1 mission impossible: cross-bank comparison steve weiland, the montauk group stephanie andersson,...
TRANSCRIPT
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Mission Impossible: Cross-Bank Comparison
Steve Weiland, The Montauk GroupStephanie Andersson, Open
Solutions/Fiserv
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Steve Weiland Senior Advisor
The Montauk Group
Stephanie AnderssonOutsourcing ManagerOpen Solutions now Fiserv
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OPERATION XBANK
Your mission: To standardize and reduce the cost of banking services across the banking network.
Time to complete: 30 days
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What you will need
1 Month of Statement Data• Per Bank• Per Account• Per Legal Entity
Definitions of servicefrom each bank for every line item you are charged at
each bank
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Establish The Plan
• Understand the account structure and how each bank reports detail and summary levels
• Classify each line item with a product identity – AFP Codes work the easiest– Start with the bank’s AFP Code Assignment– Check Mapping Effectiveness– Build apples to apples matches across banks
• Ignore apple color• Consider units of measure• Watch for bundling• Understand Service Status
• Follow the natural hierarchy that AFP Codes provide.• You can now evaluate your fees at the product level
and do detailed studies on those with the most exposure.
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Establish The Volume
In order to effectively compare each bank, we need to use a standardized volume– Use actual statement volumes when
determining cost of service at alternative bank
– Use peak volumes when the purpose is to identify price differences
– In each product, determine those items that are volume driven and those that are not.
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Calculate
• Line up services with the same AFP Code for each bank
• Insert assumed volumes into each service
• Evaluate and handle unmatched services• Calculate each service line– P*V services using assumed volume and
target bank price– Flat, Base, B*R using appropriate math from
target bank
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When Math Doesn’t Work
• In some cases, there will be no mathematical way to directly compare individual service lines, or complete products– Bundling– Complex calculation methods
• In those cases, you need to learn fee ratio analysis and all-in analysis– Perfect for FDIC fee analysis– Useful for bundled vs. unbundled scenarios
like comparing lockbox providers
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Don’t Stop at ServicesThe fees you pay each of your banks are affected by more than just service line items.
Consider building these into your model:
• Earnings Credit Rate• Reserve Requirement Handling• Negative Collected Balance Handling• Negative NIF Fees• Extended Compensation Cycles• Right of Daily Offset• Funds Availability Schedule
• Hard Interest Rate• ECR NOR• Hidden Overdraft Fees• Deficit Premiums• Compensation Methods• Negative ECR• Opportunity Costs
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• For average balances the 10% reserves reduction in earnings potential may not be a current concern anymore (for most of us) but how can I make sure that my earnings credit rate isn’t net of reserves?• Receiving an EDI 822 Account Analysis?
The answer is in the RTE segment.• Standardize the earnings allowance calculation
• Assessed balance x Earnings Credit Rate x (Days in analysis period / days in year)
• Using the current earnings credit rate to determine the cost or benefit to offset $1 in analyzed service charges.
• Potential for hard interest on excess collected balances
• Conversely, Plan B• Hard charge approach
A Tale of Two Audit PointsThe fees you pay each of your banks are affected by more than just service line items.
Earnings Credit Rate Analysis
1. Determine what increases and decreases the balance used to calculate earnings allowance. This exercise will provide insight into invoiced charge fluctuations where service detail doesn’t provide the whole story.
2. Determine if the earnings credit rate is a double agent. Know what this rate impacts in the standard analysis formula.
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DuplicityThe fees you pay each of your banks are affected by more than just service line items.
There were two and now there is one!
• Blur the product lines to find information– Prove the need for more than one format of the same
information• Doe we really need a downloaded excel workbook from the
online bank system, a fax of notifications to A/R, mailed advices to A/P, a BAI for the ERP, and an EDI message for my treasury workstation for current day activity?– Maybe, Maybe Not
• Multibank information services– Is it feasible, is it even an option? Solicit ideas using an
RFI with current service providers on how to resolve business or operational problems revolving around information reporting in effort to improve cash management and reduce bank fees.
