Analysts See Fee Revenue as Short-Term Windfall for Banks

by tom 30. July 2015 13:26

U.S. banks have been reporting their quarterly earnings this week and most of the big banks have exceeded analyst expectations. Since interest rates are still low and the economy is still recovering, the income is coming largely from service fees, and industry experts predict that the revenue performance is not sustainable.

The Financial Times reports that among the 64 banks reporting earnings this week, 52 reported a rise on year-on-year fee income. The aggregate for fee income was up 6 percent over the first quarter and 10 percent from the second quarter of 2014. Clearly the profits are coming from fee income. With fee restriction ruling pending this October from the Consumer Financial Protection Bureau (CFPB) it seems banks are taking fee profits while they still can.image

According to investment bank Oppenheimer & Co., in 2008 ( the year the Fed cut interest rates from 4.25 percent to 0.25 percent) net interest income for the big banks reached $203 billion. Earnings from this interest income this year are predicted to be about the same for the big six at $209 billion. Non-interest income is another story, having doubled from $98 billion in 2008 to $185 billion this year. Fee income is catching up to interest income as percentage of overall revenue.

However, service fee income won’t be sustainable with pending regulations. Last week, the CFPB celebrated its fourth birthday by getting Citi to pay $770 million in credit-card refunds for improper fee practices. The ruling gives a refund to 9 million credit card customers who signed up for additional deb-protection services they didn’t need – the CFPB ruled that sales tactics were misleading and credit card application language confusing.

So this seems to be the trend for the future. The lending margin squeeze continues and fee revenue is taking a more important role, until the CFPB starts to take a closer look at fee practices. Banks and credit unions are stuck between continued low deposit rates and new rulings that will limit fee income. As the saying goes, when your are getting squeezed by both lending margins and fee income it’s time to turn the lemons into lemonade.

Smart banks and credit unions aren’t going to wait for the fee fines to start falling. Instead, they are going to take a hard look at their competitive market and their service offering and determine where there is more room for legitimate fee revenue. Overdraft protection is coming under scrutiny for potential abuses, but that doesn’t mean that other sources of fee revenue aren’t available. Consumer demand for prepaid cards, peer-to-peer payments, mobile banking, and other new services is on the rise. And there are still ATM fees, wire transfers, and monthly service charges.

However, banks and credit unions are going to have to be more competitive on fees. It’s going to be more important than ever to track fees against competing institutions, geography, and product type, not only to stay competitive but to be sure you comply with the latest regulations. As fees become more important and more competitive they also are going to change more frequently to attract and retain customers.

After October, everything you know about fee revenue is likely to change.

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In The News | Fees | Banking Trends

ProductBuilder Alert: MidFirst Bank Offers PeoplePay

by Tom 29. July 2015 14:04

Here us a snapshot from our ProductBuilder database, which contains more than 18 years of financial product data. Every week we share the latest financial product ideas in our ProductBuilder Alert. And we don’t just watch the top tier banks, we track activity among mid-market and community banks as well.

We offer ProductBuilder Alert for free – just click here to subscribe.

Item No

Pub Date

Bank Name

State

Phone

Source

More Info

More like this

5899

7/29/2015

REDWOOD CREDIT UNION

AK

(707) 545-4000

MRI Survey Specialist

 

 

Redwood Credit Union has expanded its RedwoodRewards Plus debit/credit rewards program with new options. In addition to redeeming points for their own use, members now can donate their points to any one of 250 national charities. Members also can use their points to instantly download eGift cards for preferred retailers.

5900

7/29/2015

AMERICAN TRUST BANK OF EAST TENNESSEE

AK

866.546.8273

MRI Survey Specialist

 

 

To help customers invest for better yield, American Trust Bank of East Tennessee is offering customers three Raise Your Rate CD options with rate bump options – an 11-month CD with one-time raise the rate, a 36-month CD with a one-time raise the rate, and 60-month with a two-time raise the rate.

