Replacing Lost Fee Income

Transcription

1 Replacing Lost Fee Income Best New Revenue & Cost Cutting Opportunities in 2012 and Beyond Lee Wetherington, AAP Director of Strategic Insight

2 Presenter Lee Wetherington Director of Strategic Insight Develops actionable insight and strategy for the financial services industry Delivers keynotes nationwide Serves as the Technology Faculty Chair for Southwest CUNA Management School Authors articles for industry trades Degrees in Economics and English from Duke University Accredited ACH Professional 2

3 What Consumers Want 1.Security 2.Personalized experiences 3.Proactive communication

4 What Businesses Want 1.Ease 2.Control 3.Cost Reduction

5 Fee Income Challenges

6 Average Debit Interchange Down 45% 2011 Javelin Strategy & Research 6 May 7, 2012

7 Interchange Before & After Durbin Durbin dramatically affects cost/revenue associated with different transaction values! Transaction Value Approximate Pre Durbin, Traditional Interchange (1.5% + $0.02) Post Durbin Interchange for FIs with >$10B in Assets ($ % + $0.01) $8.00 $0.14 $0.22 $1, $15.02 $0.72 * Approximate rate based on issuer average for signature debit transactions of 1.53% reported to the Federal Reserve Javelin Strategy & Research 7 May 7, 2012

8 Big Banks Take Big Hit Hit to debit interchange fee income for banks >$10B 8 May 7, 2012

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10 Big Banks Lose Big

11 Top 5 Opportunities for FIs 11

12 Opportunities for Community FIs 1. Capturing DDA share from big-bank fee defectors 2. GPR prepaid cards (co-branding partnerships) 3. Serve growing population of unbanked, under-banked and Gen Y (25% of consumers) 4. Generate new fee revenue with merchant-funded rewards offered inside online statements and ultimately in real-time via mobile texts 5. Leveraging merchant rewards to incent/compel migration of offline members to online self-service 12 May 7, 2012

13 Tapping the Opportunities 1.Cut costs 2.Generate new fee revenue

14 Cost-Cutting Opportunities

15 Cutting Costs 1.Increase self service 2.Streamline branches

16 So, how much cost can FIs cut by increasing self-service?

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18 Growing Online Usage Can Cut $8.3B in Costs 2010 Online Banking and Bill Payment Forecast: How to Cut $8.3 Billion in Costs Through Channel Conversion ; Javelin; September

19 2010 Online Banking and Bill Payment Forecast: How to Cut $8.3 Billion in Costs Through Channel Conversion ; Javelin; September 2010 Moving Offline Members Online $167 in Cost Savings Per Member Converted to Online Banking Click to edit Master title style Javelin Strategy & Research

20 Javelin Strategy & Research s 2010 Online Banking and Bill Payment Forecast: How to Cut $8.3 Billion in Costs Through Channel Conversion: September 2010 Online: Cut $167 in Costs/User

21 Mobile Savings 21

22 Mobile: Cost Savings/Call Deflection Preemptive text alerts can prevent In-Person Member Calls FI cost: $3.00 to $15.00 Automated Calls (IVR) FI cost: 3 to 30 NOTE: BoA saved $110M deflecting calls with mobile self-service 22

23 Extend selfservice with mobile RDC!!!

24 Javelin predicts 100 million mbanking users by 2014 half of which see mrdc as highly desirable (50 million users for Mobile Deposit)

25 Who Wants mrdc Right Now? 40% of Smartphone Owners and 50% of iphone Owners want mrdc iphone Windows 7 based phone 26% 29% 12% 23% 37% 30% 8% 6% 14% 16% BlackBerry 24% 16% 27% 11% 23% Q42: Banks or credit unions can offer a service that enables customers to deposit a check by photographing it with the camera on their mobile phone, then sending the image to the bank through a mobile banking application. How desirable is this service to you? March 2011, n= 4,267, 1,716, 537, 483, 103, 457 Base: All consumers with a mobile phone Javelin Strategy & Research Android based phone A smartphone All consumers 13% 21% 22% 11% 16% 16% 27% 0% 20% 40% 60% 80% 100% 35% 31% 11% 10% 11% 38% 17% 21% Very desirable 5 4 Somewhat desirable 3 2 Not desirable at all 1 25 May 7, 2012

