Time for New Bank Fees to Replace Overdraft Revenue

by Tom 26. March 2015 16:59

Overdraft fees continue to be very much top-of-mind with bank and credit union executives. It’s common knowledge that the Consumer Financial Protection Bureau (CFPB) is expected to issue new ruleson overdraft fees in July. These new rules are expected to address the opt-in process for overdraft protection fees, including overdrafts for one-time ATM transactions, overdraft coverage limits, transactions posting order, and more.

Consumer backlash over overdraft fees has been sharp. One consumer advocate who writes for the Times Leader in Pennsylvania characterizes overdraft protection fees as “a deceptive rip-off” in a very heated column. And consumer advocates aren’t the only ones calling overdraft fee policies deceptive. This week American Savings Bank agreed to pay a $2 million settlement in a class action suit filed in the first circuit court of Hawaii. The suit specifically pointed to deceptive practices for overdraft fees charged to debit cards and ATM transactions. The lawsuit claimed that American Savings would order transactions by dollar amount rather than chronology, thereby falsely inflating overdraft fees charged for some accounts. The judgment allows anyone who incurred even one overdraft fee from January 1, 2006 to June 27, 2011 to benefit from the ruling.

Overdraft fees have always been controversial, and profitable. The Wall Street Journal reports that in 2013 overdraft fee revenue hot $31.9 billion, which is down from a high of $37.1 billion in 2009, but the median overdraft fee has hit an all-time high of $30 per transaction. While overdraft protection and overdraft fees are lucrative, they are very unpopular and the pending CFPB ruling will be sure to reduce the amount of overdraft earnings. It’s time to come up with new sources of revenue that don’t alienate customers.

The smart financial institutions are starting to charge for services that appeal to consumers, which means customers are going to be willing to pay for them.  A story in the Chicago Tribune this week cites a new SNL Financial report that says one on four mobile banking customers would pay $3 per month to use their bank’s mobile app.

While most mobile banking apps are offered for free, the study shows that users of 75 mobile bank apps are willing to pay. Thirty-three percent of Bank of America users were willing to pay $3 per month, and respondents from Citibank, U.S. Bank, Wells Fargo, Chase, PNC Bank, Capital One, and other leading financial institutions all said they would not be adverse to paying for mobile banking.

Our own research into emerging financial services reveals that consumers are generally willing to pay for convenience and protection. Any bank service that makes customers’ lives easier or safer has value, and customers are willing to pay for services such as credit monitoring, person-to-person transactions, personal couponing, identity theft protection, and related other services. Taken together, these services could prove to be more valuable than overdraft protection and fees, and more appealing to customers.

With all the new emerging financial support services from PayPal to SoFi, banks are no longer the only game in town when it comes to financial services. While there are some customer services where banks excel, there are others that leave customers short, including overdraft protection. Those banks that offer more services as a carrot rather than a stick will see more benefits in both revenue and customer loyalty.

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Weekly Term Accounts APY Spread and Premium Index–Mar 23

by tom 23. March 2015 16:57

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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People vs. Profits: Branches Still Matter to the Community

by tom 19. March 2015 19:44

In a market climate where banks and credit unions are looking to downsize to reduce overhead and improve efficiencies, American Banker ran a story this week about Westamerica Bancorp. with headquarters in our backyard in San Rafael, California, and the furor over closing one of their less profitable branches.

Westamerica has a branch bank located Upper Lake, California, in Lake County. Located on the shores of Clear Lake in a resort area, Upper Lake has a population of more than 1,000, so Westamerica made a decision to close it’s Upper Lake branch, with the blessing of the California Department of Business Oversight.image

The decision has created a furor among residents and resulted in an online petition to keep the branch open. As of March 13 the petition had 163 signatures, but that was enough to get the Department of Business Oversight to reverse itself and investigate further. Upper Lake does not have a credit union branch, and the town of Nice, five miles away, has a Bank of America and JPMorgan Chase branch, but the nearest Westamerica branch is 11 miles away in Lakeport. In signing the petition, many bank customers noted that the bank closure would be a loss to the community and that many customers can’t travel to do their banking.

Branch bank closures are having a similar impact on other communities such as suburban Pittsburgh, where Citizens’ Bank closed a local branch a hear ago. Even so, maintaining under-performing bank branches is not good business. JPMorgan Chase recently announced they were closing 300 regional branches, and Chase is closing 37 in-store branches at Meijer Stores throughout Michigan.

What banks are betting on is that mobile and online banking are going to pick up the business of unprofitable branches. A recent study by Carlisle and Gallagher Consulting shows that 52 percent of American consumers are doing more banking mobile banking than two years ago, 55 percent use mobile banking two to three times each week, and 26 percent use it four or more times each week. So with the majority of bank customers migrating to mobile, how much impact will closing some of those branches have on business?

