Direct Banks Present Competition as Early Movers on Interest Rates

by tom 21. January 2016 16:51

Today we are living in interesting times. Financial institutions are struggling to find new sources of profits while deposit rates slowly rebound following the Fed’s decision to raise interest rates, at the same time they are facing new competition from direct banks. The changing landscape for deposit rates and fees is going to promote a shift in the banking industry, prompting many financial executives to reassess their revenue strategies in light of new competition.

First, let’s consider how bad things really are in the banking industry. According to a report in this week’s Financial Times, revenue growth for U.S. banks is “flat as a pancake.”  According to analysts at CLSA, the top six banks combined – JP Morgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, and Wells Fargo – generated combined revenues of $413 billion in 2015; the same total revenue generated in 2014.

The FT reports that following the financial crisis and the collapse of Lehman Brothers, big lenders have been increasing their capital stocks and improving liquidity in the event of another financial crisis. At the same time, banks have been hoping that demand for mortgages, car loans, and related products will generate more income, producing more income through higher net interest margins, And with the increase in Fed rates banks have slowly started to increase lending rates. but are holding on deposit rates.Monthly account charges

Now let’s look beyond the big banks to see what’s happening in the mid-market. Chris Nichols of CenterState Bank has just published his observations on changes to deposit rates he identified using our FeeBuilder database and TrendSpotter reports and he sees a new trends with direct banks leading the way in deposit rate increases.

Many financial institutions continue to overlook direct or Internet banks as competitors, but in many ways the direct banks are more nimble and willing to take more risks than their brick-and-mortar competitors. The latest rate data shows that Discover Bank has already increased their retail money market rates up 5 basis points, and their 5-year CD is up 20 basis points to 2.20 percent. Discover is promoting aggressive rates on all their CDs but they aren’t the only ones. Capital One also raise the 18-month interest rates 10 basis points and their retail one-year rats 90 basis points to 1.30 percent.

Direct banks are proving to be real competitors with higher deposit interest rates and lower fees. Internet banks are leading the market with more aggressive rates and community banks are sure to follow in the pursuit of profits. The rest of the market is going to end up playing follow the leader unless they start reviewing their deposit rates and fee strategies before the competition.

Weekly Term Accounts APY Spread and Premium Index– Jan 19

by tom 19. January 2016 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

JP Morgan Chase First to Raise Deposit Rates Following Fed Increase

by tom 29. December 2015 14:28

Now that the Federal Reserve has finally decided to raise interest rates, the big banks are trying to determine their best strategy to win back customers. With deposit rates remaining flat for nearly a decade there now is a lot of reserve cash in bank accounts and customers are going to start shopping for banking products that deliver a better return for their money.

While many banks are starting to announce plans to raise the prime rate tied to various loans, rumor has it that JP Morgan Chase will be raising deposit interest rates. The Wall Street Journal reported that it would start raising deposit rates for its larger customers starting in January. Since net interest margins are stillimage compressed, the JP Morgan Chase deposit rate increase will only affect institutional clients, and the size of rate returns will vary. The deposit rate increase will primarily apply to “operating” deposits, which are less likely to be withdrawn.

Other financial institutions have indicated that they will raise rates on loan products, JP Morgan Chase is the first of the big banks to start raising deposit rates, and other big banks are sure to follow. With the Fed rate increase, bank and credit unions can expect to see a number of trends emerge:

  1. There is pent-up demand for better return on deposits and customers are going to move money in zero-interest or low-interest savings accounts.
  2. Depositors have access to more information than ever before and will use the Web for comparison shopping for the best returns. Those institutions that have more online visibility and are raising deposit rates first will get a head start.
  3. The ongoing credit crunch has cost banks any brand equity. It’s more of a level playing field and customers with little or no brand loyalty are likely to shop rates.
  4. There are new competitors, such as direct banks and financial technology startups that are wooing bank customers. The rise in interest rates will get customers to think about making a change and some of those transferred dollars will make their way to direct banks.
  5. The top banks, like JP Morgan Chase, are using sophisticated price optimization technology to prepare for the next interest rate cycle. Those banks with better tools and intelligence are likely to come out ahead in the race for deposit income.

Competition for deposit dollars is going to be stiff and the deposit rate landscape has changed quite a bit in the last decade. Some of the younger bankers are ill-equipped to address the coming deposit rate cycle, since it has been so long since we have seen deposit rates raise. And new tools and competitors are going to challenge even the most experienced financial executives. It’s a new ball game with new rules, and the savvy bank executives are going to be looking for new strategies and new tools to stay ahead of the competition.

