Do Consumers Really Care about Overdraft? You Betcha!

by tom 2. May 2016 17:32

The Consumer Financial Protection Bureau (CFPB) has been under a lot of scrutiny of late. a federal appeals court has been questioning the structure of the CFPB, claiming the watchdog agency has too much power centered in its top official, Director Richard Cordray. At the same time, banks have been calling for the CFPB to back off on its call to banks to offer more products without overdraft fees, as well as to clean up credit reporting. Overdraft fees have become the rallying point for the banking industry – financial institutions rely on overdraft for much of their income while the CFPB continues to claim that overdraft fees are punitive and target those who can least afford them.image

With all this industry ranting and railing, you have to wonder how much consumers really care about overdraft? If you talk to the experts at the Pew Research Center, they care a lot!

What seems to be misleading about the response to overdraft is the level of public complaint. The CFPB reports having 8,000 complaints in its database compared to more than 150,000 complaints about mortgages. When you consider the difference between thousands of dollars and the possibility of foreclosure against a $35 fee, overdraft seems like small change. However, just because consumers aren’t complaining to the CFPB doesn’t mean they aren’t upset about overdraft.

In a  guest editorial by published in American Banker, Susan Weinstock who directs the consumer banking project at the Pew Charitable Trusts notes that according to their research, a disproportionate number of American are being penalized with overdraft fees. In a follow-up editorial published last week,  she defends the Pew research, explaining that one in four complaints to the CFPB have to do with overdraft:

“The Pew Charitable Trusts' nationally representative survey research shows 87% of overdrafters are somewhat or very concerned about the cost of overdraft service. Furthermore, 80% believe that overdraft practices and fees should be more closely regulated. And the majority would prefer to have their transactions declined rather than pay a $35 overdraft fee. With the friendly sounding labels for some overdraft services – such as “courtesy pay,” “overdraft privilege” and “bounce protection” – overdraft fees might appear to be products that are helpful to consumers as the author suggests but our research suggests otherwise.”

A related Pew study shows that it’s younger and poorer depositors who are most affected by overdraft fees. Of those paying $100  or more in overdraft fees each year, seven out of 10 make less than  $50,000 per year. The Pew research also shows that more than half of consumers paid more than $300 in overdraft and in one quarter of cases the equivalent of one or more week’s wages.

Consumers want consistency and predictability from their bank. A survey by the FDIC of underbanked/unbanked households reports that 31 percent don’t have a bank account partly because of unpredictable of high account fees (13 percent say it’s the primary reason). Even those consumers who are not considered members of the underbanked balk at paying overdraft fees. Eighty percent of those surveyed by Pew feel overdraft needs to be better regulated, and the majority would rather see a transaction declined than pay a $35 overdraft fee.

Perception is reality, and if customers believe they are being unfairly treated by overdraft fees, then banks will have to address those concerns. There are more financial options from non-banks than ever, and if financial institutions are seen to be uncaring about overdraft, it may drive customers to look elsewhere for checking services. Of course, banks will continue to use labels such as “courtesy fee” or “overdraft protection,” but that’s just putting lipstick on the pig. Even if they opt in, consumers don’t want to feel they are being penalized for spending their money, and smart banks are starting to treat overdrafts as small financial loans, linking them to a line of credit or some other small credit options that are sustainable and affordable.

Customers aren’t being fooled by overdraft fees with pretty names. It’s time for for banks and credit unions to wean themselves away from overdraft revenues and look for new profits centers.

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Consumer Confidence | Overdraft | Regulations

Weekly Term Accounts APY Spread and Premium Index–Apr 25

by tom 26. April 2016 06:53

Market Rates Insight features 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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The New Market Reality of Deposit Rate Promotions

by tom 25. April 2016 14:25

Market Rates Insight has just celebrated its 31st anniversary, and over the last three decades we have seen trends come and go. Throughout that time, deposit rate promotions have proven to be the mainstay of banking business development. Bans and credit unions have continued to promote the best deposit rates to attract new customers and, once they’re hooked, offer additional products and services to increase share of wallet.

Things have changed.

