fee income challenges · mobile banking, smartphone and tablet forecast: mobile banking moves...

Fee Income Challenges

©2011 Jack Henry & Associates, Inc. All Rights Reserved.

Best New Revenue & Cost Cutting Opportunities in 2012 & Beyond

Lee Wetherington, AAP Director of Strategic Insight, ProfitStars®

@leewetherington

Lee Wetherington Director of Strategic Insight

2

• Develops actionable insight and strategy for the financial services industry

• Delivers keynotes nationwide • Technology Faculty Chair and guest

lecturer for graduate banking schools • Authors articles for industry trades • Degrees in Economics and English

from Duke University • Accredited ACH Professional (AAP)

Presenter

@leewetherington

Agenda

• 3 Things You Need to Know

• Fee Income Challenges – Regulatory Hits to Payments Revenue

• Top Cost-Cutting Opportunities

• Top New Revenue Opportunities

• Strategies & Approaches


3

Mega Trends

Too Much Data

October 9, 2012


6

Data Creation Explodes

SOURCE: www.hadapt.com


7

90% of data has been

created in last 2 years

8

We created

1.8 zettabytes of data in 2011…

9

…and it is doubling every 2 years.

10

While 75% of digital data is created by individuals, FIs and other enterprises have some liability

for 80% of it. 11 http://www.emc.com/collateral/about/news/idc-emc-digital-universe-2011-infographic.pdf


Too Many Connections

October 9, 2012


13

FIs, Data, Privacy & Trust

• FIs have 3-to-1 trust advantage over non-FIs • FIs can profitably mine data, but must:

– protect customer privacy

– enable customers to understand when and how they will benefit from sharing information and access

– err on the side of transparency

• Beyond better disclosure, FIs can build trust via: – financial alerts

– PFM and other random acts of kindly fiduciary behavior

October 9, 2012 15


Too Many Choices


17

120+ Drink Choices: One Machine

18


Choice Fatigue

Too Many Choices

How much is simplicity

worth?

U.S. consumers will pay a 4% premium for simplicity.

--Siegel+Gale

“Ban

k C

usto

mer

s Sa

y M

ake

It Si

mpl

e –

We’

ll Pa

y Yo

u Fo

r It”

Amer

ican

Ban

ker;

Mar

ch 1

6, 2

011;

By

Hea

ther

Lan

dy

Simplicity Commands a Premium

How do you simplify?

25

Text Touch / Sound / Move Graphical

UI Revolution: Touch / Sound / Move 1980s 1990s 2000s

Where and how could “touch”

simplify our UI? October 9, 2012


27

PNC Money Bar

October 9, 2012


28

Where and how might “voice”

simplify our UI? October 9, 2012


29

Siri sucks. But…

30

http

://se

arch

engi

nela

nd.c

om/s

urve

y-87

-per

cent

-of-i

phon

e-4s

-ow

ners

-use

-siri

-mon

thly

-116

611

Siri is Better than No Siri… • 87% iPhone 4S owners

use Siri monthly • 33% use Siri daily

– Initiating calls and texts most common Siri activities

• 26% use Siri to send email daily

http

://se

arch

engi

nela

nd.c

om/s

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y-87

-per

cent

-of-i

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-siri

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-116

611


33

What’s my balance?

Pay my power bill.

Buy 500 shares of Apple.

Why are my lips so red and puffy?

Send my son $50.

“Nina”

Fee Income Challenges


Card Regs Timeline


37

Payments Revenue

©2011 Jack Henry & Associates, Inc. All Rights Reserved. SO

UR

CE

: FD

IC =

Com

mer

cial

Ban

king

; Fi

rm P

aym

ents

Map

= P

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gric

ultu

re, H

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s, A

irlin

es, I

T, F

ilm/M

usic

1 Payments revenues are from 2011

Payments Generate $271B in Fees/NII


SO

UR

CE

: McK

inse

y U

.S. P

aym

ents

Map

, Rel

ease

Q1-

2012

, Bas

e C

ase

scen

ario

Consumer DDA Profit Margins Down


SO

UR

CE

: McK

inse

y U

S P

aym

ents

Map

, Q3-

11 re

leas

e, B

ase

Cas

e sc

enar

io

Regs Cut $120B in Revenue thru 2016


1 Lost revenue assumes pre-regulatory interchange rates and NSF/OD occurrences

SO

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: McK

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S P

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ents

Map

, Rel

ease

Q1

2012

; Bas

e C

ase

scen

ario

Average Debit Interchange Down 45%

October 9, 2012


42

© 2011 Javelin Strategy & Research

Interchange Before & After Durbin

October 9, 2012


43


Transaction Value Approximate Pre-Durbin, Traditional Interchange

(1.5% + $0.02)

