Forget Low Fees–Convenience is King

by tom 23. October 2014 19:01

With all the hubbub in recent weeks about the introduction of GoBank by Wal-Mart and the banking industry’s embracing Apple Pay, you have to wonder what’s going on with the competitive landscape in banking? Is all the hype really valid? Are these new bank-like competitors really going to have an impact on banks and credit unions?

According to a recent article posted by CUNA,  credit unions have nothing to fear from Wal-Mart’s GoBank:

“Called GoBank, the product allows consumers to make purchases with a debit card or with a smartphone. There are no overdraft fees or minimum balance restrictions because, if the consumer doesn't have the cash, the card doesn't let them make the purchase.

But unless customers make monthly direct deposits of $500, the account costs its users $8.95 per month.

Credit unions nationwide can beat that.”

The assumption here is that fees are all that matter and that consumers will logically go for the most cost-effective banking option to meet their needs.

What the article in CUNA overlooks is the convenience factor. Consumers will adopt GoBank because of the convenience it offers, not the fees. Wal-Mart is a non-bank but with “branches” in retail outlets across the nation, so accessing money is easy. The Atlanta Constitution reports that GoBank will likely cost consumers $107 annually in fees, including transaction fees for out-of-network ATMs and monthly service fees. Many consumers aren’t going to worry about those fees if they have the convenience of doing their shopping and their banking at the same time in the same location – the convenience factor will overshadow the fees.

Apply Pay and Google Wallet are also looking to lure consumers to their services with new services and incentives.

This week Apple Pay announced that it plans to launch a loyalty program sooner than expected next year. Industry watchers predict that Apple Pay loyalty payments will be tied to iBeacon, Apple’s in-store wireless strategy to tie promotions to shoppers’ location within the store. For example, Apple Pay users would get offers for free Pepsi when they walk by the soda display; all they have to do is use Apple Pay at checkout. The iBeacon platform is sure to give Apple Pay an advantage with retailers, and users looking for more places to use rom Apple Pay.

Not to be left behind, Google Wallet has added Enterprise Rent-a-Car as its latest loyalty rewards partner. Google now has 15 loyalty partners including Avis, Alaska Airlines, and Walgreens. As noted in the article by BankInnovation, Google is struggling to achieve critical mass with Google Wallet and, even without a technology like iBeacon, they are banking on retailers to drive consumer adoption.

These are the kinds of incentives that are exciting and enticing consumers to at least try some of these emerging payment platforms. If the incentives work, both with shoppers and merchants, then ATM and prepaid card use may decline and e-wallets may take over.

Recognizing that attracting consumers isn’t all about fees, a number of financial institutions called out their digital and mobile banking strategies in earnings calls this month:

Richard Fairbank, founder and CEO of Capital One, pointed to Capital One’s expanding digital strategy, noting “today there are branches and tomorrow there is a branch in people’s pocket.” He noted that he is looking forward to the opportunities presented by combining Capital One’s direct marketing machine with the digital bank built by ING DIrect, which is now owned by Capital One.

PBC Bank and Key Bank both references mobile banking in their earnings calls.

William Demchak, Chairman, President and CEO of PNC Bank, noted that the bank was disclosing all its digital activity in the call. He noted that 47 percent of customers are now non-branched clients, and 36 percent of deposits are made either via ATM or mobile phone.

Key Bank has reported that is has 997 branches and has closed 50 branches in the last year. The bank also eliminated 60 ATMs so they now have 1,290 cash machines, but they are seeking “explosive growth” thanks to mobile users.

More financial institutions are banking that technology and convenience are going to outweigh fees in the long run, and that consumers are willing to pay for convenience. Offering free checking or the lowest fees is no longer a differentiator, but if you can make customers’ lives easier, then you have services that consumers are likely to find more compelling.

NOTE: If you are curious about what kinds of products banks and credit unions are introducing to compete in their markets, please check out our ProductBuilder database of new product innovations, and feel free to sign up for our weekly ProductBuilder Alert.

Weekly Term Accounts APY Spread and Premium Index–Oct 20

by tom 20. October 2014 16:44

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

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

image

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

image

Tags: , , ,

National Pricing Indicator | Market Research | CD rates

The 2014 Report Card on Our Prediction for Deposit Interest Rates

by tom 16. October 2014 09:35

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 with a prediction of what’s ahead for deposit interest rates.

Last January, we published in BAI Banking Strategies our estimates for deposit interest rates in 2014. Now that we’re three quarters into the year, it’s time to ask: How did we do?

Let’s start with the big picture, the overall economy. We predicted, “From a macro perspective, we are likely to see gradual and sustained improvement in the economy in 2014.” Indeed, that has been the case. As Federal Reserve Chair Janet Yellen noted at the end of the Federal Open Market Committee meeting on September 17, “Economic activity is expanding at a moderate pace.”