26 Mobile Remote Deposit Fee Income? 80% of FIs planning/considering mobile RDC (Celent) 65% of consumers "at least somewhat likely" to switch FIs for mobile services said that mrdc would be the main reason for the switch. (AlixPartners) US Bank charges $.50 per mobile deposit "We haven't seen any negative impact of the fee on adoption and usage." --Niti Badarinath, SVP First Tennessee also charges a fee for mrdc 26 Mobile Remote Deposit Capture: Putting a Price on Convenience By Olivia LaBarre

27 27 Why Mobile Remote Deposit? The average checking account cost FIs $349 in 2011 (Moebs Services) But average revenue/account is $268, a loss of $81. Half of checking-account costs is overhead of branches and ATMs Teller labors costs rising while volume of checks in branch are declining, resulting in higher per-check costs for FI. The fewer checks the average member must deposit, the more inconvenient it is rearrange day and take time to deposit each at a branch.

28 28 Why Mobile Remote Deposit?, cont d Mobile remote deposit costs less than branch deposit. $.94 (mrdc) vs. $1.66 (branch) Majority of smartphone owners want mobile remote deposit right now. 40% of smartphone owners desire mrdc 50% of iphone owners desire mrdc 25% of all consumers desire mrdc. Numbers rising fast with mainstreaming of smartphone adoption

29 Physical Check Deposits Expensive 29 May 7, 2012

30 Cost Savings of Mobile Deposits 30 May 7, 2012

31 Real Time, Specific Error Feedback Give users detailed feedback to ensure ease and accuracy. Cut Corners Message: Please retake the photo ensuring all 4 check corners are in the photo Extreme Contrast Message: Please retake the photo with less shadows Insufficient Light Message: Please retake the photo with better lighting Note: MICR line and account holder information purposely blurred

32 The Truth about Remote Deposit Risk While over 13% of checks are remotely deposited, RDC items comprise only.01% of check fraud reported to FinCen between 2005 and There were no real differences in the various fraud and money laundering schemes perpetrated through the RDC check deposit channel when compared with the check deposits completed through more traditional means. Overall, RDC-related filings have been minimal, and they comprise a miniscule portion of all check-related bank SARs.

33 Streamline Branch Delivery 33

34 Free Checking Isn t Cheap for Banks ; American Banker; By Victoria Finkle; DEC 9, :56pm ET 34 The Cost of Free Checking

35 Teller Expenses Rise, Transx Decline 35 May 7, 2012

36 Zombie Branches 18% (nearly 16,000) of U.S. branches face closure over the next three years. (Novantas) 2/3rds (11,000) could be salvaged by other FIs Zombie branches do not do enough business to justify their existence and the chances of revival are slim-to-none under current ownership. 1 out 3 community bank branches are zombies Among community banks with 1-10 branches Opportunity for credit unions w/ lower overhead Getting Rid of Zombie Branches ; By DAVE KAYTES AND KEVIN TRAVIS; Dec 29, May 7, 2012

37 Branches at Risk 37 Getting Rid of Zombie Branches ; By DAVE KAYTES AND KEVIN TRAVIS; Dec 29, 2011

38 Adequate density of coverage 38 Getting Rid of Zombie Branches ; By DAVE KAYTES AND KEVIN TRAVIS; Dec 29, 2011

39 Are you dense? 39 Getting Rid of Zombie Branches ; By DAVE KAYTES AND KEVIN TRAVIS; Dec 29, 2011

40 Avoiding Total-Loss Closures Targeted branch sales Retrench around core market/member base In-market consolidation Grow members; reduce distribution capacity Exit entire markets Large cities; small rural markets? No regrets branch closures Marginal branches in low opportunity markets Isolated branches in good markets 40 Getting Rid of Zombie Branches ; By DAVE KAYTES AND KEVIN TRAVIS; Dec 29, 2011