5901

7/29/2015

NASHVILLE POST OFFICE CREDIT UNION

AK

(615) 871-4221

MRI Survey Specialist

 

 

Nashville POCU is offering a Skip-A-Payment special for the summer months. Members can skip a loan payment during July, August, and September and a processing fee of $25 will be charged for each loan; the amount is deducted from a savings or checking account or paid by cash or check. Interest continues to accumulate and credit card and real estate loans are excluded.

5902

7/29/2015

GOODYEAR EMPLOYEES CREDIT UNION

MI

330.724.9391

MRI Survey Specialist

 

 

Goodyear is offering its credit union members an emergency loan – borrow $500 to cover emergency expenses with no credit check and no paystub.

5903

7/29/2015

VINTON COUNTY NATIONAL BANK

OH

(800) 542-5004

MRI Survey Specialist

 

 

Vinton County National is offering an online-only CD special – a double-bump, 24-month CD at a 0.85% APY.

5904

7/29/2015

MIDFIRST BANK

AK

(888.643.3477)

MRI Survey Specialist

 

 

MidFirst has introduced People Pay, a new peer-to-peer payment system. Users simply enter the recipient’s contact and payment information and they are notified that a payment is waiting from the MidFirst secure payment portal. Each time you use People Pay customers are entered in a sweepstakes to win a $500 Visa gift card.

If you have any product ideas you want to share, send them to research@marketratesinsight.com.

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Weekly Term Accounts APY Spread and Premium Index–July 27

by tom 27. July 2015 18:39

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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Thanks to Dodd-Frank, Fees Now Lead as Revenue Sources for Banks

by tom 23. July 2015 16:43

When it comes to new sources of income for banks and credit unions, fees clearly rule. Last quarter, fees made up a much larger share of revenue for regional and mid-market banks. In a report from American Banker, banks including M&T Bank, PNC Financial Services Group, and KeyCorp reported that almost 10 percent of second quarter earnings were from service fees. M&T Bank reported an increase of 9 percent from fee income to $497 million. PNC reported an increase of 7.9 percent to $1.81 billion due largely to corporate service fees, consumer services fees, and asset management income. KeyCorp reported a whopping 18 percent income increase to $111 million thanks to trust and services income. Noninterest income now accounts for 45 percent of KeyCorp revenue.

As Richard Davis, Chairman and CEO of U.S. Bancorp told analysts, "If we can't get it in loan growth, we'll get it in fees."

The Dodd-Frank Experiment

Industry watchers point to Dodd-Frank, which is five years old this week,  and the Consumer Financial Protection Board (CFPB), which is four years old, as  both being responsible for forcing financial institutions to increase service fees. The Dodd-Frank Act has been criticized for harming small lenders and consumer, and during a hearing before the House Financial Services Committee this week, some legislators argued that CFPB rules had actually led to a decline in access to credit products.

Todd Zywicki, a law professor for George Mason University, notes:

“In the five years since the law came into effect it has resulted in higher prices and reduced choice for consumers and has done little to increase consumer financial protection. That Dodd-Frank squandered this historic opportunity to modernize and reform consumer protection laws for the benefit of consumers was, therefore, particularly disappointing.”

Writing in the Wall Street Journal, House Representative Jeb Hensarling (R-Texas) observed:

“Before Dodd-Frank, 75 percent of banks offered free checking. Two years after it passed, only 39 percent did so. Bank fees have also increased … leading to a rise of the unbanked and underbanked among low- and moderate-income Americans.”

The CFPB has also been the catalyst for a reduction in bank and  credit products. According to a 2013 FDIC survey, 13.4% of households say don’t have bank accounts because fees were too high or unpredictable. And the CFPB themselves identified a decline in credit cards from 76 percent to 71 percent.