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Challenges: Mission XBANK
• AFP Codes not used by all banks and, when used, bank definitions vary
• Some banks use AFP Codes broadly; other banks get very detailed
• Some banks include certain fees only at the master account; other banks include those fees at the sub-account
• The basis for charges isn’t consistent among banks
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The Attack – Mission XBANK
1. Identify Service Utilization & Obvious Problems2. Identify Differences in Bank Pricing Methodologies3. Identify Volume to Use for Calculations4. Calculate Monthly Cost Per Bank5. Review results and determine how best to use this
information to save money either through negotiation or transition of banking services
Your mission: To standardize and reduce the cost of banking services across the
banking network. Time to complete: 30 days
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The Approach
• As an example, I’m going to look at two service areas:Checks Disbursed:Imaging and Branch Deposits
• These services are currently provided by two banks, Bank A and Bank B.
• I’m going to compare the standardized, real costs.
• Then I’m going to compare Banks A and B to Bank C which wants my business.
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But First – Obvious Problems
How does this price compare to other banks and peer averages?
Is that the special price I negotiated?
I don’t recognize this service!
Hold it, there’s been a price change.
I think that volume is unreasonably high.
Is this the exact volume I expected?
Is this close to the average charge over the last six months?Is there supposed to be a tax on this service?
Consider this: one service line item buried within thousands of lines across hundreds of statements.
-What can this one line tell me?
-What questions can I ask about this service?
-Now the let’s get past the electronics and involve real people!
AFP DESCRIPTION PRICE VOLUME CHARGE TAX------ ----------------- ----- ------ -------- ------ 050100 Lockbox Processing .1200 12,000 1,440.00 144.00
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Service Utilization – Mission XBANKCHECKS DISBURSED BANK A BANK B
Checks Paid - Regular General Checks Paid - Truncated $ 0.15 DDA Checks Paid $ 0.16
Check Imaging Maintenance Image Maintenance - Direct $ 10.00
Check Image Capture Image Archive - 90 Days$ - Electronic Window Extended Stor 30 $ 0.010
Check Retrieval Photocopy Automated Online Image View < 90 Days - Item $ 3.50
Electronic Window Extended Stor 60 $ 0.015
Electronic Window Extended Stor 90 $ 0.02
CEO Search $ 0.95
Check Rejects MICR Check Rejects over 2% $ 1.25
Major differences have been identified in how this customer is being charged for providing images of paid checks. Bank A: $0.15 per item paid, $10.00 bundled for Image Maintenance Bank B: $0.16 per item paid, six separate charges for retrieval
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Pricing Differences – Mission XBANK
BRANCH DEPOSITS BANK A BANK B
Branch Deposit Banking Center Deposit $ 0.60 Credits Posted (manual check or cash deposits) $ 0.75
BRANCH DEPOSITED COIN AND CURRENCY Curr/Coin Dep/$100-BKG CTR $ 0.18 Cash Dep/$1 Ver At Teller Window $ 0.0016
Branch Coin and/or Currency Order - Manual Change Order Banking Center $ 2.00
CHANGE ORDER CHARGE-BRANCH/STORE $ 5.00
Branch Furnished Coin - Rolled Coin Supp / Roll-Bkg Ctr $ 0.10
ROLLED COIN ORDERED - BRANCH/STORE
Branch Furnished Currency - Loose Curr Supp / $100 - Bkg Ctr $ 0.07
CURRENCY ORDERED/$1 - BRANCH/STORE $ 0.0016
Branch Deposit - Night Deposit Custody Curr/Coin Dep/$100-QBD-ND $ 0.12 Cash Vault Cash Dep Night Drop / $1 $ 0.0016
QBD/Night Drop Deposit $ 0.60 $ 0.75
Differences in units have been identified in how this customer is being charged for branch coin and currency services. Deposited Coin & Currency: Bank A=$0.18 Bank B=$0.0016 Volume charge: Bank A=per $100 deposited Bank B=per $1 deposited I better adjust for volumes in my calculations!
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Establish The Volume
In order to effectively compare each bank, we need to use a standardized volume - In each product, determine those items that
are volume driven and those that are not. - Use peak volumes when the purpose is to
identify price differences among existing banks.
- Use actual statement “above average” volumes when determining cost of a volume driven service at an alternative bank.
