Long-suffering time deposit account holders are hoping for better deals the next time their CDs mature. Bankers anticipate this and model their future interest expense by applying “beta” estimates at the time of deposit maturities in their modeling. “Beta” is the percentage of interest rate changes that must be passed on to the depositors to maintain funding Read More
Banks are investing in new technology to create omnichannel experiences for their customer but success has been limited. Why? For one thing, bankers overlook these wise words from Steve Jobs, the founder of Apple: “You’ve got to start with the customer experience and work back toward the technology – not the other way around.” In other words, Read More
Consumers have embraced their mobile devices to check balances, make payments and conduct other financial activities, giving marketers the ability to reach them more easily. But, to take advantage of this access, bank marketers need tools that create a personalized experience and anticipate customers’ needs in real-time. Financial institutions able to deliver a tailored experience with optimal Read More
Financial institutions are primarily focused on meeting the needs of Americans that fit into certain demographics. The rest of the population ends up as the underbanked – consumers with needs viewed as too costly, too risky or too difficult to serve. According to the FDIC, the collective population of underbanked Americans is approximately 34.4 million households, more Read More
There have been two significant pieces of recent regulatory guidance that will directly impact the overall administration of your institution’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. While these two regulations may seem, at first glance, to be unrelated, a more comprehensive review will reveal that they are very much tied together. As technology has changed, so Read More
As the likelihood of the Fed raising interest rates looms ever larger, it’s time for banks to consider the strategic implications of their time deposit funding portfolios, commonly referred to as certificates of deposit (CDs). A typical bank will have between 10% and 40% of their balance sheet in time deposits. The magnitude of dollars spent annually Read More
In the wake of the popularity of the American Sniper movie, it might be helpful for bankers to think of product development in terms of some key lessons learned from special operations warfare. Consider these key six tactics typically utilized by special operations teams: Purpose. Each mission has a purpose that the entire team understands. Does everyone Read More
Deposit pricing is challenging because it involves making assumptions about tomorrow. If your assumptions about the future behavior of your competitors and consumers are false, you will be making a very costly decision today. To avoid this, you need to ensure that your deposit forecasting model is based on scientific and empirical principles that ensure reliable results. Read More
In a recent article for BAI Banking Strategies, I broached a theory that deposit rates start rising prior to an anticipated increase in the Fed funds rate because of our tendency to try to outdo the competition. To test the validity of this assumption, I asked readers to participate in an exercise in behavioral finance, requesting that Read More
Ahead of any rise in interest rates, financial institutions continue to hunt for new revenue sources, first from retail fees and second by increasing minimum deposits on time accounts. It’s time to consider flipping those priorities and focusing on raising deposit minimums to make up for shortfalls in fee revenue. Industry-wide, fee income has been trending down, Read More
While bankers historically have been focused on driving growth, the reality is that not all growth creates sustainable value or profits for banks. In fact, some industry estimates suggest that up to 40% of a bank’s customers may be unprofitable to their institutions. This underscores the level of complexity involved in effectively evaluating and managing profitability as Read More
Twice in the past twenty years we experienced a cycle of decrease and increase in the Fed funds rate. And in both cases, institutions started increasing their rates slowly and gradually a few months before the Fed actually started increasing the funds rate. The most recent event occurred in anticipation of the Fed funds rate that took Read More
The Federal Reserve has signaled that rising interest rates might be on the way, raising the risk that community banks’ margins will be squeezed in the future. Help is available, though, and it comes from a somewhat surprising source: high-yield, reward-based checking accounts. While many banks use certificates of deposit (CDs) to mitigate rate increases, that’s a Read More
Bankers continue to see pressure on net income and many are attempting to improve results by reducing expenses and maximizing fee income. In doing so, they are being reminded of just how hard it is to squeeze more net income out of current period revenue. The traditional assumption is that improving profitability means expense reductions. A better Read More
“Overdraft fees should not be ‘gotchas’ when people use their debit cards,” said Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), after the regulatory agency published its most recent report, “Data Point: Checking Account Overdraft.” The study states that most overdraft fees result from debit card purchases for amounts under $24 and are repaid within Read More
Half the world’s adults, over 2.5 billion people, do not have a formal bank account, according to the World Bank. In the United States, the segment of financially underserved consumers is substantial, whether they fall into the unbanked or underbanked categories. According to the FDIC, this seemingly high-risk group makes up over 10 million households across America. Read More
A new year is time for new resolutions. And for many banks, that means resolving to make their operations run leaner and better, at less expense. But that’s easier said than done, as many banks this year have struggled with efficiency ratios in the face of slow revenues. Case in point: The efficiency ratio at 230 banks Read More
As the financial services industry emerges from the great recession and adapts to the new regulatory and slow-growth environments, financial institutions are being pressured to find new ways to generate revenue. The data that financial institutions hold is incredibly valuable and leveraging it to attract and retain business may be one of the best ways for institutions Read More
Financial institutions (FIs) determined a long time ago that it was hard to earn a profit making consumer loans for a few hundred dollars. As Mark Pearce of the FDIC commented in 2012 on reviewing the FDIC’s Small Dollar Loan Pilot started in 2008, “the interest income and fees generated were not always sufficient to achieve short-term Read More
So, when was the last time you went to a meeting and the subject of cross selling didn’t come up? In all likelihood, the conversation turned to the results of the latest cross-selling campaign, the plan for the next one and the projected return on investment (ROI). While we’re all keenly aware of the opportunities cross selling Read More