More Fees Mean More Revenue

With the ongoing squeeze on credit products and deposit rates still at al-time lows, it’s no wonder that fees are claiming the lion’s share of bank and credit union revenues. However, it looks as though the CFPB will continue to restrict lending and fees, starting with the pending October ruling on overdraft and NSF fees. There is  a sea change coming in the banking industry as the regulatory climate becomes more restrictive and banks and credit unions continue to search for new sources of revenue from noninterest income.

It’s clear that fees are here to stay. The challenge for financial institutions is structuring fee-based products so they are: a) competitive, b) compliant, and c) customer-friendly.

Overdraft fees are changing, for example. The new trend is to extend overdraft credit to customers at rates based on their credit score. This strategy addresses the regulatory compliance issue since it should prove acceptable to the CFPB, and customers would rather have credit available than pay fees. Questions remain about competitive rates and whether these types of services will prove sufficient to attract new depositors.

You can expect to see new fee structures and new types of service products emerging in the coming months. Smart financial institutions are going to find new sources of fee revenue to go with new banking strategies.

One strategy is going to be an increase in the frequency that rates change. Just as deposit rates have become competitive, fees for popular services are going to become competitive and banks and credit unions are going to start using competitive fees more aggressively to attract new deposits.

In addition, mobile and online banking, credit management, identity protection, prepaid cards, and other products that are becoming increasingly popular all provide new opportunities for fee income. Value-added services that make customers lives easier are going to prove the best sources of new fees.

As new fee-based products emerge, you can be sure that Market Rates Insight will be there to track new noninterest products and competitive rates for service fees.

The Latest from ProductBuilder Alert

Interested in the latest product trends from banks and credit unions? Be sure to signup 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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Regulations | Overdraft | New Products | Fees

ProductBuilder Alert: SECU Helps Teachers Save for the Summer

by Tom 22. July 2015 14:01

Here us a snapshot from our ProductBuilder database, which contains more than 18 years of financial product data. Every week we share the latest financial product ideas in our ProductBuilder Alert. And we don’t just watch the top tier banks, we track activity among mid-market and community banks as well.

We offer ProductBuilder Alert for free – just click here to subscribe.

Item No

Pub Date

Bank Name

State

Phone

Source

More Info

More like this

5893

7/22/2015

FIRST TENNESSEE BANK

TN

(800) 382-5465

MRI Survey Specialist

 

 

First Tennessee is offering a $200 cash reward to customers opening a new checking account online. Each of the four different types of checking accounts available includes free mobile and online banking.

5894

7/22/2015

CATHAY BANK

CA

800-922-8429

MRI Survey Specialist

 

 

Cathay Bank has a Summer CD promotion – earn up to 1.31% APY on a 24-month CD with $100,000 or more in deposits. The CD specials include 12-month and 18-month CDs at rates starting at 0l8% APY. Special APY also is available for the Cathay ValuePlus account. The promotion runs from July 6 to September 18.

5895

7/22/2015

STATE EMPLOYEES' CREDIT UNION

NC

(919) 857-2150

MRI Survey Specialist

 

 

SECU is offering a Summer Cash Account to public school system and community college employees who are not paid on a 12-month basis. Members designate a portion of their paycheck to be transferred to the Summer Cash Account as a Payroll Deduction or Fund transfer. No minimum balance required, no fees, and no penalty for early withdrawal, and funds earn 1.00$ APY.

5896

7/22/2015

BMO HARRIS

IL

888-340-2265

MRI Survey Specialist

 

 

BMO Harris is offering new customers a $200 bonus when you open a checking account with a qualifying direct deposit.

5897

7/22/2015

GENISYS CREDIT UNION

MI

248-322-9800

MRI Survey Specialist

 

 

Genisys Credit Union is offering members a summer loan special to fund a vacation of other activities. Members can borrow up to $5,000 for as low as 7.75% APR for 48 months.