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Calculate Bank AVOLUMES
Items deposited 2,000
Month 1
Images retrieved 30
Deposits 25
Accounts 90
BANK A BANK A PRICE
Desktop Deposit - DEP ITEM $ 0.050
DESKTOP DEPOSIT-DEPOSIT ITEM $ 0.085
Desktop Deposit Credit Posted $ 0.00
Desktop Deposit Images Retrieved $ 0.500
Desktop Deposit Report Mthly Base $ 7.500
Desktop Deposit Report per Item $ 0.250
Total Cost at Bank A $ 1,342.50
•Bank is breaking out the per-item clearing charge by On-Us or Other specific to RDC. Must determine a ratio based on historical volumes to apply weighted average cost correctly.•This bank does not charge at the account level but charges significantly for reporting.
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Calculate Bank BVOLUMES
Items deposited 2,000
Month 1
Images retrieved 30
Deposits 25
Accounts 90
BANK B BANK C PRICE
Image Deposited Items RDSO $ 0.35
Medium Volume scanner maintenance $ 15.00
Deposit Correction RDS $ 7.00
Remote Dep - Account Maintenance $ 25.00
RDSOL - Item Storage $ 0.00
IRD DEPOSITED ITEMS RDSO $ 0.00
Total Cost at Bank B $ 2,965.00
•Bank B bills per account and per item primarily.•Is clearing a part of the per item cost? •Scanner fee is tied to monthly volume.•IRD and deposit corrections are not added in because the volume is insignificant and irregular. •Fewer line items but double the cost!
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Calculate Bank CVOLUMES
Items deposited 2,000
Month 1
Images retrieved 30
Deposits 25
Accounts 90
BANK C BANK C PRICE
Remote Dep Cap - DepItm $ 0.08
Remote Deposit Credit Posted $ 0.75
Total Cost at Bank C $ 178.75
Bank C provided a competitive bid with pricing.
Confirm before signing that there are no additional monthly fees, clearing fees, scanner fees, etc. You will always face implementation charges when you switch banks.
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Review ResultsBANK ANNUAL COSTBank A $ 16,110 Bank B $ 35,580 Bank C $ 2,145
This client could save $33,000 a year if they accepted Bank C’s proposal and switched from Bank B.
If you redirected all checks to Bank C, that could equal $50,000 in savings.
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Lessons Learned
A comparison of one line item is never enough.
Each bank has its own billing strategy.Devise your own.
BANK A BANK B BANK C
Desktop Deposit – OnUs ITEM $ 0.050
Image Deposited Items RDSO $ 0.35
Remote Dep Cap - DepItm $ 0.08
DESKTOP DEPOSIT- Other DEPOSIT ITEM $ 0.085
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Strategy
Imbalances in information and power will drastically impact the success of a negotiation
• Information– Banks have the upper hand (up until now)
• Power– Know your alternatives (Bank C)
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Mission XBank
Identify Service Utilization & Problems Identify Differences in Bank Pricing
Methodologies Identify Volume to Use for
Calculations Calculate Monthly Cost Per Bank Review results and determine how
best to use this information to save money either through negotiation or transition of banking services
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Mission XBANK
Don’t be afraid to shake up bank fees…..after all,
bank fees should be shaken and not stirred!
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AFP Update
2013 Version AFP Codes to be
published this June!
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The Latest Standards2013
AFP Service Code Taskforce has made major modifications to the existing set of standard AFP Codes designed
to facilitate Cross Bank Comparisons
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Deprecation Introduced
Deprecation allowed many codes that were not used to be identified and set for retirement for the first time since their inception in 1986
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Deprecated Codes
• Merchant Card Services• Tape/Diskette/Microfiche • Terminal and Network delivery
methods• Bank Provided Account Analysis
Software• (more to be added upon completion
of the panel)
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Modified Services
• CD/DVD charges modified to read External Media
• FDIC Assessment updated to “Pass Through Charge”
• Remote Deposit Section Redesigned• (add more when list is modified)
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New Services
• Online Banking Fees– Product Maintenance vs. Online Product
Module Maintenance
• Full Reconciliation + Pos Pay Services• Virtual Sub-Accounts• Global Trade Services• Mobile Banking
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In Summary
• Cross Bank Comparisons require major effort but the results are worth it.
• Use the Standards and Software Tools available to help you on your mission.
• The first step is to understand exactly what you are paying for at each bank.
• When all else fails…