Specifically in regard to deposit interest rates, we stated, “Rates of term accounts are projected to increase in a general linear pattern.” Additionally, “The increase in rates of deposit products is going to be moderate, gradual and volatile” and, “Expect national average rate increases to range from one-half to one basis point per month per product.”

Here are the actual figures:

  • In the first nine months of this year, the national average for five-year certificates of deposit (CDs) increased by four basis points – from 0.86% in January to 0.90% in September.
  • Similarly, the four-year CD rate increased by three basis points during the period, from 0.60% to 0.63%.
  • The three-year CD rose by one basis point, from 0.47% to 0.48%.

As for rates on liquid accounts, we projected an “increase in a general down-curved pattern.” That meant that we expected that rates for checking, savings and money market accounts would likely decrease slightly before increasing. Although no actual decline in the rates of liquid accounts was observed in the first nine months of this year, the rates of checking, savings and money market accounts remained flat at 0.07%, 0.09% and 0.09% respectively. The fact that rates of liquid accounts have remained flat thus far is an indication that these rates are likely to exhibit a downward curve before they will rise again.

Our last projection was: “Since the starting point of the rate increases, i.e. current rates, is so low, it will take much longer for deposit rates to reach their pre-recession level.” This has, indeed, been the case. We have seen so far this year that the rate increase of the long-term CDs is very slow and moderate and this will be the case even when the Fed increases the Federal Funds rate. In other words, as the projection stated: “Deposit rates are not likely to exhibit big jumps month over month.”

So what does all this mean? It means that we are on track for rising rates, barring of course, any unpredictable major event that will derail the economic recovery. It also means that tracking pricing trends should be expanded to include monitoring rates of your entire market, not just within your competitive set, because statistically speaking, larger samples produce more reliable results.

If you are interested in banking trends, you can see the latest new bank and credit union products to help build deposits. Market Rates Insight maintains a weekly newsletters, ProductBuilder Alert, that highlights the newest promotional ideas for deposits, loans and fees. It’s free so please subscribe.

Tags: , ,

Banking Trends | Market Research | Building Deposits

Weekly Term Accounts APY Spread and Premium Index–Oct 13

by tom 13. October 2014 16:13

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

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

image

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

image

Tags: , , ,

National Pricing Indicator | CD rates | Deposit Products | Market Research

Prize-Linked Savings–Using Gamification to Promote New Deposits

by tom 9. October 2014 22:15

Even with the economy rebounding, consumers still aren’t saving. Personal savings are still in decline following a high of saving 15 percent of personal income in the 1970s.  The U.S. is facing a retirement savings crisis, with more than 36 percent of workers having less than $1,000 saved, 69 percent with less than $50,000, and 11% having saved more than $250,000.

To encourage saving, credit unions are adopting new prize-linked savings (PLS) initiatives to entice members to put their money aside. Some ask if this is gamification or gambling (to quote Credit Union Times), but PLS programs such as Save to Win have helped create 50,000 new accounts and save $94 million since 2009.

Credit unions are committed to offering tools to help members realize their financial goals, so creating a savings lottery as an incentive may not be that far-fetched. Of course, most credit unions are forbidden by law to offer prize-linked savings promotions since legislators say it promotes gambling, even though the savings accounts themselves are secure. But credit unions in Michigan, Washington, North Carolina, and Nebraska have been using PLS promotions for some time, and the law has recently changed in Illinois, Connecticut, and New York to allow PLS plans.

As reported by CU Times, the argument is that by offering prizes with some real cash value, it encourages people to really save. It’s the same as appealing to low-income families to save their money and gamble on getting a cash prize from their credit union rather than buying lottery tickets.

And apparently it works. A 2009 pilot program in Michigan with nine credit unions resulted in 6,000 new accounts in 18 weeks and an average of $100,000 per week in deposits per participating CU. A study by the Filene Research Institute suggests that gamification with prize savings accounts not only increases the accounts but also promotes member loyalty and increases engagement.

So what are we to take away from the prize-linked savings phenomenon that is encouraging CU members to save more in hopes of winning a cash prize? Clearly, banks and CUs can’t get into the lottery business, but gamification offers some interesting possibilities for financial product promotions.

What the PLS programs do achieve is they get consumers’ attention. Using the carrot rather than the stick, CUs can get members focused on saving and while they have their interest, educate them about retirement strategies and how to put money away for a new home, college, or whatever their dreams call for. This is clearly a win-win for both CU members and credit unions.

Perhaps banks can learn from the PLS strategy. While they can’t necessarily offer cash prizes, they can create incentives that appeal to customers’ competitive spirit. Social media is one of the hotbeds of gamification, with social followers competing to become mayor of a specific coffee shop or accumulating enough points to beat their peers in building virtual farms or kingdoms. While banks have been using social media for marketing, social media gamification is still unexplored territory.

