Our New Study Shows Which Financial Services will Consumers Pay For–Those That Enhance Their Lifestyle and Offer Perceived Value

by tom 21. May 2012 17:48

With interest rates continuing to trend at record lows, financial institutions are increasingly looking to service fees to make up the shortfall in revenues. However, following the recent rebellion against seemingly arbitrary banking fees and the boom in main street protests, such as Occupy Wall Street, it seems that consumers are “mad as hell and aren’t going to take it anymore.” However, this doesn’t mean that financial institutions don’t have new opportunities to woo consumers and promote better customer loyalty while still building new revenue streams. 

Market Rates Insight has just completed our new "Integrated Study on Service Fees,” the first of its kind on consumer attitudes toward bank fees, and the findings make it clear that while consumers are less willing to pay more for traditional banking services, such as checking fees, they certainly are willing to pay more for a new category of "Lifestyle Financial Services,” those services with a higher perceived value. Clearly consumers are no longer willing to pay for services they feel should be delivered for free, but they are willing to pay for new services that make their lives easier.

What did the survey reveal?

  • Seven out of 10 consumers are willing to use and pay for financial services that enhance their lives.
  • Availability of these services is becoming a deciding factor in selecting a bank or credit union.
  • Credit union members are slightly more likely (68.7%) to use lifestyle financial services than bank customers (66.3%)
  • Identity theft services ranked highest among those services desired (82.5%) at an average monthly cost of $4.07

The table gives a quick snapshot of the services surveyed and the likelihood consumers imageare to pay for those services. The study itself also provides insight into what specific fees consumers are willing to pay, and how those services stack up against the largest U.S. banks. It also includes demographic breakdown, including the differences between banks and credit unions, difference by gender and income, and other insights that will help banks and credit unions make the most out of these new services and fees.

What we do know is that non-interest income for banks is dropping. The amount of revenue from ”traditional” service fees dropped from $36.2 billion in January 2011 to $34.1 billion by  December. Overall revenues from service fees on deposit accounts fell from $39.2 billion in December 2007 to $34.1 billion in December 2011, a decline of 13 percent.

And in troubled financial times, consumers are looking to their banks for provide convenience and relief, not to “gouge” them with additional fees on services they feel should be offered for free in exchange for entrusting banks and credit unions with their hard-earned cash. Consumers are looking to their financial institutions for help, and those institutions that are willing to step forward with services that consumers want will not only earn more non-interest revenue, but they will gain the loyalty of their customers and members.

There’s a lot more to this new fee study that we will try to share in the months ahead. Or if you really want to learn more about the study, check it out on our web site or send us an email to dan.geller@marketratesinsight.com.

Weekly Term Accounts APY Spread and Premium Index-May 14

by tom 14. May 2012 16:00

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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Chase the First to Add Prepaid Debit Cards in Response to Dodd-Frank

by tom 10. May 2012 20:33

Banks are starting to turn to prepaid debit cards as a response to the new Dodd-Frank legislation, and as a means to find new profits from their least profitable checking customers. This from a Reuters report released this Tuesday:

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) plans to move its least profitable checking customers into new accounts that rely more heavily on debit cards,JPmorganChase in an effort to boost earnings in a business that has been clobbered by new regulations.

The accounts are known as "prepaid debt cards," and are like a checking account, except that customers cannot write checks and instead spend via a debit card.

A loophole in 2010's Dodd-Frank financial reform law allows banks to charge merchants relatively high fees for processing payments made with this type of debit card.

Chase will market the cards mainly to people who frequently overdraw their accounts, keep low balances, or do not qualify for a checking account at all.

The new service is being marketed as Chase Liquid at $4.95 per month, making it even less expensive than Chase’s student checking. And the fees cannot be waived, but the card must be linked to a JPMorgan Chase checking account. It’s one way banks are getting out of the “overdraft business” and finding new ways to generate fees and cut the cost of maintaining the account by eliminating paper processing. The debit cards also are deliberately linked to other Chase products to increase profits and reduce overall costs.

At this stage,this is an experiment, but other banks are following Chase’s example. Chase is still working to refine its new debit card strategy. Chase estimates that 10 percent of its current accounts don’t pay for incremental costs such as check processing. The strategy seems designed to find a way to minimize losses from less profitable customers so the banks can spend more time and resources attracting high net worth individuals.

Chase is trying the card out in 23 states through 5.500 branches, and the bank is not adding fees for deposits or withdrawals at its ATMs or branches. Although JPMorgan Chief Executive Jamie Dimon said this "could be a breakthrough product for consumers in terms of pricing transparency, convenience and simplicity," it’s clear that Chase is not betting the farm on prepaid debit cards. Dimon noted ”The management team doesn't want me to get too excited in case it doesn't work."

