Free Checking Continues to Decline, New Account Fees on the Rise

by tom 22. August 2013 20:07

According to a new survey from MoneyRates.com, fewer checking accounts than ever are being offered by financial institutions. According to their survey, slightly more than 30 percent of checking accounts are currently available with no maintenance fees, the lowest figure since 2009.

This new survey demonstrates part of a trend since 36.6 percent of checking accounts were offered for free in the second half of 2012. Online banks offer more free checking, with 78.95 percent reporting their checking accounts were fee free. This compared to 27.79 percent for brick and mortar institutions.

Rather than charging for checking, these same institutions are raising the rates for overdraft fees. The latest survey shows overdraft fees at an average of $31.60 in 2013 versus $30.01 in 2012.File:Bank Run c1933.jpg

This trend indicates that most financial institutions haven’t learned from the Bank of America debit card fee debacle of 2011. According to another study from WalletHub.com, the average checking account has 30 fees, and most banks don’t disclose all these fees in their online applications. Granted, many of these fees are triggered by consumer behaviors, such as maintaining a minimum balance or overusing a debit card, but there are so many fees that consumers can’t keep track.

Our latest survey on emerging financial services shows that rather than risking customers’ wrath with arbitrary fees to raise revenue, there are a host of other services that consumers will gladly pay for, and if you bundle those services in the right combination, they will pay a premium. Convenience services such as mobile banking, person-to-person payments, credit score reporting, identity theft protection, and personalized couponing. What makes these worth paying more for, is they actually add tangible value; you get something concrete in return for fees as opposed to paying for a service you are used to getting for free.

The smarter institutions, such as the online banks and a growing number of credit unions, have learned the lesson of the BofA backlash and are seeking out more popular, and more lucrative services to tie to fees. Charging for checking is just old school, and shows a lack of creativity and concern for the customer.

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Banking Trends | Fees | In The News

Weekly Term Accounts APY Spread and Index–Aug 19

by tom 19. August 2013 16:21

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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More than Half of Americans Now Bank Online

by tom 15. August 2013 17:13

Have you seen the latest Pew Internet survey from the Pew Research Center? Apparently more than half of American adults are now banking online.  According to the latest study:

  • 51% of U.S. adults bank online (that’s 61% of U.S. Internet users)
  • 32% of U.S. adults bank via cell phone (or 35% of all cell phone owners)
  • In 2010, 46% of Americans (58% of Internet users) banked online
  • In 2011, 18% of cell phone owners said they used their phone to transact business with their bank or check their balance.

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The most significant growth for online banking was among young adults (18-29) at 66% and whites at 54%. This compares to 2010 when 55% of those under age 29 banked online, and 47% of whites banked online. Not surprisingly, young adults also are leading in the mobile banking trend.

Both types of digital banking are on the rise. In 2010, 46% of U.S. adults, or 58% of internet users, said they bank online. In 2011, 18% of cell phone owners said they have used their phone to check their balance or transact business with a bank.

The study also shows that those Americans with the greatest wealth (more than $75,000 per year) are the heaviest users of online banking – about 75%. Mobile banking seems to be popular with both middle income ($50,000 to $75,000) at 45% and higher income users at 44%.

This new study also highlights the potential for new revenue sources for financial institutions. The convenience of Internet and mobile banking continues to create new potential revenue sources for banks and credit unions. Our latest study of Growth and Revenue Potential from Emerging Banking Services reveals that mobile banking is a very hot category that consumers will pay for. Our study shows that of those surveyed, 56% want to add mobile banking services, and they are willing to pay as much as $5.60 per month for mobile banking.

As technology continues to improve and enter the mainstream, more Americans are going to look for more technology-powered convenience that promotes frictionless banking. Internet and mobile banking are clearly today’s hot categories, and smart bankers are finding new ways to capitalize on them.

Weekly Term Accounts APY Spread and Index–Aug 12

by tom 12. August 2013 15:40

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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Consumers Continue to Dial In Mobile Payments–But Does that Mean More Profits for Banks and Credit Unions?

by tom 8. August 2013 12:07

A new infographic shared on BankInnovation.net shows that consumers continue to embrace mobile banking. Mobile payments alone are expected to rise to $234.4 billion this year, an increase of 44 percent over last year.

What’s interesting is that with the booming demand for mobile banking, many banks are offering mobile services for very little or for free. There are hundreds of mobile banking apps that have been developed for iPhone and Android offered for free by financial institutions to encourage customers to bank by smart phone, and there are no additional fees being charged for these services.

Granted, migration to mobile banking saves banks a lot of money. They can deliver e-statements, cut back on branch staff, and generally cut overhead and account service fees. However, are banks and credit unions may be leaving money on the table by not charging consumers for mobile banking services.

Our latest consumer fee survey shows that mobile deposits are in high demand, and consumers are willing to pay for mobile banking services. Of consumers surveyed regarding mobile deposit services, for example, nearly 44 percent said they see mobile deposits as important, and they are willing to pay up to $6.65 per month for such a service, or more than $10 as part of a bundled service package.