Post-Durbin Interchange for FIs with >$10B

in Assets ($0.21 + 0.05% + $0.01)

$8.00 $0.14 $0.22 $1,000.00 $15.02 $0.72

* Approximate rate based on issuer average for signature debit transactions of 1.53% reported to the Federal Reserve.

Durbin dramatically affects cost/revenue associated with different transaction values!

Big Banks Take Big Hit

Hit to debit interchange fee income for banks >$10B

October 9, 2012


44

But how much will small banks

lose in debit interchange?


Debit Interchange Rates After Durbin

SOURCE: Oliver Wyman/PULSE 2012 Debit Issuer Study

Durbin Effects Update: Fed Study

• Average per-transaction interchange fee collected by regulated FIs (>$10B) declined 45% in Q4 2011 to 24 cents from 43 cents in 2009.

• Debit interchange for exempt debit card issuers remained steady at 43 cents.

• Signature vs. Debit – Signature-debit interchange plunged 57% for

regulated issuers and slipped 8% for exempt issuers.

– In contrast, PIN-debit interchange declined less than 1% for big issuers but rose 32% for exempt issuers.

October 9, 2012 48

“New Fed Data Give a Glimpse of the Durbin Amendment’s Early Effects” Digital Transactions; May. 1, 2012

Upon Closer Analysis of Fed Data…

• While the Fed says exempt issuers’ interchange revenues held steady, a review of the Fed’s data shows their average interchange revenue actually fell from 1.16% of the sale in 2011’s first 9 months to 1.10% in Q4, a decline of 5%. – Analysis by Electronic Payments Coalition, a

Washington, D.C.-based lobbying group of payment card networks and banks

• Doesn’t look at data post April 1st routing deadline. • Stay tuned…

– http://www.federalreserve.gov/newsevents/press/bcreg/20120501a.htm

October 9, 2012 49

“New Fed Data Give a Glimpse of the Durbin Amendment’s Early Effects” Digital Transactions; May. 1, 2012

What Drives Choice of Way to Pay?

50

Jave

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gy &

Res

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h; “P

repa

id C

ards

and

Pro

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s in

201

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Fina

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for U

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en Y

Con

sum

ers”

; Apr

il 20

12

8%

8%

9%

19%

19%

22%

26%

28%

66%

31%

12%

17%

9%

18%

21%

4%

32%

49%

12%

10%

13%

14%

19%

19%

20%

29%

59%

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

Don't have a credit card

For privacy reasons

No overdraft fees

Don't add to credit card balances

For security

Don't have a bill to pay after purchase

To earn rewards

To control spending

It's easy and convenient

Percent of Consumers

Gen Y

Underbanked

All consumers

Q4: What are the primary reasons that you prefer to use [your preferred payment option] most often for any type of purchase? (Select up to three)

October 2011, n= 753, 298, 3,088Base: All consumers.


Primary Reasons Consumers Use Their Preferred Payment Option by Consumer Type

Half Won’t Switch for Less Than 10%

October 9, 2012


51

51

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

No discount below 10% would persuade me to switch.

8%-9.9%

5.1%-7.9%

3%-5%

1%-2.9%

Q32. If a merchant offered you a discount on a purchase to use an option like a prepaid card, cash, or another option rather than a credit or debit card, how likely would you be to use the option instead of a credit or debit card?

September 2010, n= 4,998Base: All consumers.

©2011 Javelin Strategy & Research

Required discount to persuade consumers to switch payment choice

Consumer Debit Card Usage/Spend Consumer Debit Card Usage and Annual Spend, 2010 and 2011

SO

UR

CE

: Oliv

er W

yman

/PU

LSE

201

2 D

ebit

Issu

er S

tudy

Debit Growth Projections for 2012


Biggest Opportunities for Debit Issuers


Opportunities for Community

Banks October 9, 2012


55

Potential Bank Switchers

• 11% of consumers in 2012 – 25% of Citibank customers; 21% of BoA customers

• Maintain 30% more deposits than consumers who do not plan to switch – Represent $675B in deposits

• Willing to pay $92M in fees – Money orders; cashier’s checks, safe deposit boxes, and

mobile remote deposit.