41 Challenges to Closures/Consolidation Branch just not mature enough yet If new branch is growing slower than average, no reason to delay action. Fear of losing valuable members Does cost savings of closing branch far exceed potential loss of small number of profitable members? Media criticism CRA constraints Marginal branch profitability Is branch s risk-adjusted return less than the cost of the capital it requires? Framework for Branch Reductions ; by DAN SHANNON; 12/7/

42 Framework for Branch Reductions ; by DAN SHANNON; 12/7/ No Regrets Branch Closure

43 Branch Streamlining Pitfalls Massive network cuts based only upon individual branch profits. Don t discount or dismiss performance benefits of branches that operate within solid local networks Offer more convenience for members and carry more brand impact. 43 May 7, 2012

44 Future Role of the Branch 44 Branch Transformation: Strategies to Position Your Branch Network for the Future by Chris Gill with Diebold; IBAT TechMecca; January 2012

45 Branch of the Future 45 Branch Transformation: Strategies to Position Your Branch Network for the Future by Chris Gill with Diebold; IBAT TechMecca; January 2012

46 Image ATMs & Dialog Towers 46

47 Cost Benefits of Branch Optimization Minimize transactional to maximize relational Reduce member wait times Improve employee performance Quickly identify coaching and incent top performers Efficiently allocate manpower and distribute workloads With image ATMs, cash recyclers, etc. can reduce 1-3 FTEs per branch 47 SOURCE: FMSI, Financial Management Solutions, Inc.

48 Fee Income Opportunities

49 Fee Potential: Direct Deposit Advance 49 SOURCE: The Case for Direct Deposit Advance by Aite Group FEBRUARY 2012; Ron Shevlin; Gwenn Bezard; Judith Fishman 2012 Jack Henry & Associates, Inc. All Rights Reserved.

50 Consumer Fee Opportunities

51 Statement/Merchant Rewards 51

52 Embedded Coupons Online transaction list pages estatements Potential new revenue streams for FI Good member relations

53 Embedded Bill Analysis Within statement, users can enter profile info to receive personalized bill analysis Wireless, TV, Gas, Insurance & More

54 Soon to Come Purchase Rewards at merchants at which members like to shop Social Enabled Rewards to make merchantambassadors out of members Purchase Insights based on transactions and social benchmarking of member spending Geo-enabled Rewards to deliver value to members on things they love nearby

55 Geo-Enabled Mobile Rewards

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57 Alerts, Alerts, Alerts 57 May 7, 2012

58 6 in 10 Consumers Consider Alerts Useful Usefulness of Alerts to Detect Fraud and Manage Finances All consumers Click to edit Master title style 0% 10% 20% 30% 40% 50% 60% 70% Percent of consumers Useful Not useful 58 Q39: How would you rate the usefulness of financial alerts in helping you detect fraudulent activity or manage your finances? On a scale of 1 to 5, let 1 represent "Not useful at all" and let 5 represent "Extremely useful." November 2011, n= 5,494 Base: All consumers, all consumers who have received a financial alert Javelin Strategy & Research

59 Top 5 Alerts Valued by Moneyhawks Warning that an overdraft is about to occur Notification of a large withdrawal or purchase Notification when balances fall below a pre set level Notification when a bill is due or has been paid Confirmation of a deposit Q38: If you were given the ability to receive alert messages (either by e mail or SMS) from your primary bank on your immediate financial status, which of the following would be of value to you? (Select up to three) Top five reasons only, other options apply. 22% 22% 23% 25% 24% 28% 28% 35% 37% 40% 0% 10% 20% 30% 40% 50% Percent of consumers Moneyhawks All consumers November 2010, n= 5,494, 1,499 Base: All consumers, all consumers who have received a financial alert Javelin Strategy & Research Javelin Strategy & Research s Interactive Financial Alerts 2011: Using SMS and E mail Alerts Bundles to Drive Profitable Banking Behaviors 59 May 7, 2012

60 Alerts Bundles that Boost Income 1. Free basic alerts boost adoption of mbanking 2. Real time alerts augment credit monitoring 3. Bill pay alerts that trigger convenience fees and boost expedited payments 4. Alerts that deliver or augment merchant based offers, creating revenue sharing opportunities 5. Real time, actionable overdraft alerts that could create convenience fees Javelin Strategy & Research s Interactive Financial Alerts 2011: Using SMS and E mail Alerts Bundles to Drive Profitable Banking Behaviors 60 May 7, 2012