The more American consumers become enamored with smartphone technology, the more opportunity there is for banks and credit unions to uncover new potentials sources of fee profits.

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Fees | Banking Trends | Market Research

Weekly Term Accounts APY Spread and Index–Aug 5

by tom 5. August 2013 16:39

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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APY | National Pricing Indicator | CD Balances

Weekly Term Accounts APY Spread and Index–July 29

by tom 29. July 2013 17:15

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 | Banking Trends | CD Balances | Deposit Products

Bundled Fees: Three Is the Magic Number

by tom 26. July 2013 10:51

One of the insights from our new study, Growth and Revenue Potential from Emerging Banking Services, is that bundled fees are more attractive to consumers, but only in moderation. The challenge is to find the optimal fee bundle that generates maximum customer satisfaction, and maximum return.

This is an analysis written by our own Dr. Dan Geller and posted on BAI’s Banking Strategies explaining our findings regarding optimal fee bundles.

One of the most revealing and significant findings from our latest study on emerging financial services is that the principle of diminishing return applies to the bundling of financial services.

The principle of diminishing return states that demand is curved and any additional consumption beyond imagethe highest point produces less return. In the case of financial services, the recurring monthly fee consumers are willing to pay for a bundle of services starts to diminish after an average of about three combined services.

Moreover, the study shows that the optimal point for fee revenue typically occurs before the highest fee-revenue point on the curve. To illustrate this principle, let’s examine an actual case of fee-optimization analysis from our study, where the highest fee revenue is achieved by bundling prepaid reloadable cards, online couponing, overdraft protection and person-to-person payment for a total monthly fee of $12.09.

However, the optimal fee-revenue point occurs after bundling only the first three services – prepaid reloadable cards, online couponing and overdraft protection – at a monthly fee of $11.85. The incremental fee revenue generated beyond the optimal point diminishes significantly and adding the fourth service, in this case person-to-person payments, will not generate enough additional revenue to cover the cost of providing the added service.

Another compelling argument in support of fee-revenue optimization through service bundling is the finding that many consumers are willing to pay a higher overall monthly fee for the optimal bundle of services than they would for each of the services individually. For example, study respondents indicated they are willing to pay an average of $4.27 per month for a prepaid reloadable card, $3.35 per month for online couponing service and $3.11 per month for overdraft protection service. The total fee amount of these three services individually comes out to $10.73. However, when these three identical services are optimized in a bundle, the total monthly fee amount is $11.85 – a premium of $1.12 or 10%.

Clearly, service fee optimization makes sense and can be very profitable. There are many combinations of optimal bundles of services featured in the study. Each optimized bundle consists of an average of up to three specific services generating average fee revenue of $10.12 per month. Taking into account another finding from the study that 68% of consumers desire these services, an institution can generate an average of $120 annually in recurring fees from two-thirds of its customer base.

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Fees | Consumer Confidence | Market Rates Insight

Weekly Term Accounts APY Spread and Index–July 22

by tom 24. July 2013 12:56

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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Mobile Deposits Boom Means More Money for Banks

by tom 17. July 2013 13:09

More studies are emerging that confirm what we already learned from our latest study of “Growth and Revenue Potential from Emerging Banking Services”; that mobile banking is gaining popularity with consumers.image

Our research shows that 54 percent of consumers who currently don’t have mobile bill pay want such a service. And they are willing to pay for it. According to our research, consumers are willing to pay more than $3.00 per month for such a service; more if it’s bundled with the right combination of additional financial services.

After we completed our study, a similar study conducted by ath Power Consulting...

“...one in three consumers would be willing to pay something for mobile banking services, which is a 13% bump up from 2012's study results. Last year, one in five consumers said they would pay for mobile services.”

Despite the demand, banks are still reluctant to charge for what some consider an unproven service. A few banks and credit unions are testing the waters. U.S. Bancorp has been charging customers 50 cents per mobile deposit since 2010 – substantially less than the price customers are willing to pay according to our research.

And not only can banks earn more revenue with mobile deposits, they save operating overhead as well. According to a new report from Javelin Strategy and Research, financial institutions can save $50 for every customer by encouraging mobile deposits. Javelin estimates that it costs about $4.25 for each deposit made in person in a branch. The same transaction costs $0.10 when done using a remote deposit capture application

The migration to mobile deposits could save the entire industry $1.5 billion.

Now consider the combined revenue from fees and savings on operational overhead. If you use our study’s estimate of $3.00 for monthly fees for mobile deposits, combined with the savings of $4.15 per in-branch transaction, that could mean an additional $86 or more per customer per year.

Interested in learning more about how to generate fee revenue from emerging financial services such as mobile deposits? We will be sharing our insights as part of a webinar next week sponsored by American Banker. Please join us, or get in touch if you want more information about our new study on emerging financial services.


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