• Place a premium on personal finance and simplicity (Javelin Strategy & Research)

October 9, 2012


56

SO

UR

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: Jav

elin

Stra

tegy

& R

esea

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“201

2 O

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Fore

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:: H

ow to

Boo

st P

rofit

abili

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hen

Faci

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lat-L

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; Aug

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012

Big Banks Vulnerable to Switching

SO

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: Jav

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“Onl

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201

2”; S

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2

Javelin Bankographic Benchmark™: Likelihood to Switch Primary FIs in Next 12 Months

Opportunities for Community Banks

1. Capturing DDA share from big-bank fee defectors

2. GPR prepaid cards (co-branding partnerships)

3. Serve growing population of unbanked, under-banked and Gen Y (25% of consumers)

4. Generate new fee revenue with merchant-funded rewards offered inside online statements and ultimately in real-time via mobile texts

5. Leveraging merchant rewards to incent/compel migration of offline customers to online self-service

October 9, 2012


58

Tapping the Opportunities

1.Cut costs 2.Generate new fee revenue


Cost-Cutting Opportunities


Cutting Costs

1.Increase self-service 2.Streamline branches


So, how much cost can FIs cut

by increasing self-service?


Growing Online Usage Can Cut $8.3B in Costs

64

“201

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nd B

ill P

aym

ent F

orec

ast:

How

to C

ut $

8.3

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Cos

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hrou

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hann

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onve

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avel

in;

Sep

tem

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010

Click to edit Master title style

Moving Offline Users Online $167 in Cost Savings Per Customer Converted to Online Banking

65 © 2011 Javelin Strategy & Research

“201

0 O

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nd B

ill P

aym

ent F

orec

ast:

How

to C

ut $

8.3

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Cos

ts T

hrou

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hann

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onve

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n”; J

avel

in;

Sep

tem

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010

Online: Cut $167 in Costs/User

Jave

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Res

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2010

Onl

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Bill

Pay

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How

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epte

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r 201

0


Mobile

October 9, 2012


67

2012: Year of the Smartphone


68

Jave

lin S

trate

gy &

Res

earc

h: “2

011

Mob

ile B

anki

ng, S

mar

tpho

ne a

nd T

able

t For

ecas

t: M

obile

Ban

king

Mov

es M

ains

tream

to M

id-s

ized

, Com

mun

ity B

anks

and

Cre

dit U

nion

s”; D

ecem

ber 2

011

U.S. Consumers’ Adoption of Smartphones and Feature Phones, 2008–2016

Mobile App Time Exceeds Web Time

69


Mobile Savings

70


Mobile: Cost Savings/Call Deflection

71

Preemptive text alerts can prevent… • In-Person Customer Calls

– FI cost: $3.00 to $15.00

• Automated Calls (IVR) – FI cost: 3¢ to 30¢

NOTE: BoA saved $110M deflecting calls with mobile self-service


Extend self-service with mobile RDC!!!

Javelin predicts 100 million mBanking users by 2014… half of which see mRDC as

highly desirable (50 million users for Mobile Deposit)

Who Wants mRDC Right Now?

October 9, 2012


74

40% of Smartphone Owners and 50% of iPhone Owners want mRDC

13%

22%

21%

24%

29%

26%

11%

16%

16%

16%

12%

23%

27%

31%

35%

27%

37%

30%

11%

10%

11%

11%

6%

8%

38%

21%

17%

23%

16%

14%

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

All consumers

A smartphone

Android-based phone

BlackBerry

Windows 7-based phone

iPhone

Very desirable 5 4 Somewhat desirable 3 2 Not desirable at all 1

Q42:

Ban

ks o

r cre

dit u

nion

s can

offe

r a se

rvice

that

ena

bles

cu

stom

ers t

o de

posit

a ch

eck b

y pho

togr

aphi

ng it

with

the

cam

era

on th

eir m

obile

pho

ne, t

hen

send

ing

the

imag

e to

the

bank

thro

ugh

a mob

ile-b

ankin

g app

licat

ion.

How

des

irabl

e is

this

serv

ice to

you

?

