Maximizing Non-Interest Income
March 20, 2012
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Introduction of CAST
Non-Interest Income Industry Overview
Areas of potential opportunity to increase fee revenue
Closing Statements
Question and Answer
Introduction of CAST
Non-Interest Income Industry Overview
Areas of potential opportunity to increase fee revenue
Closing Statements
Question and Answer
AGENDAAGENDA
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REPRESENTATIVE CLIENTS AND PROJECTSREPRESENTATIVE CLIENTS AND PROJECTS
Operations Strategy
Distribution Channel Strategy
Shared Service Design and Implementation
Service Delivery Strategy
Competitive Analysis
Corporate Strategy Formulation and Implementation
Operations Strategy
Distribution Channel Strategy
Shared Service Design and Implementation
Service Delivery Strategy
Competitive Analysis
Corporate Strategy Formulation and Implementation
Staff Modeling, Process Improvement and Reengineering
Organizational & Process Design
Metrics Development and Performance Measurement
Service Quality Enhancement & Customer Service Reengineering
Fee Income Realization and Cash Management Practices
Channel Utilization & Optimization
Staff Modeling, Process Improvement and Reengineering
Organizational & Process Design
Metrics Development and Performance Measurement
Service Quality Enhancement & Customer Service Reengineering
Fee Income Realization and Cash Management Practices
Channel Utilization & Optimization
Technology Utilization and Effectiveness
Current Delivery System Capability and Needs Analysis
Evaluation and Systems Selection
Distribution Systems Study
Requirements Definition
Proof of Concept and Pilot Testing
Technology Utilization and Effectiveness
Current Delivery System Capability and Needs Analysis
Evaluation and Systems Selection
Distribution Systems Study
Requirements Definition
Proof of Concept and Pilot Testing
STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENTSTRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT ORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESS IT EFFECTIVENESSIT EFFECTIVENESSIT EFFECTIVENESSIT EFFECTIVENESS
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Recent regulations have greatly influenced banks’ noninterest income in a negative manner
1 Data Source: SNL Financial, “Banking: Industry Trends and Statistics,” 12/31/2011
Over time, non-interest income has become a increasingly large component of operating revenue Recent regulations have dramatically shifted the sources of Bank non-interest income. Some examples include:
Durbin Amendment: Caps the fees that banks can charge merchants on debit card transactions to 21 cents Regulation E Section 205: Requires banks and credit unions to have a customer’s permission to use the bank’s
non-sufficient fund automatic transfer services. This changed the NSF services from opt-out to opt-in CARD Act: Limits how credit card companies can charge customers
The resulting impact has been that Banks need to re-examine their sources of non-interest income and develop new ways to obtain lost income due to regulations
Over time, non-interest income has become a increasingly large component of operating revenue Recent regulations have dramatically shifted the sources of Bank non-interest income. Some examples include:
Durbin Amendment: Caps the fees that banks can charge merchants on debit card transactions to 21 cents Regulation E Section 205: Requires banks and credit unions to have a customer’s permission to use the bank’s
non-sufficient fund automatic transfer services. This changed the NSF services from opt-out to opt-in CARD Act: Limits how credit card companies can charge customers
The resulting impact has been that Banks need to re-examine their sources of non-interest income and develop new ways to obtain lost income due to regulations
INDUSTRY REGULATIONSINDUSTRY REGULATIONS
NON-INTEREST INCOME AS A PERCENTAGE OF OPERATING REVENUENON-INTEREST INCOME AS A PERCENTAGE OF OPERATING REVENUE
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Conceptually there are four ways to increase non-interest income . . .
Maximize the value of the existing customer base and pricing structure
Ensure that 100% of the revenue that can be collected is actually collected
Maximize the value of the existing customer base and pricing structure
Ensure that 100% of the revenue that can be collected is actually collected
REVENUE REVENUE EFFICIENCYEFFICIENCYREVENUE REVENUE
EFFICIENCYEFFICIENCY
Mitigate revenue loss resulting from inadequate controls, policies and procedures
Eliminate points of controllable or unintentional revenue loss
Mitigate revenue loss resulting from inadequate controls, policies and procedures
Eliminate points of controllable or unintentional revenue loss
REVENUE/COST REVENUE/COST RECOVERYRECOVERY
REVENUE/COST REVENUE/COST RECOVERYRECOVERY
Strategically restructure the product portfolio and pricing relative to target market needs
Adopt a new revenue / business model to address regulatory changes
Strategically restructure the product portfolio and pricing relative to target market needs
Adopt a new revenue / business model to address regulatory changes
REVENUE REVENUE RESTRUCTURINGRESTRUCTURING
REVENUE REVENUE RESTRUCTURINGRESTRUCTURING
Expand by entering new markets or through the introduction of new specific products targeted at specific market segments
Cross Sell to existing products to existing customers
Expand by entering new markets or through the introduction of new specific products targeted at specific market segments
Cross Sell to existing products to existing customers
REVENUE REVENUE EXPANSIONEXPANSIONREVENUE REVENUE
EXPANSIONEXPANSION
OPTIONS TO INCREASE REVENUE
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Senior Senior Management Management Support and Support and LeadershipLeadership
Senior Senior Management Management Support and Support and LeadershipLeadership
Effective Effective CommunicatioCommunication (Customer n (Customer and internal)and internal)
Effective Effective CommunicatioCommunication (Customer n (Customer and internal)and internal)
Commitment to Commitment to Pricing Pricing
StrategyStrategy
Commitment to Commitment to Pricing Pricing
StrategyStrategy
Link Link Performance to Performance to
Rewards Rewards SystemSystem
Link Link Performance to Performance to
Rewards Rewards SystemSystem
Realistic goal Realistic goal Setting and RM Setting and RM
Buy-inBuy-in
Realistic goal Realistic goal Setting and RM Setting and RM
Buy-inBuy-in
Access to IT Access to IT Resources – Resources –
Availability of Availability of DataData
Access to IT Access to IT Resources – Resources –
Availability of Availability of DataData
SUCCESSFUSUCCESSFUL PRICE L PRICE REVIEWREVIEW
SUCCESSFUSUCCESSFUL PRICE L PRICE REVIEWREVIEW
In our experience, success in maximizing non-interest income is dependent upon on six key factors . . . . most important of which is Leadership / Management Resolve . . .
