Actionable Insights From APT's Financial Services Practice

Author Archives: Jarred Brown

Closing Branches While Opening New Doors to Customers

February 7th, 2011 | Posted by Jarred Brown in Uncategorized - (Comments Off on Closing Branches While Opening New Doors to Customers)

Many banks are now closing branches they acquired in FDIC-backed deals, as a recent American Banker article highlights.  The decision to close branches is often made too quickly and with too little information, and banks need to improve their decision-making process when closing branches.

Certainly, as the article states, sometimes the decision to close branches is “based on a lack of scale.”  But there are many instances in which banks close branches in more central portions of their network, often for reasons of low performance or consolidation.

When deciding which branches to close, there are two key questions: (1) What impact will this have on the bank’s ability to originate new customers in the market? and (2) How will existing customers respond? (more…)

What to Do with Unprofitable Customers

January 11th, 2011 | Posted by Jarred Brown in Uncategorized - (Comments Off on What to Do with Unprofitable Customers)

Every bank has a significant number of unprofitable customers that hurt performance.  A recent Banking Strategies article cites that “5% of customer relationships are extremely unprofitable.”  It is critical to address this issue and find ways to make these accounts profitable.

There are two main ways to approach this problem.  The first is to increase fees or reduce deposit rates.  This will either make those accounts more profitable or remove them through attrition.  The second is to have targeted efforts that encourage those customers to grow their relationship, for instance by increasing balance or signing up for more profitable products and services.

The right approach will vary by customer.  For a newer, high income customer with only one product, the best strategy could be to assign a relationship manager to cross sell additional products.  For customers that have been with the bank for a long time and consistently have a low balance, it may be better to add a monthly fee or reduce rates.

Different strategies should be tried with a subset of customers that represents a wide range across different factors – income, tenure, number of products, balance levels, etc.  Segmenting response across these characteristics will identify the best approach to improve profitability for each customer segment.

After this initial customer segmentation, banks should continue to update the list of unprofitable customers and should continue testing new strategies to improve profitability.

Click to read about how to improve checking account profitably.

Survive the Net Interest Margin Squeeze

November 10th, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Survive the Net Interest Margin Squeeze)

A recent article in American Banker highlights how net interest margin will likely decrease going forward and has already started to decline for some banks.  It will be important to address this, but “banks are quickly running out of opportunities to reduce deposit costs and improve their own funding costs.”

With limited options on the deposit side, banks need to start findings ways to improve net interest margin on the loan side.  However, since loan demand has been weak, rock bottom rates have been necessary to remain competitive.


Citibank Raises Account Fees

September 1st, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Citibank Raises Account Fees)

Citibank recently increased non-Citi ATM fees and announced a new checking and savings account structure with steep fees for accounts that don’t maintain a minimum balance.  With these sweeping customer-facing changes, they appear to be leading the way in trying to make up for lost fee revenue (read our earlier article detailing how banks need a new strategy to make up for lost fee revenue due to new regulation).

Other banks are going to need to catch up to stay competitive in the marketplace.  But what’s the best approach?  If you raise rates, how will your customers respond?  Will added revenue from the new fees offset potential customer attrition?  And what’s the optimal fee level?

Like it or not, Here Comes Wal-Mart

July 23rd, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Like it or not, Here Comes Wal-Mart)

Wal-Mart is continuing to expand into financial services, and banks are getting increasingly worried.  A recent CNN article highlights how Wal-Mart is likely to do what it is best at – lowering costs.  In an environment where fee revenue is already under pressure, “Wal-Mart estimates it can take in its still-generous fees while reducing what the average check-cashing customer pays by 25% to 50%.”

Wal-Mart will undoubtedly continue the downward pressure on fees.  However, while the retailing giant is another competitor to worry about, the fee revenue issue is not specific to Wal-Mart and needs to be addressed more generally.  Wal-Mart is not the only financial service provider with lower fees.  ING, for example, doesn’t charge overdraft fees at all and instead only charges interest while accounts are overdrawn.

While many banks are focused on the best strategy to address new regulation, we have seen that very few have thought more broadly about how to preserve and maximize fee revenue.  The bank that wins against Wal-Mart will also beat the competition in general.  This will require the development of a more tailored approach to determine the right fee amount and fee policy for each customer. (more…)

Launch the Killer New Product

May 25th, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Launch the Killer New Product)

Consumers are demanding more, and regulators are stripping away key sources of revenue. It makes for a tough combination. One strategy every bank needs to pursue to face these challenges is to launch new products that attract new customers and to find ways to preserve revenue.

In a recent Banking Strategies article, Joseph Guyeaux (President of PNC) says “times like these – when the industry grapples with credit issues and heightened regulatory oversight – are precisely when banks need to carve out a differentiated value proposition and focus on sources of future growth.” However, it is challenging to determine which new products work and how to most effectively market them. (more…)

Bank of America’s Shocking Announcement

March 18th, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Bank of America’s Shocking Announcement)

Many banks have acted in anticipation of overdraft legislation that takes effect on July 1st, but Bank of America’s response was the most dramatic yet. Bank of America announced that it would eliminate overdraft fees for purchases made with debit cards. The New York Times highlighted that this “could cost the bank tens of millions a year in revenue and put pressure on other banks to do the same.”

Will this strategy improve customer satisfaction and, more importantly, will this translate to increased retention, balances, and spread revenue? Bank of America will need to determine if these benefits outweigh the lost fee revenue. (more…)

Keeping Credit Card Revenue Alive

January 22nd, 2010 | Posted by Jarred Brown in Uncategorized - (Comments Off on Keeping Credit Card Revenue Alive)

Banks are scrambling now to react to upcoming legislation and “try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.” A recent article in the Wall Street Journal focuses on the impact of new rules on credit card interest rates. New rules go into effect in February and “will limit some interest-rate increases, require more disclosure to customers, and prohibit banks from raising interest rates on current balances unless a customer is at least 60 days behind in a payment”.

As a result of these changes, credit card issuers are trying different approaches to generate revenue including account statement fees, watering down rewards programs, and fees for inactive accounts. The danger in all of these is that you risk losing customers. The challenge is in finding the customers where you can introduce these tactics without increasing risk of attrition. (more…)