Mar

ch 20

11, n

= 4,

267,

1,7

16, 5

37, 4

83, 1

03, 4

57

Base

: All c

onsu

mer

s with

a m

obile

phon

e.©

2011

Jave

lin St

rate

gy &

Res

earc

h

Physical Check Deposits Expensive

October 9, 2012 75


Cost Savings of Mobile Deposits

October 9, 2012 76


Mobile Remote Deposit Fee Income?

• 80% of FIs planning/considering mobile RDC (Celent)

• 65% of consumers "at least somewhat likely" to switch FIs for mobile services said that mRDC would be the main reason for the switch. (AlixPartners)

• US Bank charges $.50 per mobile deposit

– "We haven't seen any negative impact of the fee on adoption and usage." --Niti Badarinath, SVP

• First Tennessee also charges a fee for mRDC


77

“Mobile Remote Deposit Capture: Putting a Price on Convenience” www.banktech.com; By Olivia LaBarre

But what about the risk?!

78

The Truth about Remote Deposit Risk

• While over 13% of checks are remotely deposited, RDC items comprise only .01% of check fraud reported to FinCen between 2005 and 2011.

• There were “no real differences in the various fraud and money laundering schemes perpetrated through the RDC check deposit channel when compared with the check deposits completed through more traditional means.”

• “Overall, RDC-related filings have been minimal,” and they “comprise a miniscule portion of all check-related SARs.”

Mobile Payments

SO

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Ta

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a S

ucce

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ail S

trate

gy”;

Sep

tem

ber 2

012

Mobile Banking to Mobile Payments

SO

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Sep

tem

ber 2

012

Evolution and The End Game

October 9, 2012 83


Mobile Banking

Mobile Payments

Mobile Marketing

Things We Know

Mobile Buys of Physical Goods Triples

SO

UR

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: Jav

elin

Stra

tegy

& R

esea

rch;

“Bat

tle fo

r Con

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f the

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ile W

alle

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epte

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r 201

2 Purchasing Pattern on Mobile Devices

Mobile POS to Grow 25% Annually

SO

UR

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: Jav

elin

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“Bat

tle fo

r Con

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ile W

alle

t”; S

epte

mbe

r 201

2

Mobile POS Purchase Dollar Volume Forecast, 2011–2017

66% of Mobile Bankers Buy w/ Mobile

SO

UR

CE

: Jav

elin

Stra

tegy

& R

esea

rch;

Mob

ile P

aym

ents

Hit

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ion

in 2

012:

Ta

blet

s A

re K

ey to

a S

ucce

ssfu

l Ret

ail S

trate

gy”;

Sep

tem

ber 2

012

Mobile Online Commerce by Channel Use, Past 12 Months Among Mobile Bankers

Preference for Wallet Providers

SO

UR

CE

: Jav

elin

Stra

tegy

& R

esea

rch;

“Bat

tle fo

r Con

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f the

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ile W

alle

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epte

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r 201

2

1%1%1%

2%2%

3%3%3%3%

4%4%4%

5%5%

6%6%

8%9%

13%15%

0% 10% 20%

FacebookCitibank

MicrosoftWal-MartU.S. Bank

AmazonDiscover

GoogleSprint

T-MobileApple

American ExpressWells FargoMasterCard

Bank of AmericaChaseAT&T

VerizonPayPal

Visa

All Mobile Phone Owners

Q29_A: If you were choosing a mobile wallet provider, which of the following would you be most likely to choose?

June 2012, n=3,492.Base: All mobile phone owners.

©2012 Javelin Strategy & Research

Things We Don’t Know

Which mobile payments techs, channels, and functions will prevail?


Digital Wallet Features

SO

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: Jav

elin

Stra

tegy

& R

esea

rch;

“Bat

tle fo

r Con

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f the

Mob

ile W

alle

t”; S

epte

mbe

r 201

2

3© 2012 Javelin Strategy & Research

Loyalty, Coupons, etc.

Membership, Access, etc.

Transacting

VirtualPhysical

Functions

Channels

Bar Code NFC Cloud

Technologies

FIs’ Role in Mobile POS

SO

UR

CE

: Jav

elin

Stra

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& R

esea

rch;

“Bat

tle fo

r Con

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ile W

alle

t”; S

epte

mbe

r 201

2 FIs Play Different Roles in Different NFC Solutions

PROBLEM 1: Most likely NFC models

do not put FIs in control.

PROBLEM 2: Complexity of NFC

models forestall their arrival.