Gamification has already taken off with banks in Asia and other markets, but U.S. banks have been slow to adopt gamification strategies to bring in new deposits or attract new customers. Maybe they’re missing something.

If you are interested in see the latest new bank and credit union products, Market Rates Insight maintains a weekly newsletters, ProductBuilder Alert, that highlights the newest promotional ideas for deposits, loans and fees. It’s free so please subscribe.

Weekly Term Accounts APY Spread and Premium Index–Oct 6

by tom 6. October 2014 16:14

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

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

image

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

image

Tags: , , ,

National Pricing Indicator | Market Research | CD rates

“I am Not A Number!”: Time Get to Get to Know Your Customers Better

by tom 2. October 2014 15:46

Let’s face it, consumers have lost faith in the banking industry. After the exposure of Wall Street greed that led to the birth of the Occupy Movement and the recession of the past few years, consumers, especially Millenials, have become disenchanted with banks. One of their biggest complaints is that banks make no effort to get to know them as customers at the same time they are trying to build revenues by imposing more service fees.

Customers are Disenchanted

In an article posted by American Banker earlier this week, Derek Corcoran, Chief Experience Officer for Avoka, a global customer experience technology company, talks about the erosion of consumer trust:

“Consumer trust in banks took a big hit in the aftermath of the financial crisis, leading some people to shift away from traditional financial services. Meanwhile, some millennials are rejecting the banking sector altogether. Now a demographic that was once targeted by select financial institutions is being pursued by global powerhouses like American Express…”

Corcoran’s argument is that it’s time for the financial community to focus its attention on the younger generation and the underbanked or emerging financial service providers Like AmEx and Wal-Mart will capture those customers. These customers have no institution loyalty; a Scratch survey revealed that one-third of Millenials are willing to change financial institutions within 90 days, half are hoping start-ups change the banking industry, and 53 percent can’t tell their bank from the competition.

Smart banks are emulating the best practices of emerging competitors with mobile banking technology to attract younger customers and the underbanked. The FDIC reports that 32 percent of underbanked customers use mobile banking services as opposed to 22 percent of other bank customers.

Fees Makes Foes

Part of the problem is how the banking industry makes its revenue. As noted in a recent post in The Financial Brand, the change in the economic climate has led to a much greater reliance on fee revenue. Consumers are starting to look at overdraft fees as punitive, yet they are the single largest source of fee revenue for banks and credit unions. The reliance on fees breeds mistrust in younger customer.

According to a 2013 Think Finance survey, 45 percent of Millennials are turning to prepaid cards and payday loans to avoid transaction and overdraft fees. By promoting distrust with increased fees, banks run the risk of a mass exodus when the FDIC starts to raise interest rates later this year. One bank predicts that they may lose 8 percent of their deposit base or more than $100 billion when depositors start shopping for higher interest rates.

Promoting Customer Intimacy Through Technology

To win the loyalty of these alienated customers before they abandon ship, banks and credit unions are going to have to find new ways to connect with customers. More aggressive mobile and social media strategies may help, but financial institutions need to work harder to establish a dialogue with customers to learn what they want, and to demonstrate to customers that their needs are being met.

Eric Levy, a financial services analyst for GFK Custom Research, envisions a new banking future where technology helps financial institutions get closer to their customers by anticipating their needs. Levy envisions a new in-branch experience where identifying the customer as he or she enters the branch and using what is known about that customer, it’s possible to provide that customer with a range of banking services and financial strategies unique to their needs.

What banks need to do is make a better effort of getting to know the needs and desires of Millennials and the underbanked and developing service strategies designed to be more appealing and rebuild trust in the bank institution.

Big data is playing an increasingly valuable role here. Using big data analytics, banks can develop a 360-degree portrait of their target customer, their habits, likes, dislikes, and financial needs, Using data stored in the bank’s CRM system combined with external data sources that reveal market trends, big data analytics can deliver real-time insight into each customer and his or her needs. Rather than adopting a relationship banking strategy that treats every customer the same way, big data makes it possible to personalize products and services, and increase bank revenue at the same time.

To remain competitive, banks and credit unions are going to have to get closer and more personal with their customers so superior customer service becomes a real differentiator.  Making customers feel special with products custom-designed for their financial needs will be the best way to revive relationship banking and to ensure the next generation of happy customers.

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.

image

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

image

Tags: , ,

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 $8.95 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, sign up for Product Builder Alert.   

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.

image

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

image

Tags: , , ,

APY | CD rates | National Pricing Indicator | Market Research


Become MRI Fan on FaceBook!

FaceBook Icon