5898

7/22/2015

FORUM CREDIT UNION

IN

317.558.6000

MRI Survey Specialist

 

 

Forum Credit Union is offering a Student Checking Account for high school and college students, and students who sign up before August 31 will be entered to win 1 of 4 prizes, including a SurfacePro 3 and gift cards valued at $500, $250, and $100.

If you have any product ideas you want to share, send them to research@marketratesinsight.com.

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Weekly Term Accounts APY Spread and Premium Index–July 20

by tom 20. July 2015 16:38

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

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National Pricing Indicator | CD rates

Changing Overdraft Policies Would Eliminate Risk of CFPB Penalties

by tom 16. July 2015 19:35

Overdraft fees are still very much top of mind with bank and credit union executives. The Consumer Financial Protection Bureau (CFPB) has delayed its ruling on overdraft fees for checking accounts until October, but its common knowledge that the ruling won’t be favorable to financial institutions.

imageThe CFPB has already shown it means business when it comes to overdraft fees. The CFPB recently settled with Regions Bank for $7.5 million in penalties for charging unlawful overdraft fees, as well as refunding $49 million in overdraft fees to all affected customers. The fines stemmed from allegations that overdraft fees were being charged without an opt-in by consumers, and that should fees charged to a consumer account cause the account to go negative the bank would impose an overdraft or BSF fees.

We all know that overdraft fees have become a huge revenue source for banks and credit unions, especially as deposit rates have continued to founder during the economic recovery. As some executives point out, overdrafts were introduced 15 years ago as a courtesy to briefly extend credit to customers and over time overdraft protection has evolved into predatory lending. With hard economic times more Americans are living from paycheck to paycheck, which makes them more vulnerable to unwanted overdraft fees. For most bank customers overdraft protection fees are a nuisance but for lower income families, a $35 overdraft charge can trigger a domino effect of debt as one overdraft triggers additional charges.

The reason the CFPB fees compelled to regulate overdraft protection is because the banking industry has failed to regulate itself. What started as a true service to customers has become an unwanted service that makes the banks look greedy and makes customers think twice about where they put their money.

Consider that, in truth, declining a bank transaction costs fractions of a penny, so charging as much as $35 per overdraft means thousands of percent in profit for financial institutions. If you are going to look at overdrafts as short-term loans, which they really are, then treat them that way with disclosed interest rates.

For example, a checking account with a set minimum deposit can have a preset overdraft limit that is fully disclosed by the bank. If a customer initiates an overdraft, then there needs to be a fair rate of interest for the time the loan is outstanding, which is usually only a few days.

British banks such as First Direct might have the right idea. They offer free Internet protection up to $250, a line of credit above $250 , and if you use up the line of credit then the bank declines transactions at no fee. The line of credit has an interest rate around 15 percent so if you only remain overdrawn for a few days your interest payment is in pennies, not dollars.

Banks and credit unions have new competition from Internet banks, and unwanted service fees such as NSF and overdraft protection are making some of these online alternatives more attractive to consumers. Capital One 360 (formerly ING Direct), for example, has no overdraft fees, gives you a line of credit, and charges interest only for the days you are overdrawn. Ally Bank also gives you good interest rates for savings accounts and does not charge to transfer from savings to checking to cover an overdraft.

The real problem is replacing the revenue. Overdraft protection has become too profitable. The CFPB has made it clear that they will be watching for overdraft abuses, so the smart financial institutions will start looking elsewhere for new sources of revenue. Our past research has shown that consumers are more than willing to pay for services they perceive have real value; services that banks are already offering for free such as mobile checking, credit monitoring, protection from identity theft, and peer-to-peer payments. Charging for services that truly add value will prove more lucrative in the long run and remove the spotlight or regulatory scrutiny.

It’s time to get smart and start using the carrot rather than the stick to promote profits. If banks and credit unions do the right thing then they need have no fear of regulatory bodies such as the CFPB.