NFC Requires Complex Collaboration

SO

UR

CE

: Jav

elin

Stra

tegy

& R

esea

rch;

“Bat

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ile W

alle

t”; S

epte

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r 201

2

© 2012 Javelin Strategy & Research 4

Secure Element(Credentialing)

NFC Chip(SIM or

Embedded)

Wallet(Rewards, Loyalty, Payments, Keys,

Tickets)

Merchant POS

Payment Networks

Issuer TSM

Secure Element

TSM


NFC (SIM or Embedded) Model

Transact

Load

Acquiring Bank

Issuing Bank

PROBLEM 3: So what to do

before/while/if NFC arrives?

Mobile Wallet Tech Trajectory

Cloud NFC

The

BIG Question


So some think the big question is…

Would you tap that?

Swipe, Dip, Tap

How to reduce “time suck”?

Time Suck?

Coffees, Burgers & Dongles, Oh My!


Actually, the real BIG question is…

Who will control and monetize mobile marketing of payments data?

Isis Wallet

Google Wallet

How much is at stake?

October 9, 2012 112


$1 Trillion

SOU

RC

E: “

The

Gre

at M

obile

Alli

ance

” by

Ste

ve M

ott;

Dig

ital T

rans

actio

ns; J

uly

& S

epte

mbe

r, 20

12

FIs Must Leverage Payments Assets • 3-to-1 Trust Advantage

– Custembers comfortable revealing more to you

• Mobile bankers most inclined to mobile payments

• Payments Data – How payments accounts are used

– Who the consumer is

– What resources the consumer has

– How risky the consumer is

– How, where, with what merchant purchases made

SOU

RC

E: “

The

Gre

at M

obile

Alli

ance

” by

Ste

ve M

ott;

Dig

ital T

rans

actio

ns; J

uly

& S

epte

mbe

r, 20

12

Merchants Have Valuable Data

• Merchant Data

– Location of purchase

– Time of day of purchase

– Products purchased

– Payment methods used by consumer

• Combining payments data with merchant product (SKU) data and mobile-session data creates holy grail of offerings for product placers. SO

UR

CE:

“Th

e G

reat

Mob

ile A

llian

ce”

by S

teve

Mot

t; D

igita

l Tra

nsac

tions

; Jul

y &

Sep

tem

ber,

2012

The Holy Grail

FI Payment

Data

Merchant Product

Data

The future of payments is more about data than

payments…

Geo-Enabled Mobile Rewards

Alerts, Alerts, Alerts

October 9, 2012 120

Click to edit Master title style

6 in 10 Consumers Consider Alerts Useful Usefulness of Alerts to Detect Fraud and Manage Finances

121

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

All consumers

Percent of consumers

Useful Not useful

November 2011, n= 5,494Base: All consumers, all consumers who

have received a financial alert.© 2011 Javelin Strategy & Research

Q39: How would you rate the usefulness of financial alerts in helping you detect fraudulent activity or manage your finances? On a scale of 1 to 5, let 1 represent "Not useful at all" and let 5 represent "Extremely useful."

Top 5 Alerts Valued by Moneyhawks

October 9, 2012


122

24%

22%

22%

35%

37%

23%

25%

28%

28%

40%

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

Confirmation of a deposit

Notification when a bill is due or has been paid

Notification when balances fall below a pre-set level

Notification of a large withdrawal or purchase

Warning that an overdraft is about to occur

Percent of consumers

Moneyhawks

All consumers

November 2010, n= 5,494, 1,499Base: All consumers, all consumers who

have received a financial alert.© 2011 Javelin Strategy & Research

Q38: If you were given the ability to receive alert messages (either by e-mail or SMS) from your primary bank on your immediate financial status, which of the following would be of value to you? (Select up to three) Top five reasons only, other options apply.