A lot of it is perception. Westamerica’s decision to close its Upper Lake branch makes good business sense, but the residents of this small community see it as the big bank abandoning their needs. There are alternative strategies that Upper Lake residents can use for banking, and Westamerica can still help customers with online, mobile, and phone services, which research shows are the preferred ways to bank I the 21st century. What they will miss is the personal touch of seeing Jim or Jane at the teller window, talking about the weather and their kids, and grabbing a mint from the candy dish on their way out.

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Weekly Term Accounts APY Spread and Premium Index–Mar 16

by tom 17. March 2015 15:33

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | CD rates | Deposit Products

The Deposit Rate Watch Continues for Asset Sensitive Banks

by tom 12. March 2015 17:08

Interest rates continue to be a primary concern for banks and credit unions as financial institutions continue to wait for deposit rates to rise. At least that was the impression left by attendees of the RBC Capital Markets' Financial Institutions Conference in New York last week as reported in American Banker.

Attendees at the conference indicated they have a renewed interest in deposit rates:

“Most bankers described their balance sheets as asset sensitive, and several touted having a high percentage of low-cost funding.”

For many institutions, core deposits make up the majority of assets. Columbia Banking System, for example, notes that its core deposits make up 96 percent of overall deposits with an average cost of funds of about 5 percent. If you consider Columbia Banking typical, then many regional banks are anxiously waiting out the pending rise in deposit rates, poising themselves to stay competitive so as not to lose core customers.image

Of course, hard economic times mean that there are bargains to be had for those prepared to make a move. Mergers and acquisitions were another topic of discussion at the RBC conference and some banks, like Talmer Bancorp, have been picking up some bargains, scooping up distressed and failed banks.

Acquisitions can solve a number of challenges for banks, including adding revenue from acquired loans. There is an expectation that  M&A focus will shift to add more deposit and fee income. Fees in particular are turning into a good option for banks looking to offset asset sensitivity. Wealth management, for example, is a source of fee revenue requiring minimal capital.

If you read this blog regularly you know that we track the APY spread on term accounts and premium deposit products. We also offer other research products to track deposit rates in specific markets so banks can stay competitive and offset the risk of losing depositors once deposit rates start to rebound. In the coming weeks we plan to release new research tools to help clients take better advantage of fee revenue, including testing the waters prior to an acquisition. Feel free to contact us if you need more insight into deposit rates and fees.

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Banking Trends | Deposit Products | Fees | In The News

Weekly Term Accounts APY Spread and Premium Index–Mar 9

by tom 9. March 2015 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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Are Banks Really Losing Revenue to “Shadow Banks”?

by tom 5. March 2015 16:28

This week Goldman Sachs released some distressing news for the banking industry. Apparently shadow banks could cost banks $11 billion or 7 percent of their annual profits.

Due to a combination of new technology and changing regulations, an emerging category of shadow banks are creating new competition for lenders. Just as new payment technologies such as Apple Pay and PayPal are eroding the credit and debit card market, new non-bank lenders such as Prosper, CommonBond, and LendingClub are undercutting the bank and credit union loan market with online loans at lower rates. CommonBond, for example, is refinancing student loans for rates as low as 1.92 percent.

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One of the side effects of the drive to promote online banking is that consumers are more comfortable than ever taking their financial business online. Thanks to new secure online applications, consumers are willing to complete online loan applications to facilitate borrowing, especially it it’s a good deal. These peer-to-peer lenders have been around for about a decade now and have focused on either consumer or small business lending, serving as a disruptive force in the banking world.

However, it seems that the term “peer-to-peer” has become a misnomer. Goldman Sachs was a lead underwriter in last year’s IPO for LendingClub. Wells Fargo is the largest investor in LendingClub through its venture capital group. And executives from large banks such as Citigroup and Morgan Stanley are board members of these lending companies. Institutional lenders actually make up more than 80 percent of the capital behind these peer-to-peer lenders.

Some argue this is good news since it means more more capital and more options for borrowers. Others argue that the industry will cannibalize the business model, leaving the lower quality loans to the peer-to-peer lenders.

However, these peer-to-peer lenders are serving a need, often lending to businesses and consumers who need smaller loans that banks don’t want to underwrite. They also lend to borrowers who would not qualify for a conventional loan. So are these shadow banks really taking $11 billion in business from the banking industry, or are they filling a need that banks don’t want to address? Or are the shadow banks opening a backdoor for larger banks and financial institutions to get in on the consumer loan market, effectively squeezing out community banks and credit unions willing to compete for these loans?

What’s your opinion? We’d love to hear you weigh in.

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In The News | Loans | Regulations

Weekly Term Accounts APY Spread and Premium Index–Mar 2

by tom 2. March 2015 16:33

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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Credit Card Consolidation Can Attract New Money

by Tom 26. February 2015 13:32

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

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

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

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

The Latest from ProductBuilder Alert

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

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Banking Trends | Consumer Confidence | Credit Cards

Weekly Term Accounts APY Spread and Premium Index–Feb 23

by tom 23. February 2015 17:34

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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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