The Fed Raises Rates and FIs Watch for New Profits and New Competitors

by tom 17. December 2015 20:50

It finally happened. On Wednesday, the Federal Reserve ruled to increase interest rates by 0.25%. However, this is not the big Christmas gift that most bankers wished for. Although there is pent up demand for an interest rate hike, new competition and the new state of the market after nearly a decade of flat or declining interest rates have changed the playing field.

Ongoing low rates have put a crimp in interest margins. Investors have been putting money into financial stocks in anticipation of the Fed’s decision, hoping that higher interest rates will translate into bigger lender margins. The expectation is that banks and credit unions will be able to pay more for loans and pay little for deposits, but the competition is fierce and banks and credit unions also have new competitors.

Smaller banks are concerned that the slow rate of increase for interest rates will actually lead to further margin compression. At a December 9 roundtable sponsored by the American Bankers Association, attendees were comparing notes on the increase in competition and its impact on loan pricing.  As Charles Umberger, CEO of Old Town Bank in Waynesville, N.C., noted:

“The challenge I see with the Fed's moves is that they are going to do enough to further compress the margin yet not enough to materially move our asset yields. It is going to make our margins worse than they are right now. It is going to hit smaller community banks because we're totally spread dependent.”

Banks and credit unions are also feeling new pressure from online banks. Internet banks are taking advantage of the fact they have lower overhead to offer better returns on deposits. The rates for many Internet financial institutions are already more competitive than brick-and-mortar banks, however, depositors are reluctant to move their money. As one banker at the ABA conference noted, “there is real value in having a safe, convenient, nationwide checking system.”

clip_image001

It’s clearly going to take some time for deposit rates to recover, and those who will compete successfully will have to remain alert and nimble. They are going to have to be responsive to customers’ expectations of an increase in deposit returns without dragging their feet. They are going to have to continue to diversify products and strategies, including fees, to keep revenue coming in. The bankers at the ABA conference noted that they are seeing growth in such sectors as commercial lending, commercial real estate, manufacturing, consolidating medical practices and professional services, and other areas. Bankers are going to have to be opportunistic and take advantage of new revenue opportunities while waiting to see when, or even if, interest rates rebound to healthy levels.

However, we all have reason to be cautiously optimistic. For the first time in eight years, the Federal Reserve raised fed funds rates by 25 basis points.  Whether your FI is looking to maximize NIM (using MyRI with live deposit and loans rate surveys) or NII (using FeeBuilder with live retail fee data feed), we are here to help you with precision pricing as we begin the dawn of a new interest rate cycle.

Weekly Term Accounts APY Spread and Premium Index–Dec. 7

by tom 8. December 2015 10:43

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

Weekly Term Accounts APY Spread and Premium Index–Nov 2

by tom 2. November 2015 16:24

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 Balances | CD rates | Building Deposits | National Pricing Indicator

Weekly Term Accounts APY Spread and Premium Index–Oct 26

by tom 26. October 2015 17:59

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

Have You Heard About FeeBuilder?

Deposit fees make up as much as 70 percent of fee income for many banks, and fee income is sensitive to market rates but few banks review them more than once a year. Our new FeeBuilder product is the first national retail deposit fees database to help you find new fee revenue you are overlooking:fb_logo

  • Find alternatives to Overdraft fees
  • Evaluate early withdrawal as a means or retaining deposits
  • Reevaluate minimum balances and increase relationships and share of wallet
  • Find new fee revenue in debit and money market accounts
  • Benchmark your fee strategy against your markets or competitors

FeeBuilder is the only tool that gives you TODAY’S FEES TODAY! Get a free demonstration.

Tags: , , ,

National Pricing Indicator | CD rates | Building Deposits

Weekly Term Accounts APY Spread and Premium Index–Oct. 19

by tom 19. October 2015 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

Weekly Term Accounts APY Spread and Premium Index–Sep 28

by tom 29. September 2015 11:01

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

Have You Heard About FeeBuilder?

Deposit fees make up as much as 70 percent of fee income for many banks, and fee income is sensitive to market rates but few banks review them more than once a year. Our new FeeBuilder product is the first national retail deposit fees database to help you find new fee revenue you are overlooking:fb_logo

  • Find alternatives to Overdraft fees
  • Evaluate early withdrawal as a means or retaining deposits
  • Reevaluate minimum balances and increase relationships and share of wallet
  • Find new fee revenue in debit and money market accounts
  • Benchmark your fee strategy against your markets or competitors

FeeBuilder is the only tool that hives you TODAY’S FEES TODAY! Get a free demonstration.

Weekly Term Accounts APY Spread and Premium Index–Sep 21

by tom 21. September 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


Become MRI Fan on FaceBook!

FaceBook Icon