors.

The use of a trend tracker tool expands the field of vision without the need to increase the number of tracked competitors on a regular basis. The ability to select any deposit product at any institution provides a wide view of pricing changes, thus allowing detection of trends. For example, this trend tracker analysis shows CD rates in the Illinois pricing region. In the second quarter of 2014, the number of flat (unchanged) CD rates dropped 12.2%. This variance reflects a 6.7% increase in the number of CD products exhibiting rising rates and 5.5% increase in CDs with falling rates in the second quarter compared to the first quarter.

Monitoring and analyzing. Trend tracking is an ongoing task. It’s also important to establish regular monitoring in order to detect looming trends in deposit pricing. A best practice is to establish a rotation schedule for trend tracking, for example, a weekly monitoring of a particular product, such as money market accounts, across the entire market in conjunction with the weekly monitoring of the competitive set. The information obtained in the trend tracker report should then be analyzed.

Financial health is no different than personal health in that early detection of anomalies is paramount. Otherwise, you run the risk of incurring a higher cost of funds and liquidity shortfall – not to mention, getting caught by surprise.

Bank Fees Hit a High, and Online Banks Look More Attractive Than Ever

by tom 28. August 2014 16:29

With deposit rates still down, it’s not surprising that bank fees have hit an all-time high.

According to a new survey by MoneyRates.com, checking account fees hit new heights for the first six months of 2014. Consumers can still find free checking accounts if they shop wisely and show fiscal responsibility, but savvy bankers are finding new ways to make up revenue shortfalls with checking fees.

MoneyRates.com defines fees in several ways, including maintenance fees, overdraft fees, and ATM charges. By doing a composite survey of the 50 largest and the 50 smallest institutions they determined that the average maintenance fee for checking has risen to $12.69, up $0.15 from last year. That translates to more than $150 per year to maintain a checking account. Only 28 percent of checking accounts have no maintenance fees (down 1.5 percent from last year) and this is the lowest percentage since MoneyRates.com started tracking fees in 2009.

The average minimum amount required to open a checking account is now $400.45, up $6.74. And the annual minimum balance to waive monthly maintenance fees  rose by $724.69 to $5,440.

Overdraft fees are up as well, averaging $32.48 (an increase of $0.45 from last year). And ATM fees are up – the average fee for using an out-of-network ATM is now $1.52, up $0.07.

One of the most interesting revelations from the study is that online banking is significantly less expensive. Monthly maintenance fees for online checking are only $8.61 compared to $12.95, and 58 percent of online checking accounts are still free. Overdraft fees are less as well – $29.18 versus $37.78.

Another not-too-surprising revelation is that big banks charge more than smaller banks. Financial institutions with $10 billion or more in deposits charge $14.50 on average for maintenance fees where smaller banks charge around $11. Larger banks are also less likely to charge fees and fewer offer free checking.

What does all this indicate? The cost of banking continues to rise. Banks are being pressured with additional operating overhead and costs, and the bigger the bank the more fees they need to charge to make up for other shortfalls. At the same time new types of financial institutions like online banks have no overhead, no branches to maintain, and fewer staff so they can afford to charge less and still make more money.

Increasingly banks are credit unions are adopting a hybrid business model that embraces both bricks-and-mortar and online banking to attract customers by offering greater convenience. If online banks continue to expand their services, offering loans, mortgages, and other services, the perceived convenience of having a local branch may be overshadowed by the lower cost of banking online. It’s unclear what the threshold is for consumer backlash against banking fees, but savvy bankers will be watching the fee-based pennies to make sure customer dollars don’t disappear.

Weekly Term Accounts APY Spread and Premium Index-Aug 26

by tom 26. August 2014 16:08

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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Will Technology Mean the Death of Customer Relations for Banks?

by tom 22. August 2014 15:37

We all know that technology is changing the landscape of banking and financial services. New competition from prepaid cards and “neo banks” is eroding banking revenues, and many banks and credit unions have been surprisingly slow to react. Perhaps traditional banking practices are just too difficult to adapt to new consumer demands, or maybe these technology-driven upstarts aren’t seen as a real threat by bankers.

I recently read an interesting post on BankInnovation.com by Matt Harris, a New York venture capitalist, that sums up the challenges presented by the prepaid card market in particular. Here’s his observation in a nutshell:

Small banks and credit unions have traditionally survived and thrived based on their local relationships and physical footprint; the prepaid architecture has unleashed the entrepreneurial energies of dozens of new and compelling branchless competitors, who challenge long‐standing relationships and make geographic density irrelevant.

It all boils down to the changing relationship between banker and customer. Following the recent recession and the birth of protests like the Occupy movement, consumer faith in the banking industry has plummeted. Let’s face it, few consumers have a friendly relationship with their local branch bank. Many consumers see the bank as something they must deal with to manage their checking and savings, and a resource when they have to borrow money. Like it or not, consumers have seen banks as the only game in town.

That’s no longer true. The evolution of pre-paid cards is eliminating the need to ever set foot in a bank branch. As Harris points out banking products “have always been driven by regulators and bank technology vendors, not by consumer preferences in any event.” Entrepreneurs who are offering easy-to-use prepaid debit cards and online transaction services are bypassing the regulators and delivering new services with real consumer appeal. The banks have been demoted from retailer to wholesaler, with consumer bank accounts now powering these new third-party debit cards and neo-bank accounts. Banks are becoming a “commodity utility.”

And then there is the geographic problem. Banks and credit unions have always embraced the policy, “If you build it they will come”; if they have more local branches and create a strong physical footprint they will be able to attract more local customers. Before the smartphone, banks on opposite sides of the street would compete on fees and interest rates. Now the smartphone is enabling branchless banking, which means consumer are putting mobile convenience ahead of location. And with more new non-regulated bank-like products hitting the market other companies with prime real estate, like Wal-Mart, can serve the same role as branch banks.

As a result, the bank-customer relationship  is eroding, and with it bank profits. Banks need to establish deeper customer relationships to increase share of wallet. In the pre-web days, consumers used to rely on their bankers for financial counsel as well as protecting their money. Now the web has taken over as the go-to for financial support, and bankers don’t have the same opportunity to build that customer relationship.

Reversing the trend will not be easy. As noted in an opinion piece this week in American Banker by David Uhl, senior vice president of consulting services for Aubrey Daniels International, the age of the results-driven banking culture is past. If anything, running banks strictly by P&L performance will cost business in the long run since it promotes practices that place profits before people. It might be more profitable to reward employees for providing better customer service, not just adding to the bottom line.

In the age of Internet banking consumers care less about brand and local branch access and more about convenience and service. Those banks and credit unions that can deliver more convenience and better service will have a better chance of elevating themselves from a commodity to trusted partner willing to support consumers in all aspects of their financial lives.


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