Actionable Insights From APT's Financial Services Practice

Win the Business of Mass Affluent Customers

December 8th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Win the Business of Mass Affluent Customers)

As banks struggle to maintain revenue and profitability with low rates and increased regulation, mass affluent is a segment where banks can achieve success in this difficult environment. For example, Bank of America recently reported strong growth in mass affluent despite the significant challenges in retail banking right now.

In fact, A relatively small percent of customers have always driven the majority of profit for banks.  However, this is even more true today as it becomes harder to make money from customers with smaller relationships (due to shrinking debit card and overdraft fees).  All banks are competing fiercely for these mass affluent customers and the larger, more profitable relationship they bring to the bank.

How can you win the business of these valuable customers?  With the current rate environment, banks cannot easily provide the special pricing that has worked in the past, and the offer would not be that compelling to most customers anyway.  For example, providing a significantly high deposit interest rate may only mean 20 basis points. But banks can still achieve success by focusing on excellent service for these customers and rewarding and recognizing their loyalty. (more…)

Are Banks the Villains and Wal-Mart the Hero?

November 21st, 2011 | Posted by Patrick O'Reilly in Uncategorized - (Comments Off on Are Banks the Villains and Wal-Mart the Hero?)

The New York Times published an article last week about Wal-Mart gaining traction for its banking services because of customer dissatisfaction with bank fees. If you missed it, it’s available here.

A banker reading the article must have thrown up her hands in disbelief. Wal-Mart, the company everyone usually loves to irrationally bash, is lauded for offering a debit card for a $3 monthly maintenance fee, while Bank of America is teetering on a Congressional inquiry for its $5 monthly fee! Moreover, customers love the $3 fee per check cashed that Wal-Mart charges. We can only imagine what would have happened if B of A announced that same fee.

How could banks see such a maelstrom for the same fees that Wal-Mart and other entities would charge? More importantly, what should banks do about it? (more…)

Avoid Being the Netflix of Banking

November 7th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Avoid Being the Netflix of Banking)

This past week, after significant backlash and immediate customer response, Bank of America announced that it will cancel its plans to charge monthly debit card fees. Several other banks with similar plans quickly followed suit.

There was no way to predict the magnitude of this outcome.  Banks have been increasing checking account fees, and while there has been some negative reaction, the response was not even close to what was seen with debit card fees.  The new fees also seem logical and defensible.  Banks have always provided this service for free but can no longer do so now that debit card transactions are unprofitable with lower interchange fees.

But the response was larger than most expected, and it will be very difficult to win back customers after they have left.  To see an extreme example of the cost of making just one bad decision, take a look at Netflix.  In a short amount of time, the decision to split the DVD and streaming business resulted in three million customers (over 10% of subscribers) leaving.

It is essential to de-risk the decision making process by trying new ideas in a very limited subset of the network.  JP Morgan Chase and Wells Fargo both tested new debit card fees in just a few markets before making any sweeping changes.  They decided not to roll out the new fees and have emerged largely unscathed.

Banks will continue looking for ways to plug revenue holes.  Some new tactics will work, while others will have drastic consequences.  These decisions are too important to be unsure of their precise impact before putting the business at risk.

How to Make the Most of the Mobile Landscape

October 25th, 2011 | Posted by FedCohen in Uncategorized - (Comments Off on How to Make the Most of the Mobile Landscape)

This past month, American Banker noted that many banks have found their online and mobile banking services are not providing a great user experience. The banks discussed have begun experimenting with different features and different pricing options for those features. As the article outlines, 8 of the top banks in the US are each spending approximately $100 million on these new web and mobile offerings.

New web and mobile services are great opportunities to improve customer satisfaction and retention and could even provide opportunities to increase fee revenue. Most web offerings currently allow for little more than routine tasks, but many banks are realizing that customers are looking for new types of tools and additional flexibility in how they manage their accounts. In light of this, banks are considering innovative features, such as: (more…)

Fiery Backlash from Debit Card Fees

October 15th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Fiery Backlash from Debit Card Fees)

Last Thursday, Bank of America announced it will begin charging a $5 monthly fee for debit card users with a basic checking account.  Many banks are still looking for ways to make up lost revenue due to the Durbin Amendment, which slashed debit card interchange fees.

This announcement was immediately followed by significant backlash. The Washington Post reported that “Bank of America got pummeled by investors and its customers Friday” and “saw its stock fall more than 2 percent in late-morning trading.”

We wrote about this topic two months ago, expressing that banks should follow the lead of Wells Fargo and Chase – testing new debit card strategies before implementing them.  While the initial press and stock price reaction may not have long term consequences, there is a real risk that these fees will drive customers away and ultimately hurt profitability.  This is why we argued that banks should try these new approaches first in a limited risk way to make sure it will work before rolling it out across the network.