Jave

lin S

trate

gy &

Res

earc

h’s

“Inte

ract

ive

Fina

ncia

l Ale

rts 2

011:

U

sing

SM

S an

d E‐

mai

l Ale

rts B

undl

es to

Driv

e Pr

ofita

ble

Bank

ing

Beha

vior

s”

Alerts Bundles that Boost Income

1. Free basic alerts boost adoption of mBanking 2. Real‐time alerts augment credit‐monitoring 3. Bill‐pay alerts that trigger convenience fees and

boost expedited payments 4. Alerts that deliver or augment merchant‐based

offers, creating revenue‐sharing opportunities 5. Real‐time, actionable overdraft alerts that could

create convenience fees

October 9, 2012


123

Javelin Strategy & Research’s “Interactive Financial Alerts 2011: Using SMS and E‐mail Alerts Bundles to Drive Profitable Banking Behaviors”

Streamline Branch Delivery

124

Teller Expenses Rise, Transx Decline

October 9, 2012 125

“Zombie” Branches

• 18% (nearly 16,000) of U.S. branches face closure over the next three years. (Novantas)

– 2/3rds (11,000) could be salvaged by other FIs

• “Zombie branches” do not do enough business to justify their existence and the chances of revival are slim-to-none under current ownership.

• 1 out 3 community bank branches are zombies – Among community banks with 1-10 branches

October 9, 2012 126

“Getting Rid of ‘Zombie’ Branches”; By DAVE KAYTES AND KEVIN TRAVIS; www.bai.org/BANKINGSTRATEGIES; Dec 29, 2011

http://www.bai.org/BANKINGSTRATEGIES

Future Role of the Branch


127 “Branch Transformation: Strategies to Position Your Branch Network for the Future” by Chris Gill with Diebold; IBAT TechMecca; January 2012

Image ATMs & “Dialog Towers”

128

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Physical Designs: Future Branches

Concierge Teller Pods

Lounge

• Engages customers quickly, eliminates wandering

• Can form a choke point in high traffic branches

• Slowly being equipped with customer authentication

• Gives tellers flexibility to engage customers

• Often staffed with more highly trained “Relationship Bankers”

• Practically requires teller cash recycling

• Comfortable waiting area offers good merchandizing options

• Increasingly equipped with self-service refreshments

Element Rationale Example

SO

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CE

: Cel

ent;

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http://thefinancialbrand.com/wp-content/uploads/2008/11/dort-branch2.jpg

Physical Designs, cont’d

Branded Retail Destinations Self-Service Area Kid’s Areas

• Merchandizes key product offerings

• Intuitive retail paradigm

• Most appropriate for large format branch designs

• Low-wait, low-cost transaction delivery

• In addition to or replacing tellers

• Often vestibule based to extend hours

• Considerate and smart for larger branches

• Reflects the evolving role of branches: customers visit longer and less often

Element Rationale Example

SO

UR

CE

: Cel

ent;

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Technologies: Future Branches

CRM Branch Self-service Teller Capture

• Equips branch personnel to sell

• Proliferating vendor options are reducing implementation risk and improving ROI

• Low-wait, low-cost transaction

delivery

• Reduce/eliminate teller role

• Focuses staff resources on sales & service

• Automates cheque related transactions

• Reduces keystrokes, transaction time, errors and back-office work

• Keeps tellers heads up

Element Rationale Examples Next best product prompts

Online scheduling of branch appointments

Full-function ATMs

Kiosks

Typically replacing back-counter branch capture

SO

UR

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: Cel

ent;

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Technologies, cont’d

Teller Cash Recycling Workforce Management Software Video Conferencing

• Reduces administrative work

• Enables “open” branch designs

• Maximizes staff efficiency

• Automates scheduling

• Low-cost SME coverage

• Extended hours

Element Rationale Examples Traditional teller counters

Teller pods

Teller management

Lobby tracking

Desktop video conferencing

Personal teller machines (PTMs)

Video call center

Staff training

SO

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ent;

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Cost Benefits of Branch Optimization • Minimize transactional to maximize relational

• Reduce customer wait times

• Improve employee performance

– Quickly identify coaching and incent top performers

• Efficiently allocate manpower and distribute workloads

– With image ATMs, cash recyclers, etc. can reduce 1-3 FTEs per branch

133

SOURCE: FMSI, Financial Management Solutions, Inc. http://www.fmsi.com/pages/76/fmsi-business-intelligence-systems#

Fee Income Opportunities


Consumer Fee Opportunities


Can’t Close Rev Gap w/ Tweaks


SOURCE: McKinsey US Payments Map, Release Q1 2012; Base Case scenario

Payments Data = New Revenue


SO

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CE

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Statement/Merchant Rewards

138


Embedded Coupons

• Online transaction list pages

• eStatements

• Potential new revenue streams for FI

• Good customer relations


Embedded Bill Analysis

Within statement, users can enter profile info to receive personalized bill analysis