The Latest from ProductBuilder Alert

Interested in the latest product trends from banks and credit unions? Be sure to signup 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 | Fees | Overdraft | Regulations

ProductBuilder Alert: First Hawaiian Bank Offers Military Appreciation Package

by Tom 15. July 2015 14:32

Are you interested in tracking some of the latest product trends from banks and credit unions? Our ProductBuilder database contains more than 18 years of financial product data, and we are continually updating it. Every week we share the latest product ideas we uncover in our ProductBuilder Alert. And we don’t just watch the top tier banks, we track activity among mid-market and community banks as well.

Here is a snapshot from this week’s ProductBuilder Alert. We offer ProductBuilder Alert for free – just click here to subscribe.

Item No

Pub Date

Bank Name

State

Phone

Source

 

 

5887

7/15/2015

FIRST HAWAIIAN BANK

AK

808-525-8798

MRI Survey Specialist

 

 

First Hawaiian offers a special Military Appreciation Package (MAP) for active and reserve service personnel serving in Hawaii, Guam, and CNMI, and military retirees and employees. Present a military ID and get free checking, free online checking, free savings, and a 0.50% discount on personal loans (with an additional 0.25% discount for automatic payment).

5888

7/15/2015

INSIGHT CREDIT UNION

FL

407.426.6000

MRI Survey Specialist

 

 

Insight CU is offering qualified educators and school employees a summer paycheck with a loan up to $2,000 (up to the amount of the most recent paycheck). Bank with Insight CU and provide a pay stub and receive up to $2,000 at 0% APR for 12 months.

5889

7/15/2015

OLD NATIONAL BANK

IN

800-276-5529

MRI Survey Specialist

 

 

Old National is offering two options for home improvements: 1) a Home Equity Loan with no closing costs and up to 90% loan-to-value, plus a $100 Visa gift card, or 2) a Quick Home Refi with low closing costs and a $300 Visa gift card.

5890

7/15/2015

PARK BANK

AK

(608) 283-6868

MRI Survey Specialist

 

 

Park Bank is offering a Construction Loan Special – 5% down payment options, 7 or 9 month loan terms, interest only payments on any funds distributed during construction, and no closing costs. Interest rates are 1.85% with a 3.25% APR.

5891

7/15/2015

NUMERICA CREDIT UNION

AK

509.535.7613

MRI Survey Specialist

 

 

Numerica is promoting a “new way to pay” by combining Apple Pay with your Numerica Visa card. The credit union is touting secure payments with Apple Pay using a TouchID thumbprint or passcode for transactions so you never reveal your credit card number.

5892

7/15/2015

TEXELL CREDIT UNION

AK

855.773.1604

MRI Survey Specialist

 

 

For a limited time, Texell CU is offering $25 for every new member referral. They have a downloadable coupon that you give to a friend, and when they open an account and present the coupon you get $25 deposited to your account. The number of paid referrals is unlimited.

If you have any product ideas you want to share, send them to research@marketratesinsight.com.

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New Products | ProductBuilder Alert

Weekly Term Accounts APY Spread and Premium Index–July 13

by tom 13. July 2015 17:01

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

Migration to EMV Cards Could Spell Opportunity for Banks and CUs

by tom 10. July 2015 13:27

Credit card security breaches are in the news every day. Cyber thieves and hackers are stealing credit card information online and at the point-of-sale, and the cost of managing credit card theft, let alone dealing with the losses, is escalating. In fact, a recent report from Credit Union Journal notes that credit card companies have issued more credit cards than there are people in the United States largely because of credit card theft. In fact, 47 percent of the world’s credit card fraud occurs in the United States, and the cost of U.S. card fraud is growing at around 29 percent annually. Credit card security seems to be like the weather; everyone complains about it but no one does anything about it.