Coming out of a climate of ongoing depressed deposit rates, banks are credit unions are dealing with a new typeimage of customer and a new market climate. Deposit rate promotions don’t have the impact they used to, and they don’t have the lasting returns terms of customer retention and cross-sell and upsell. Let’s consider what has changed:

  1. A new generation of banking customers has entered the market that has no appreciation for the competitive landscape for deposit rates that ruled before the Web. Today’s college graduates and Millenials want convenience over returns. They are saving their money, but they are shopping for frictionless transactions, mobile banking, peer-to-peer payments, and services that make their lives visibly easier. Convenience trumps returns, at least for those just entering the workplace who are still new banking customers.
  2. There is more competition than ever. Consumers have more financial services and banking options than ever before. Most of today’s consumers have become accustomed to using hyper-specialized services, so they think nothing of depositing their savings in one location while using another institution for checking or simple transactions. There isn’t the  same perceived need to find a single bank or credit union that can serve all your needs, and as a result there isn’t the same sense of customer loyalty as in the past. Plus there are new tech competitors emerging to compete for consumer financial services.
  3. The Web also has contributed to deposit churn. In addition to more competition, finding better deals has become easier than ever. Online promotions and the simplicity of Web search has made alternative deposit options easier to find, so consumers will shop for deals.
  4. It’s easier to switch institutions. The Internet has changed the way we bank, and it has become easier than ever to change banks or credit unions with the click of a mouse. Some customers chase rates looking for better returns, especially since deposit rates have been stagnant for so long. Many consumers however, are starting to split up their money, using different institutions or opening multiple checking, savings, and credit card accounts to meet different needs.

When you consider the alternatives and possibilities presented to consumers in this new market climate it’s no wonder that they look beyond deposit rates when looking for a home for their money. So how do financial institutions compete in this new market? They have to play the game and look beyond deposit rates to attract customers and build profits.

Consumers want simplicity, convenience, and to a degree a “cool” factor from their financial institutions. They may consider deposit rates for savings but the return on deposits doesn’t offer the immediate appeal it once did. Deposit rates aren’t sexy. So while maintaining competitive deposit rates is still vital for customer retention, what is bringing new depositors in the door are promotions that offer something new and innovative.

One of the side effects of the Web is promotion fatigue. Consumers are bombarded with offers from vendors of all kinds, including banks. All it takes is a simple Google search for “best deposit rates” to set off a steady stream of promotions delivered to your Facebook and email box. So how do you compete in this new market climate? As the old saying goes, “If you can’t beat them…”

Banks and credit unions need better “hooks” to gain consumer attention. They need to appeal to the new demand for convenience, offer better customer service, and an target promotions to what consumers expect from the new generation of financial services. Banks need to do more consumer research, gather more competitive data, use more analytics, and gain a more in-depth understanding of what makes their customers expect and want. Then banks can develop the right mix of products and services including mobile banking, peer-to-peer  transfers, security, and so forth to attract new customers.

Those financial institutions that gain a better handle on the needs of the new consumer will be in a better position to retool their promotions to attract new business. Today’s consumers are going to come for the latest “cool” services and features, but they will stay for the deposit rates.

Weekly Term Accounts APY Spread and Premium Index–Apr 18

by tom 18. April 2016 16:38

Market Rates Insight features 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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Is Video Banking the Answer to Better Customer Service?

by tom 17. April 2016 17:20

Banks and credit unions have been seeking new ways to enhance the customer or member experience using technology such as mobile and online banking. The notion is that convenience is the key to customer satisfaction, and providing instant remote access to banking services is certainly convenient. There also are those who are leading the banking technology revolution with cries of “Brick and Mortar is Dead!,” as we discussed last week in our profile of Simple. The more cautious pundits such as Fifth Third are finding new ways to apply technology to make their existing banking systems more efficient rather than starting from scratch.

Of course, technology is not a magic bullet to solve banking woes, but creative applications of technology can certainly bring banks and credit unions closer to their customers, and help customers make better use of bank services. The key to success is to strike a balance between applying technology to promote a new level convenience while still providing personalized service.