Fee hikes are always difficult decisions to make.  Spread revenue is very low right now, and regulation is squeezing fee income.  But it is hard to anticipate the reaction to a new strategy and understand all of its potential consequences.  Despite the difficult environment, banks should be patient and test new ideas first to make the best decisions possible.

The Writing is on the Wall: Some Customers Shift to Exclusively Mobile Banking

October 4th, 2011 | Posted by CGiese in Uncategorized - (Comments Off on The Writing is on the Wall: Some Customers Shift to Exclusively Mobile Banking)

Market research firms comScore and Nielsen report that, in 2011, the number of customers using mobile banking rose 54% over last year to 30 million. comScore also explains that in a recent study of ~1,000 customers, only 10% report accessing their financial accounts by visiting a brick and mortar branch.

As part of this shift, exclusively online banks, for instance ING Direct and Ally Bank , have seen growth over the past year, a result due in part to increased use of smartphones, streamlined data plans, and a backlash against higher fees at traditional banks. Because of their lower overhead costs, these online banks are able to offer expanded services, like a surcharge free ATM network, accounts with higher checking and savings yields, and lower fees.

Traditional banks need to be proactive in order to be competitive with exclusively online banks, rather than scrambling to react to it after it’s already in place. (more…)

BoA Sells 700+ Branches: What Should You Do?

September 19th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on BoA Sells 700+ Branches: What Should You Do?)

The Wall Street Journal recently published an article discussing Bank of America’s announcement that it plans to cut $5 billion in expenses throughout 2012.  In addition to cutting a significant number of jobs, Bank of America will also sell over 700 branches and their attached assets.

Many large banks are beginning to look for ways to streamline their operations in an effort to deal with uncertain market conditions, increased regulation, and decreased or flat revenues. These banks may cut costs by reducing the number of branches, particularly as more customers are turning to online and mobile banking.  On the other hand, some banks may view this as an opportunity to grow their footprint and pick up valuable assets at reduced cost.

Banks looking to reduce branch count need to identify which specific branches to close or sell to minimize financial impact to the network. (more…)

Make the Most of Innovation in Channel Development & Channel Integration

September 6th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Make the Most of Innovation in Channel Development & Channel Integration)

Banking Strategies recently published an article on the need for financial institutions to innovate, as we discussed in an earlier article. One area of focus mentioned in the Banking Strategies piece is channel integration and the development of growing channels, for instance online and mobile.   In this particular area, banks are making significant investments, but opportunities to better target channel investments going forward also exist.

The Banking Strategies article highlights the idea that increasing customer engagement across channels, particularly digital channels, “can contribute significantly to enhance the customer experience.”  This is a commonly heard theme, but few banks actually know how increased engagement affects key metrics like retention and number of accounts per customer.  Do customers actually become more likely to stay with the bank or open additional accounts? (more…)

How to Maintain Debit Card Profitability

August 22nd, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on How to Maintain Debit Card Profitability)

In response to the passage of the Durbin Amendment, banks having been considering a variety of ways to offset lost interchange revenue.  CNN recently reported that some leading banks are now testing a monthly fee for debit card usage.

For example,  at the end of last year, JP Morgan Chase began a test “in which it charged customers in northern Wisconsin a $3 fee for using their debit cards.”  Now Wells Fargo is planning to test a $3 monthly debit card fee in select markets starting on October 14th.

JP Morgan Chase and Wells Fargo are taking the right approach by testing this new strategy to see how it works with a limited set of customers before rolling it out more broadly. (more…)

Pricing Strategy After the Fed’s Latest Announcement

August 15th, 2011 | Posted by Will Weidman in Uncategorized - (Comments Off on Pricing Strategy After the Fed’s Latest Announcement)

A recent article in American Banker discusses how banks are now scrambling in the wake of the Fed’s announcement that rates will remain unchanged for two years.  While there is much uncertainty, a few things are likely to occur.  For example, American Banker points out that “banks may be unable to expand net interest margin until 2014.”  It is also likely that already low interest rates will be pressured even lower.

Banks need to be thoughtful about how they adjust rates.  One particular area of opportunity is relationship-based pricing to cross sell to existing customers.  Banks often talk about taking a more customer-focused view, and this is a great opportunity to put that into practice.

Relationship-based pricing is a way to provide a more attractive rate to customers who meet certain criteria.  For example, a customer who has maintained at least $10,000 in a checking account, has been a customer for over a year, and has a certain income level may qualify for the offer.  The offer could be an extra 25bp above the typical rate for a money market account or 25bp below the best advertised home loan rate.

Providing select customers with this type of offer has two key potential benefits – 1) the customer brings more money to the bank, and 2) the customer would have left the bank but now stays.  Even in the worst of rate environments, it is important to keep in mind that pricing can be an effective tool to keep customers and deepen the relationship with customers.

On the other hand, there are risks with offering special pricing to customers.  (more…)