61 Payments Opportunities

62 Who likes prepaid?

63 Javelin Stategy & Research: 2011 Prepaid Cards and Products: Expanding and Innovating for Mass Market Appeal ; April 2011 Gen Y Uses Prepaid 63

64 Javelin Stategy & Research: 2011 Prepaid Cards and Products: Expanding and Innovating for Mass Market Appeal ; April 2011 Underbanked Used Prepaid More 64 May 7, 2012

65 "Through the marketing of prepaid and credit cards, FIs can recoup [more than] half of the anticipated lost debit interchange revenue without charging additional fees.." Ron Shevlin, Aite Group

66 Prepaid Growing Aggressively Prepaid debit and payroll card market expected to grow from $44B in 2009 to $164B by 2014 Prepaid users expected to increase from 5.2M in 2009 to 12.4M in % of US households are unbanked or underbanked 70% of employers favor sourcing a payroll card program from their FI Emerging competition from non-fis 66 May 7, 2012

67 Prepaid Value Added Services 67 May 7, 2012

68 How are prepaid cards and merchant rewards related?

69 Business Fee Opportunities

70 The Opportunity & The Challenge The Opportunity U.S. small businesses spend $500B on financial products each year The Challenge Understanding and meeting their needs The Solution Knowing what they want and will pay for Training staff to better understand business needs Broaden products/service to meet those needs Leveraging right tech to improve SMB access 70 May 7, 2012

71 71 Advanced Small Biz Online Banking Source: Aite Group surveys of 100 U.S. community banks, May to July 2011

72 SMBs Still Served as Consumers Source: Aite Group survey of 100 U.S. community banks, May to July May 7, 2012

73 Small Business Market Opportunity Anemic Penetration of Business Accounts by Mid-Size FIs A lack of focus on treasury management products and sales is preventing mid-size FIs from realizing the potential of their commercial deposit franchises. % of Commercial Checking Accounts 2007 Median 2010 Median Internet Cash Management 6.53% 6.94% Commercial Bill Pay 1.35% 0.94% ACH 0.02% 2.15% Sweeps 1.39% 1.25% Positive Pay N/A 0.20% SOURCE: The Cornerstone Report: Benchmarks & Best Practices for Mid-Size Banks May 7, ProfitStars. All Rights Reserved.

74 So, what is true small-business online banking?

75 Micro Cash Management Online payroll 75 Calculation of tax withholdings Integrated tax payments Electronic invoices & receivables mgt RDC, ACH, Wires, P2P, B2B (SMB BillPay) Mobile account alerts/authorizations QuickBooks/accounting integration Real-time transaction information Tiered access authority/permissions

76 76 May 7, 2012

77 49% of businesses willing to pay for mobile access --Aite 77

78 Small Business Mobile Usage 78 38% of small business decision-makers use smartphones or tablets to help manage their businesses each day. The larger the small business, the more likely the small business decision-maker uses smart devices to run operations: 28% among those with one to four employees 36 percent for those with five to 19 employees 63% for those with 20-plus employees When it comes to mobile business applications, 41% say they are interested in using apps such as mobile banking, member relationship management (MRM), risk management, payroll management, etc. National Poll Reveals Small Business Mobile Technology and Social Media Trends GIS News; January 27, 2012

79 79 Basic vs. Advanced SMB Mobile Source: Aite Group surveys of 100 U.S. community banks, May to July 2011

80 What s Next? 80 May 7, 2012

81 Strategies Exploit cost-efficiencies of e-channels Online, Mobile, Alerts Evolve branches to improve relational over transactional Serve business members Majority of SMBs not being served Businesses represent easiest fee opportunities Capture new segments/fees with prepaid

82 Solutions and Approaches Offer merchant-funded rewards Tap data to know your members OFM analytics; target messaging Personalize online/remote channels Widgets; Live Chat; Video over IP? Make a choice Follow vs. Differentiate; Free vs. Fee; On Behalf Of vs. Empower

83 Lee Wetherington, AAP