How Banks will Generate Revenue on Payments and Checking in the New Era

H B k ill G t RH B k ill G t RHow Banks will Generate Revenue on How Banks will Generate Revenue on Payments and DDA in the New Era Payments and DDA in the New Era yy

BAI Payments Connect ConferenceModerator:

David Kerstein, Peak Performance Consulting Group

P li t :Panelists:

James Allen, Broadway Bank

Alex Calicchia, MidSouth Bank,

Dominic Venturo, US Bank

AgendaAgenda

IntroductionsTh b i l tfThe burning platform: impact of Reg E changeschangesIndustry surveyWhat to do?Near term impactLonger term issues: what will it mean?

Q&AQ&A

© 2010 Peak Performance Consulting Group © 2010 Peak Performance Consulting Group -- Page Page 11

IntroductionsIntroductions

David KersteinPresidentPeak Performance Consulting [email protected]

Jimmy AllenJimmy AllenGroup EVP, Retail BankingBroadway Bankjallen@broadwaybank [email protected]

Alex CalicchiaEVP and Chief Marketing OfficergMidSouth [email protected]

Dominic VenturoChief Innovation Officer, Retail Payments SolutionsU.S. [email protected]


Scary times!Scary times!

Up to 70% of non-interest feeUp to 70% of non-interest fee income at stake

Solicitation for webinar on industry websitey

Free Checking Could Go the Way f F T t ”of Free Toasters”

Article headline

Sweeping Away Free Checking?

Article Headline


New Reg E optNew Reg E opt--in rules: everything changesin rules: everything changes

The facts:Without positive opt-in cannot chargeWithout positive opt in, cannot charge overdraft fees that occur as a result of ATM or Debit transactions (some exceptions)Opt-in required for new customers effective

Survey RespondentsJuly 1; existing customers August 15Significant revenue at risk, impacting fundamental profitability of checking accounts

R lit h k d 100 i d t17%

Survey Respondents

Reality check – surveyed over 100 industry leaders

111 Respondents83% were Bank or Credit Union executives

9% Bank

Credit Union83% were Bank or Credit Union executivesOver 50% were C-level executivesSurvey conducted in first 2 weeks of February, 2010

74%Credit Union

Consultant, Supplier

0 0


Most think the impact will be in the 10Most think the impact will be in the 10--20% range20% range

Impact of Reg E Changes on OD/NSF Income

15%Over 30%

24%20-30%

38%10-20%

6%

16%

Mi i l I t

Less than 10%

6%

0% 10% 20% 30% 40% 50%

Minimal Impact

% % % % % %

© 2010 Peak Performance Consulting Group - Page 5

Our analysis confirms 15Our analysis confirms 15--20% impact for most 20% impact for most banksbanks

Number of NSF/OD’s

% of Total DDA Accts

% Total NSF/OD

EFT or ATM only

Impact assumingNSF/OD s DDA Accts NSF/OD

Incomeonly –

% Incomeassuming60% Opt-in

No NSFs 74% 0 0 01 to 4 12% 3% 1% <1%5 to 9 5% 9% 4% 2%10 to 19 4% 18% 7% 3%10 to 19 4% 18% 7% 3%20+ 5% 70% 29% 12%TOTAL 100% 100% 41% 16%

Source: 2008 FDIC Study of Bank Overdraft Programs, Peak Performance Analysis

S “ t i ” l bl th thSome “opt-ins” are more valuable than others: 9% of customers generate 78% of fee income


It’s not over: more restrictions comingIt’s not over: more restrictions coming

Do You Believe There Will Be Additional Regulation Negatively Impacting DDA Revenue?

70%More restrictions coming

30%Opt In Rules are all we'll get

0% 10% 20% 30% 40% 50% 60% 70% 80%

Survey Comments: potential risk areasSurvey Comments: potential risk areasDebit interchange Regulators will impose more restrictions“While Dodd Bill may not pass other legislation likely Banks areWhile Dodd Bill may not pass, other legislation likely – Banks are strong populist target for both parties”


Implementing OpImplementing Op--In Rules: Most still formulating In Rules: Most still formulating plans (survey conducted Feb. plans (survey conducted Feb. 11--15)15)

How are you implementing Opt-In rules?

