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.

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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 | 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 $9.95 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, contact us at research@marketratesinsight.com.)

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.

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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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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.

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

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.


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