Wireless, TV, Gas, Insurance & More


Payments Opportunities


a growing share of consumers owns

prepaid cards... October 9, 2012 142

…while a decreasing

share has other financial and payment products

October 9, 2012 143

Prepaid Fills a Growing Gap

“Prepaid Cards Help Fill a Growing Void”; Digital Transactions; May 2012 144

Card Revenue Sources

145

Source Credit Debit Prepaid Basic Fees • Annual • N/A (most fees tied to

linked checking account) • Activation • Monthly

Other Fees • Sin (overdraft, late payment, returned payment)

• Int’l transx • Cash W/D

• Foreign ATM • ATM W/D • Load • Inquiry • Bill Payment • Card replacement

Interest • 0-35%+ (rate increases w/ delinquency)

• N/A • N/A

Interchange • Varies by type and volume

• ≈2% + $0.10/trx

• $0.21 + .05% (unless exempt, then ≈ 1.65% + $0.15/trx

• Varies by type (unless bill pay offered then same as debit)

• ≈1.5% + $0.20/trx

Other • N/A • Float (for linked checking account)

• Float • Break (≈8%)

Annual Revenue

• $175-$250 • $4.50-$5.00 • $100-$125

Prepaid Cards Fill Growing Gap

146

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Consumers’ Ownership of Financial or Payment Products by Type, 2010–2011

Prepaid Popular with Underbanked, Low-Income & Young Consumers

October 9, 2012 147

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Consumers’ Ownership of a Prepaid Card or Payroll Card by Segment

Most Prepaid Users Have Reloadables

148

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Percent of Consumers Who Reload Their Prepaid Cards with Additional Value

Half of Consumers Reload Online

149

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1%

3%

17%

23%

27%

44%

48%

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

Other

Automatically reloaded

ATM or kiosk

Bank branch

Money services provider (e.g., Western Union, MoneyGram)

Merchant or retailer location

Online

Percent of Prepaid Owners

Q28A: Where are you able to reload your card?

October 2011, n= 227Base: All consumers who have a reloadable prepaid card.


Prepaid Card Reload Locations

Average Reload Fees Paid

150

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2%

5%

8%

30%

9%

9%

7%

30%

6%

2%

3%

12%

21%

11%

11%

35%

0%

0%

4%

4%

9%

24%

7%

52%

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

More than $6.00

$5.00 - $5.99

$4.00 - $4.99

$3.00 - $3.99

$2.00 - $2.99

$1.00 - $1.99

Less than $1.00

I do not pay a fee to reload my card


My employer

A bank

A merchant or retailer

Q28D: What is the average fee you pay when you reload your prepaid card with additional value?; Q26: Earlier you mentioned you have used a prepaid card or payroll card in the last 12 months. Where did you get the prepaid card you use most often?

October 2011, n= 24, 58, 98Base: All consumers who reload their prepaid cards.


Average Fee Paid to Reload a Prepaid Card by Provider Type

Prepaid Owners Reload Twice/Month

151

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Number of Times a Prepaid Card Is Reloaded in a Typical Month

Underbanked Reload More $ Than Gen Y

152

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6%

14%

7%

13%

43%

16%

7%

21%

3%

17%

37%

15%

5%

8%

3%

9%

47%

29%

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

Less than $10

$10-under $25

$25 - under $50

$50-under $100

$100 - under $250

$250 or more


Underbanked

Gen Y

All prepaid owners

October 2011, n= 81,42, 226Base: All consumers who have a reloadable prepaid card.

© 2012 Javelin Strategy & ResearchQ28C: What is the average dollar amount that you typically add to your prepaid card when you reload it?

Average Amount Reloaded Onto a Prepaid Card, by Underbanked, Gen Y, and All Prepaid Owners

Underbanked Use/Spend Prepaid More

153

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$59.49

3.9

$55.44

3.8

$79.72

10.8

$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00

Average purchase amount (mean)

Monthly use (mean)


Underbanked

Gen Y

All prepaid owners

Q17: In a typical month, how many times do you use each of the following payment methods, for in-store purchases or purchases made at a merchant's location? Q18: What is the average amount you typically spend on a single in-store purchase using the payment methods outlined below? Please give your best estimate.

October 2011, n= 50, 154, 267Base: All consumers who own a prepaid card.