25%

41%

Prioritizing efforts agains high users

Handling everything in-house

24%

25%Contacting all customers

14%

24%

Using vendors to collect and certify opt-in's

Using vendors for communications

5%

0% 10% 20% 30% 40% 50%

Using vendors for telephone campaigns

0% 10% 20% 30% 40% 50%

Does not add to 100% due to multiple answers


“What actions will your bank take to address decline “What actions will your bank take to address decline in deposit fee income”in deposit fee income”

Actions My Bank Will Take

25%

14%

Add or increase fees

Eliminate Free Checking

35%

34%

Focus on Bus. Banking

Reduce expenses

43%Sell new optional fee services

55%

47%

Revise DDA Accounts

Increase emphasis on Debit

57%

0% 10% 20% 30% 40% 50% 60% 70%

Increase cross-sell efforts


Most believe industry will add fees and eliminate Most believe industry will add fees and eliminate free checking free checking –– but not their bank!but not their bank!

“What actions will your bank take?” compared to “What actions will most banks take?”

75%Add or increase fees

Largest Gap: My Bank vs. Industry

25%

46%Eliminate Free Checking

Add or increase fees

14%

68%Sell new optional services

Eliminate Free Checking

IndustryMy Bank

43%

48%Reduce Expenses

Sell new optional services y

34%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Reduce Expenses


Who will be the winners in the new environment? Who will be the winners in the new environment?

Agree or Strongly Agree

Credit Unions

Community Banks

Large Banks

0% 10% 20% 30% 40% 50%

Non-banks (e.g. PayPal)

0% 10% 20% 30% 40% 50%

Survey Comments:“There’s room for everyone”“Execution is key, not type of institution”

page page 1111

What to do? Five Categories of OptionsWhat to do? Five Categories of Options

R i f f R t t I t N I S lRaise fees for existing services

Re-structure Existing

Checking Accounts

Innovate New Products

Improve SalesAnd Relationship

Management

Reduce Operating Cost


What do we need to do? What is impact? What do we need to do? What is impact?

Agree or Strongly Agree

78%

81%

Increase investment in new payments

Need to innovate new DDA products

71%

78%

Need to invest more in CRM

technology

63%Bank mergers will increase

42%

Reduce distribution costs/close

Doom and Gloom is overstated

36%

0% 20% 40% 60% 80% 100%

Reduce distribution costs/close branches

% % % % % %


How some banks are approaching the new realityHow some banks are approaching the new reality

Stop selling Free Checking

Impose new fees

Value added, fee based, insurance services to enhance products

Early Access program, “overdraft on request”

Fee based premium features with “Build To Order Free Checking”

Innovate new products: Virtual Wallet cash management checking


BBVA Compass: Build to Order Free CheckingBBVA Compass: Build to Order Free Checking


PNC Virtual WalletPNC Virtual Wallet


Top Five TakeTop Five Take--AwaysAways!!

1. Enormous revenue is at risk – management of the opt-in process is critical

2. It won’t get easier: deposit fee income will continue to be under pressure, and more restrictions are likely

3 It’s not a revolution but an evolution: most banks won’t impose3. It s not a revolution, but an evolution: most banks won t impose significant new fees or completely eliminate Free Checking

4. There is no silver bullet: banks need to re-focus on building fit bl l ti hi It’ b t t ll “F ” d kprofitable relationships. It’s been too easy to sell “Free” and make

money on fees. You need to have the right technology (CRM at the point of customer contact), effective on-boarding, and strong

l t dsales process to succeed. 5. Product innovation – and a culture of innovation, testing, and

continuous improvement – is critical in this new and uncertain penvironment


More information?More information?

David KersteinPresidentPeak Performance Consulting [email protected]

www.peakconsultinggroup.com


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How Banks will Generate Revenue on Payments and Checking in the New Era

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