KEY FACTORSKEY FACTORS
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The nature of revenue enhancement initiatives can be strategic or tactical and can be pursued independently or simultaneously . . .
SOURCES OF POTENTIAL REVENUE OPPORTUNITYSOURCES OF POTENTIAL REVENUE OPPORTUNITY
ReducedFee Leakage
Retooling of Products/Service Pricing Structuring
Expansion into new Markets or Products
Intentional WaiversWaived
Fees UnintentionalWaivers
Population Control Weaknesses
Unpriced ServicesOptimized Product Pricing & Processing
Product Processing and/or Structure
MAXIMIZE REVENUE MAXIMIZE REVENUE FROM CURRENT FROM CURRENT
PRODUCTS PRODUCTS &&
CUSTOMERSCUSTOMERS
STRATEGIC STRATEGIC RESTRUCTURE OF RESTRUCTURE OF RETAIL PRODUCT RETAIL PRODUCT
PORTFOLIO
ALTERNATIVE ALTERNATIVE FINANCIAL SERVICESFINANCIAL SERVICES(E.G. Under/ Under Banked , (E.G. Under/ Under Banked , Wells Fargo Direct Deposit Wells Fargo Direct Deposit Advance type product, etc.)Advance type product, etc.)
LostFees
Uncharged Fees
Reduced Principal & Fee Losses
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Deepening Relationships
There are a host of ways to increase non-interest income . . .
Treasury Services have become the glue that supports customer relationships in many segements/markets
Continued sales efforts often focus on “sales through service”
Incentives are not always aligned to overall bank strategies
Treasury Services have become the glue that supports customer relationships in many segements/markets
Continued sales efforts often focus on “sales through service”
Incentives are not always aligned to overall bank strategies
CROSS SELL CROSS SELL PRODUCTS & PRODUCTS &
SERVICESSERVICES
AREAS OF OPPORTUNITYAREAS OF OPPORTUNITY
Fee waivers, intentional and unintentional, or zero priced products can be costly
Inadequate controls and collection methods often result in uncollected fees
Client profitability is not always examined when making waiver decisions
Fee waivers, intentional and unintentional, or zero priced products can be costly
Inadequate controls and collection methods often result in uncollected fees
Client profitability is not always examined when making waiver decisions
REDUCE WAIVES REDUCE WAIVES AND FEE LEAKAGEAND FEE LEAKAGE
Bankers often misjudge “market pricing” and under
Opportunities to recover costs associated with special services can be signficant
Effective communication of price changes ensures field level buy-in and appropriate customer messaging
Bankers often misjudge “market pricing” and under
Opportunities to recover costs associated with special services can be signficant
Effective communication of price changes ensures field level buy-in and appropriate customer messaging
PRODUCT / PRODUCT / CUSTOMER PRICINGCUSTOMER PRICING
Charging / Capturing Fees
Some bankers approached fee revenue via individual projects vs as an ongoing process requiring continued attention Transactional data can be mined to identify product needs to demonstrate value and deepen relationships Competitive intelligence gleaned from won/loss analysis, customer and competitor interactions can provide rich
insights
Some bankers approached fee revenue via individual projects vs as an ongoing process requiring continued attention Transactional data can be mined to identify product needs to demonstrate value and deepen relationships Competitive intelligence gleaned from won/loss analysis, customer and competitor interactions can provide rich
insights
DEVELOP AN ANALYTICS FUNCTION
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George BrauneggExecutive Vice President and Founding [email protected](213) 614-8066 x134
700 S. Flower St. Ste. 1900Los Angeles, CA 90017Phone (213) 614-8066www.castconsultants.com
http://www.linkedin.com/company/cast-management-consultants
Steve McCollumChief Executive [email protected](213) 614-8066 x 130
KEY CONTACTS
Experience, Value, Commitment Since 1986, CAST has established a proven track record of successfully working with the largest and best managed banks and insurance companies in North America that enthusiastically endorse our firm.
Our exclusive focus on financial services has resulted in a team of seasoned professionals possessing technical and consulting skills specifically honed to address the industry’s unique requirements.
CAST’s core competency is effecting positive change in large complex organizations. As a consequence, our clients know they can count on CAST as partner that can get the job done . . . a true partner who conscientiously recommends optimum solutions and has the skills to ensure that those solutions are implemented as quickly and efficiently as possible.