Tuesday, October 4, 2011

Debit Card Fees Create Opportunity for Community Banks

Bank of America (BofA)'s announcement that it will impose a fee on the use of debit cards is probably the first of many by large banks. Rather than setting a precedent that all banks should follow, this move provides a tremendous opportunity for community banks to strengthen existing relationships, and perhaps attract new ones, by continuing to make debit cards available as a part of low cost checking accounts. Don't let the noise over the “loss of fee income” distract you from an important fact: from a cost standpoint, every debit card transaction (whether PIN or signature) costs less than processing a check. Whether BofA customers will grudgingly pay a fee, revert to check writing, or move their accounts to another bank without such fees, the imposition of a fee (effectively creating an economic barrier to the acceptance of debit cards) is a bad move, period.

The need to offset the loss of fee income is frequently given as the motivation for imposing such a fee. If the result of the fee is increased operational costs, this will certainly impact a bank's earnings, to the negative. There is much confusion over the reduction in interchange fees for banks over 10 billion in assets. This interchange fee only applies to signature transactions, which are already being threatened by the determination of merchants (through configuration of POS devices) to force customers to enter a PIN.

I want to encourage my friends in community banking to do what many have begun to do – promote your already free debit card more heavily - encouraging even more use, so that both your and your customers benefit from this popular, cost effective transaction tool. My twitter feed @techadvisor has been full of such posts from right thinking community banks doing just that.

Wednesday, September 7, 2011

Helping Your Customers Prepare for Natural Disasters

One of the best ways to avoid crisis issues after a disaster is to be better prepared BEFORE a disaster.  The following material, from FDIC, is good information to share with your customers about ways they can prepare beforehand.  Effectively communicating these ideas to your customers can make all the difference in how well your institution is able to serve customers after a disaster:

Press Release
The FDIC Offers Tips on Preparing Financially for a Natural Disaster or a Fire 
Other topics in the latest FDIC Consumer News include personal payments by smartphone or mobile computer, plus solving mysteries of old bank accounts

September 7, 2011
Media Contact:
Jay Rosenstein (202) 898-7303
E-mail: jrosenstein@fdic.gov

Hurricane Irene, the earthquake that shook the East Coast and the deadly tornado that hit Joplin, Missouri are recent reminders that disasters rarely give advance warning and can happen anytime. That's why it's important for households to have a plan for protecting important assets and conducting day-to-day financial transactions in the event of an emergency. The Summer 2011 issue of FDIC Consumer News features tips on how to prepare financially for a natural disaster, a fire or another tragedy, especially one that requires people to evacuate their home and not return for days or weeks.
Other timely topics in the latest issue include what to know before signing up for person-to-person, or "P2P," electronic payment services using a smartphone or mobile computer; how to solve mysteries of old bank accounts; and an update on new standards for and disclosures by mortgage loan professionals.
Here are examples of some of the consumer tips in the latest newsletter:
Preparing financially for the unexpected: The FDIC newsletter suggests that consumers:
  • Anticipate what could go wrong by thinking about the most likely hazards for their community and periodically reviewing their insurance coverage;
  • Consider services that can help access funds and manage finances away from home, such as direct deposit and banking by computer or smartphone;
  • Have essential items in one or more emergency evacuation bags or boxes that are waterproof, easy to carry and kept secure; and
  • Be on guard against fraudulent "charities" or "businesses" scheming to profit from the situation.
Making personal payments by mobile devices: As with any form of payment, understand the costs and potential risks of this increasingly common service from some banks and non-banks. Legal protections for P2P services may differ depending on whether the services are provided by a bank, and the security of the device should always be a concern.
Researching old bank accounts and, perhaps, recovering something valuable: A consumer who finds old account information should first determine whether the bank is open, closed or has merged with another bank. The FDIC's Bank Find database at www2.fdic.gov/idasp/main_bankfind.asp can be used to trace the history of any FDIC-insured institution. Consumers should also beware of people who demand money up-front for help recovering unclaimed property, something that most people can easily do on their own for free.
Finding a mortgage loan originator: As a result of a 2008 law to enhance consumer protections and reduce fraud in the residential mortgage industry, a free, searchable database now provides useful information about all state-licensed and federally registered mortgage loan originators. In the future, the database will be expanded to include information about certain relevant disciplinary or enforcement actions.
The goal of FDIC Consumer News is to deliver timely, reliable and innovative tips and information about financial matters, free of charge. The Summer 2011 edition can be read or printed at www.fdic.gov/consumers/consumer/news/cnsum11.
To find current and past issues of FDIC Consumer News, visitwww.fdic.gov/consumernews or request paper copies by contacting the FDIC's Public Information Center toll-free at 1-877-275-3342, by e-mail topublicinfo@fdic.gov, or by writing to the FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226.
There are two ways to subscribe to the quarterly FDIC Consumer News. To receive an e-mail about each new issue with links to stories, go towww.fdic.gov/about/subscriptions/index.html. To receive the newsletter in the mail, free of charge, contact the Public Information Center as listed above.
The FDIC encourages financial institutions, government agencies, consumer organizations, educators, the media and anyone else to help make the tips and information in FDIC Consumer News widely available. The publication may be reprinted in whole or in part without advance permission. Organizations also may link to or mention the FDIC Web site.
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Wednesday, August 31, 2011