The industry is watching to see if this is the next trend in bank products.

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Banking Trends | Regulations | New Products | In The News | Blog

Weekly Term Accounts APY Spread and Premium Index-May 7

by tom 7. May 2012 17:17

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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Blog | APY | Market Research | Market Rates Insight | CD Balances

Reality Check on Service Fees

by tom 4. May 2012 17:33

Our own Dr. Dan Geller recently contributed this article to BAI Banking Strategies. Much of the content was gleaned from Market Rates Insight’s new “Integrated Study on Service Fees” now being offered in our new Research Store.

When deciding whether to impose service fees, banks need to consider consumclip_image001er preferences as well as the competitive landscape.

The amount of money banks generate from fees on deposit accounts decreased from $36.2 billion in January of 2011 to $34.1 billion by year end, a drop of $2.1 billion or 5.8%. This is not an isolated incident; rather it is a trend that started five years ago. Income from service fees on deposit accounts fell from $39.2 billion in December of 2007 to $34.1 billion in December of 2011, a fall of $5.1 billion or 13%.

On the surface, it might appear that the decline in service fees on deposit accounts is the result of various regulatory changes governing service fees. However, an examination of the data shows otherwise. The revision of Regulation E, which provides consumers a choice regarding their payment of overdraft fees for ATM and one-time debit card transactions, became mandatory for compliance on July 1, 2010 and the caps on debit card swipe fees took effect in late 2011. While these two major regulatory initiatives might explain a reduction in service fees in the last two years, they can’t explain the decline in service fees that started in 2007.

Interestingly, the fee decline occurred despite an increase in the total amount deposited in banks. Since the beginning of the recession in December 2007, total deposits at FDIC-insured institutions have risen by $1.8 trillion, from $8.4 trillion to $10.2 trillion, a 21% gain. Normally, an increase in total deposits leads to an increase in the service fees associated with deposit accounts due to an increased level of depository activity. However, in the last five years the relationship has inverted: an increase of 21% in total deposits vs. a decrease of 13% in service fees.

If the decrease in service fees started three years prior to any relevant regulatory mandate, and if the decrease in service fees occurred despite a record increase in deposit balances in the past five years, we should look elsewhere for the main cause of the change. The culprit seems to be changing consumer preference.

Traditionally, consumers had little say in what type of products and services banks offered. However, with the advent of social media, mobile connectivity and instant transactions in the past few years, consumer expectations have risen, as demonstrated by last year’s fee protests during the so-called Bank Transfer Day. This means that banks, when considering their strategy around fees, need to research, analyze and implement services that consumers want and are willing to pay for.

It may have sufficed in the past to consider mostly competitor actions before implementing your own fees but no longer. Only a three-dimensional view, which also includes consumers' preference and price sensitivity along with competitor actions, provides relevant information for safer and profitable decisions on service fees. Otherwise, financial institutions expose themselves to the danger of consumer backlash.

A simple comparison of yesterday’s uncertainty associated with service fees to today’s additional uncertainty shows how much riskier and more complex service fee decisions can be:

Yesterday’s uncertainty:

· Will consumers use the service?

· Will consumers pay for the service?

· What are competitors doing?

Today’s uncertainty includes those items but also:

· Will consumers protest?

· Will consumers move their business?

· How will the new Consumer Financial Protection Bureau react?

Using the three dimensional approach, institutions would design their fee strategy by addressing three issues: How likely are consumers to use the proposed service? How much are consumers willing to pay for the proposed service? And what is the competition doing in regards to the proposed service? Using only one or two or these dimensions to make a decision increases the risk of unintended consequences. For example, if your competitive survey shows that none of your competitors is charging a fee on a particular service, does this mean that consumers will accept such a fee? Not necessarily.

Moreover, even if you find out those consumers are very likely to use a particular service, would this information, by itself, be sufficient to introduce such a service? Not really. While consumers may embrace a new service on a theoretical basis, they might not be willing to pay extra for it. Hence the need for an integrated study that brings together information on consumers’ preference, price sensitivity and the competitive landscape.

Mr. Geller is the executive vice president of San Anselmo, Calif.-based Market Rates Insight , where he oversees the research and analytics services of the company. He can be reached at dan.geller@marketratesinsight.com.

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Banking Trends | Fees | Market Rates Insight | Consumer Confidence

Weekly Term Accounts APY Spread and Premium Index–April 30

by tom 30. April 2012 15:01

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:

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Weekly Term Accounts APY Spread and Premium Index–April 23

by tom 23. April 2012 17:12

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–April 16

by tom 17. April 2012 12:30

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–April 2

by tom 2. April 2012 15:22

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

Weekly Term Accounts APY Spread and Premium Index–March 26

by tom 26. March 2012 20:09

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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