Video may be the answer to bringing together technology convenience and customer service.image

A recent survey by the European industry association EFMA revealed that 93 percent of banks believe that high-quality video services improve customer satisfaction. The survey, which spans 200 banking professionals in 52 countries, shows that at least 10 percent of banks are planning to offer video banking services in 2016, 50 percent by the end of 2017, and 80 percent by the end of 2018.

The report in ComputerWeekly, a British technology publication, reports that the Nationwide Building Society in Britain is offering video-based mortgage consultations using video hardware installed in branches. By adding video they expect to reduce wait time for customers, and not only allows customers to discuss mortgages but also chat with financial planners and personal banking advisors. Barlcays Bank also has been using 24-hour video banking since 2014.

Much of what’s driving video banking is available technology. The telecom infrastructure continues to improve and networking bandwidth is cheaper than ever. New compression technology makes it easier to condense and send high-quality interactive video signals.

Okay, so video banking isn’t new, but let’s think about video banking in terms of unified communications – banks and customers not only get to see each other to confer, but they can share visuals, files, records, access database information, and perform a host of other functions through the same smartphone. Now you have truly personalized service with convenience. Bankers can share any form of documentation or information instantly, and customer can review agreements and do almost everything they can do at the branch except get cash (although with the new spending apps smartphone users can get cash through their phone, too).

So will video do away with branch banking? Probably not, but it will certainly make banking more user-friendly and efficient. More transactions can be handled remotely, which frees up bank personnel for other tasks. However, some personalized services such as financial planning and loans will likely require a combination of video interaction at the outset and in-branch transactions. Of course, you could conduct all your business remotely using downloadable disclosures and digital signatures, but people want more personalized assurances when it comes to their money; the kind of assurance that comes from looking a banker in the eye, seeing a friendly smile, and closing the deal with a handshake.

So how great an impact do you think video will have on the future of banking? Ant predictions from executives in banking is certainly welcome.

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Banking Technology | Banking Trends | In The News

Weekly Term Accounts APY Spread and Premium Index–Apr 11

by tom 11. April 2016 14:15

Market Rates Insight features 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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Simple Gambles on Service Over Rates, and It’s Paying Off

by tom 10. April 2016 12:51

If you are not familiar with Simple, they are offering a new approach to banking without the bank. Simple started out as a mobile banking app that provides free access to your money through a debit card and 55,000 ATMs. Simple was created to make banking, well, simple, and to help customer save with a built-in budgeting imagecalculator that shows what is safe to spend before you spend it. The appeal is ease of use, customer convenience, and better customer service with spending management that consumers  find truly useful.

Lest you think that Simple is just another banking app like so many others that have been appearing in the market, Simple is moving its accounts to BBVA Compass, which is one of the few American banks to have a real-time core system running Accenture’s Alnova. Simple had been using The Bancorp Bank, a BBVA white labeled subsidiary, but by moving to BBVA Compass, Simple can expand its product offering without sacrificing its customer service business model. As Simple CEO Josh Reich explains:

“BBVA gives us access to a much broader range of products that our customers wanted. Our customers are saving money and the number one thing they are saving for is a down payment. Our end game is to offer mortgages, be a full service bank, but we definitely won’t do it this year.”

Where Reich sees Simple winning the customer acquisition game is by offering a better customer experience. The web site is simple and easy to use. The app is easy to use and has a Safe to Spend calculator to help users save for their big life goals. And there are absolutely no fees; not even for replacing debit cards. As Reich explains it, banks who compete on interest rates view customers as “homo economicus” since the banks operate solely from a culture of finance, accounting, and risk. Simple has inverted the model, starting with the customer’s immediate desire to save and better manage their money to achieve their life goals, such as a vacation or a new home.

“I don’t care how pretty you make your Web site, if you hit  customers with a $35 overdraft fee they are not going to feel good about your brand,” said Reich.

And now they have BBVA as the 500 pound financial gorilla lurking in the background with additional products and resources so Simple can cherry pick those components that best fit their business model. They can continue to focus on customer service while the BBVA system powers real-time transactions.