Average Monthly Use and Purchase Amount for Prepaid Cards, by Underbanked, Gen Y, and All Prepaid Owners

Business Fee Opportunities


Small Businesses by Revenue

October 9, 2012 155

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The Opportunity & The Challenge

• The Opportunity – U.S. small businesses spend $500B on financial

products each year • The Challenge

– Understanding and meeting their needs • The Solution

– Knowing what they want and will pay for – Training staff to better understand business needs – Broaden products/service to meet those needs – Leveraging right tech to improve SMB access

October 9, 2012 156

Advanced Small Biz Online Banking

157

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ce: A

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Value of Small Business to FIs

“…small-business owners represent between 10% and 12% of a retail bank’s customers, they account for up to 35% of retail FIs’ revenue…

When you add in the value of the small-business owner, who tends to be more affluent than the average customer, that number goes to 50% of retail bank revenue.”

October 9, 2012

©2011 ProfitStars. All Rights Reserved.

158

Les Dinkin Managing Director,

Novantas LLC

Source: “Nonbanks Leapfrog Banks in Small-Business Cash Management and Treasury,” American Banker, April 2011

SMBs Still Served as Consumers

October 9, 2012 159

Source: Aite Group survey of 100 U.S. community banks, May to July 2011

Small Business Market Opportunity

% of Commercial Checking Accounts

2007 Median 2010 Median

Internet Cash Management 6.53% 6.94%

Commercial Bill Pay 1.35% 0.94%

ACH 0.02% 2.15%

Sweeps 1.39% 1.25%

Positive Pay N/A 0.20%

October 9, 2012

©2011 ProfitStars. All Rights Reserved.

160

Anemic Penetration of Business Accounts by Mid-Size FIs A lack of focus on treasury management products and sales is preventing mid-size FIs from realizing the potential of their commercial deposit franchises.

SOURCE: The Cornerstone Report: Benchmarks & Best Practices for Mid-Size Banks 2011

So, what is true small-business online banking?


Micro “Cash Management” • Online payroll

– Calculation of tax withholdings – Integrated tax payments

• Electronic invoices & receivables mgt • RDC, ACH, Wires, P2P, B2B (SMB BillPay) • Mobile account alerts/authorizations • QuickBooks/accounting integration • Real-time transaction information • Tiered access authority/permissions

162

Small Business Deposit Frequency

October 9, 2012 163

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SMB Average Checks per Deposit

October 9, 2012 164

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Small-to-Medium Size Businesses (SMBs)

• 25 million Small-to-Medium Businesses (SMBs) – Most SMB owners banking as consumers only

• 90% of SMBs accept checks – 70% cash, 33% credit cards, 31% debit, 28% PayPal

• Two-thirds of SMBs have less than five checks per deposit, making them suitable candidates for low-cost remote deposit capture (RDC) solutions – Mobile RDC; Flatbed Scanner RDC

• RDC can potentially remove 117 branch deposits per day from SMBs (need for one less teller)

October 9, 2012 165

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October 9, 2012 166

Small Business Mobile Usage

• 38% of small business decision-makers use smartphones or tablets to help manage their businesses each day.

• The larger the small business, the more likely the small business decision-maker uses smart devices to run operations: – 28% among those with one to four employees

– 36 percent for those with five to 19 employees

– 63% for those with 20-plus employees

• When it comes to mobile business applications, 41% say they are interested in using apps such as mobile banking, customer relationship management (CRM), risk management, payroll management, etc.

168

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IS N

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Basic vs. Advanced SMB Mobile

169

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Strategies & Tactics

October 9, 2012


170

Strategies

• Exploit cost-efficiencies of e-channels – Online, Mobile, Alerts

• Evolve branches to improve relational over transactional

• Serve business customers – Majority of SMBs not being served – Businesses represent easiest fee opportunities

– Capture new segments/fees with prepaid


Solutions and Approaches

• Offer merchant-funded rewards

• Tap data to know your customers • OFM analytics; target messaging

• Personalize online/remote channels • Widgets; Live Chat; Video over IP?

• Make a choice • Follow vs. Differentiate; Free vs. Fee;

“On Behalf Of” vs. Empower


Lee Wetherington, AAP [email protected] http://discover.profitstars.com/leewetherington

http://twitter.com/leewetherington

http://www.linkedin.com/in/leewetherington

fee income challenges · mobile banking, smartphone and tablet forecast: mobile banking moves...

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