EMV Cards Will Not Stop Fraud

The migration to EMV cards this year is supposed to address the security problem, but will it? As you probably know, retailers have been told they must accept smart chip cards based on the Europay/MasterCard/Visa (EMV) standard by October of this year. Those retailers who fail to conform will become liable for fraudulent purchases, so the burden of fraud is moving from the credit card companies to the retailers. And even though credit card companies and retailers have invested $8.65 billion issuing new EMV cards and converting point-of-sale systems, it will only address a few of the security problems.

Only 37 percent of credit card fraud is due to counterfeit cards. And banks and credit card companies are not issuing PINs with the new cards but are staying with the current system that requires signatures. Adding a PIN system, similar to the one used in Europe, would eliminate most fraudulent purchases at retail locations.

Credit card companies say moving to a PIN system is too costly, and they expect that EMV cards will still substantially reduce fraud at the cash register, and it probably will. However, the vulnerability for fraudulent online purchases is as great or greater than ever. Aite Group estimates that U.S. losses due to only card fraud will double from $3.3 billion this year to $6.6 billion by 2018.

Rather than looking at the migration to smart EMV cards as a solution that only partially addresses the fraud problem, EMV cards could also present a real opportunity to banks and credit unions.

Helping Retailers With New Products

For most consumers, the move to smart chip cards is seamless; they receive a new card in the mail, activate it, and continue to use it as they always have. Retailers, however, are becoming increasingly concerned about assuming the burden of in-store and online credit card fraud. Banks and credit unions can help in a number of ways.

One of the challenges retailers have been facing is upgrading point-of-sale equipment to handle EMV cards. While large retailers like Wal-Mart and Target have already installed smart-card readers, smaller retailers are having trouble with the complexity and expense of setting up EMV card systems. There also seems to be a shortage of card-reader hardware as suppliers scramble to keep up with demand.

Banks and credit unions can help their commercial retail customers by offering special loan deals to help finance new transaction systems and other incentives to make it easier for them to move to EMV cards. One of the biggest fears for retailers is the potential cost of fraud, since the retailer will now be liable for fraudulent transactions. Although banks and credit unions don’t have to continue to assume responsibility for fraudulent transactions, they can help out retailers and SMBs with lines of credit and other resources to protect them from disaster in the event of fraud.

The migration to EMV cards presents a golden opportunity for banks and credit unions to work with retailers, helping them make the transition and providing support and customized products that not only eases this transition but increases customer loyalty.

Educating Consumers and Preventing Fraud

To stem the growing tide of credit card fraud it’s also going to become increasingly important to educate consumers. More banks and credit unions are incorporating services like Apple Pay into their offerings to help stop online credit card fraud, however, even services like PayPal, Google Wallet, and Apple Pay are vulnerable so embracing third-party payers merely passes the buck, so to speak.

Most banks and credit unions are great about reacting to fraudulent transactions, providing customer support and dealing with fraudulent transactions, but what about fraud prevention?

Banks and credit unions are in a better position to educate customers and members about credit card abuses and how to prevent them. They also are in a better position to apply new technologies such as big data analytics to predict and prevent fraudulent transactions. Granted, big data isn’t cheap, but consider the saving in the long run, and the potential value to consumers. Fraud prevention and protection are services that more banks can offer.

Adopting the EMV credit card standard is a positive step in stopping fraud, but everyone can do more, especially credit card companies and banks. Incorporating additional security protocols such as a credit card PIN is one solution. Working with retailers and others to help make their transaction systems more secure, and standing behind them when there is fraud is another. And the card issuers should be more proactive in educating consumers and monitoring for fraud using predictive analytics.

The problem of credit card fraud is complex and won’t be addressed overnight. It’s also far-reaching which means we need to work together to find solutions. In the meantime, banks and credit unions can get more creative in their service and product offerings to help retailers and consumers cope with credit card fraud.

The Latest from ProductBuilder Alert

Interested in the latest product trends from banks and credit unions? Be sure to signup 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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Credit Cards | Mobile Banking | Banking Technology | Regulations


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