Today, the Simple business model looks like a true differentiator in the banking community, but Simple is using the same principles that have shaped retail and e-commerce for years – give the customers what they want and they will come, and remain loyal. As Reich clearly notes, their end game is to get into lending, mortgages, and other areas that will yield more revenue, but not at the expense of the positive customer experience.

Banks and credit unions can learn from Simple. If they work with customers and nurture the customer experience, focusing on customer needs rather than selling banking services, they will gain new customers and find news ways to save in the process. Simple estimates that to support the same number of customers they have now as a conventional bank, they would need 850 branches and 6,000 branch employees, but they don’t have a single brick-and-mortar branch. That says something for the benefits of keeping banking simple.

Rate Changes from the Top Four Banks

Deposit rates are on the move! Stay current with the latest rate changes from the four largest U.S. banks with our Top 4 Rate Move Alert. Simply sign up here and receive updates direct to your mailbox. There is no obligation, and no better way to stay current with rates in a changing market. Sign up today!

Weekly Term Accounts APY Spread and Premium Index–Apr 4

by tom 4. April 2016 12:42

Market Rates Insight features 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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Weekly Term Accounts APY Spread and Premium Index–Mar 28

by tom 28. March 2016 10:55

Market Rates Insight features 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

Fifth Third Sees an Online, Omnichannel Future for Banking

by tom 27. March 2016 19:57

We have seen the future, and it’s online. The executives at Fifth Third have announced plans to start investing heavily in technology talent with an eye toward the future, specifically more analytics and improved customer service, including more mobile banking and multichannel support development.

On March 21, Fifth Third announced plans to hire 200 software developers, engineers, and IT support staff which would bring its tech team to more than 1,000 people, a 27 percent increase since 2012image. Reports indicated that 100 of those new tech employees will earn more than $100,000 per year, which makes the tech staffing investment well over $10 million.

Like retailers and consumer services companies, Fifth Third recognizes that customers are increasingly doing business online through other channels, and this new investment in a development team is designed to cultivate new omnichannel support for the bank.

As stated in a report in American Banker:

As CEO Greg Carmichael "looks out on the industry, he sees an opportunity in technology to increase customer experience and efficiencies, while at the same time dealing with the deceleration of brick-and-mortar," said Sid Deloatch, Fifth Third's chief information officer. "That collates exactly where we want to go in terms of the growth in technology. We want to be able to do dynamic offerings through the consumer side with an omnichannel perspective. It's all about recognizing and trying to be transparent about who are our most profitable customers."

The number of Fifth Third bank customers using mobile banking has increased by 28 percent between 2014 and 2015, and the number of bankers using digital only banking increased 58 percent. Currently, the number of digital only customers makes up 5 to 10 percent of Fifth Third customers, while 80 percent of customers rely on multiple channels for their banking needs. The number of bricks-and-mortar customers continues to decline and in response Fifth Third has closed more than 100 branches in the last year.

Much of the new development team will be dedicated to expanding the customers’ online banking experience with new mobile technology and new web capabilities. At the same time the bank is investing back end systems, including improving service at the remaining brick-and-mortar branches. Company executives say they are working on improving in-branch transactions, including offering real-time deposits, a service already offered with mobile checking. Understanding that omnichannel support includes in-person banking, Fifth Third is working in new strategies to integrate the in-branch and online customer experience.

And let’s not overlook analytics. New profits can be found in big data, and with more digital transactions and more technology analysts, Fifth Third will be in a better position to analyze customer trends and identify better ways to serve their customers while improving operations.

Fifth Third is leading the pack in banking technology, which means they have an opportunity to recruit the best and the brightest, learning from other tech innovators that are already mastering their own omnichannel strategies. This could easily be the trend for the next generation of banks.

 

Rate Changes from the Top Four Banks

Deposit rates are on the move! Stay current with the latest rate changes from the four largest U.S. banks with our Top 4 Rate Move Alert. Simply sign up here and receive updates direct to your mailbox. There is no obligation, and no better way to stay current with rates in a changing market. Sign up today!


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