Summer 2011 Banking Newsletter

Trent's Comments
Summer 2011
Germantown, Tennessee
This time, a few thoughts on some current matters that you should be considering as you begin your budgeting and strategic planning processes for 2012 and beyond.

An Update: Managing Your Core Vendor Contracts

I am currently involved in a number of core vendor renewal or selection engagements. I continue to see contracts that are very “one-sided” in terms of protecting the vendor as opposed to the bank. This is to be expected. Banks have signed these contracts without much review for many years, often unwittingly agreeing to terms and conditions that increase costs, liability, and exposure for both normal end of contract termination, and early termination. In addition, the trend toward Master Agreements (MA) can mean that when additional products or services are acquired, the term of the MA is extended to run co-terminus with the original contract. If you are within two years of contract expiration, it is time to start reviewing the current contract to understand your rights and obligations, and to plan for either a renewal scenario, a vendor evaluation and selection scenario, or both. Here are some key areas of your contract that you'll want to look into:

  • Automatic Renewal Clause – many contracts contain a provision whereby if notice is not given in advance (typically 180-365 days) the contract will automatically renew for some specified term. Even if you intend to renew with your current provider, notification under this clause will give you the flexibility to make a good decision on your time frame.
  • Early termination fees – especially since we are entering a period where we might begin to see more M&A activity, these fees should be identified and addressed, as they may be material to the purchase price of an institution. Typically, vendor contracts provide for substantial penalties, as much as 80% of the average monthly fees for the remaining term, etc. - you won't be able to change how the contract reads today, but you'll want to negotiate for better terms going forward with any vendor.
  • De-conversion fees. Should you choose, at the natural end of a contract, to move to another vendor, you'll find that your current contract may be somewhat open ended (as in “blank check”) as to what your current vendor may charge you for deconversion assistance. Again, little can be done in your current contract, but you'll want to negotiate for a reasonable, fixed fee in any new contract.

These issues, and several others, are as important to you as the actual pricing on the contract. Be sure that you thoroughly review both your current contract, and any proposed contracts, for terms and conditions that may create liability and exposure for the bank. As I'm fond of saying, “there's a reason those contracts are 70-80 pages long, and it is not for the benefit of the bank” Caveat Emptor

Debit Card Opportunities

There has certainly been a lot of discussion recently about debit cards, in light of the changes in interchange fees. Many community banks will not be affected, at least initially, by these changes, but there are still challenges and opportunities in the current environment. For many banks, signature debit card interchange fees have been an important source of fee income. Retailers are conspiring against you, though, in two ways: fighting for reduced interchange fees, and implementing procedures at POS terminals that make it much easier for customers to enter a PIN rather than use their card as a signature debit. They have won a round of lowering fees, and will likely continue to discourage signature debit use. In order to preserve at least a portion of your current debit card fee income, and perhaps increase utilization, it is important that you promote the use of cards across your customer base. Your promotion can include the fact that your card is free, and that there are no ongoing fees for using it. You'll also want to encourage customers to use their cards for on-line shopping, and web based bill pay, as these transactions will be treated as signature based and can generate fee income. Generally, when you promote debit card use, you see an uptick in usage, which becomes permanent. That is, it goes up, and stays up . . . so promotion is a good idea, and it seems that customers embrace the value of using the card when you encourage them to do so.

Finally, remember that processing a card transaction – whether PIN or signature – is ultimately much less expensive than a paper check, in terms of processing, storage, and retrieval. I've heard comments from community bankers (and seen announcements from larger banks) regarding charging for debit cards. This is madness, if you consider the cost differential of debit cards versus the prime alternative for your consumer accounts (paper checks). Also consider that companies like Paypal offer debit cards, that can be linked to your customer's accounts and used without fees. It's not wise to drive a consumer to another product.

Trent Fleming Consulting – Examples of Current Engagements
Please keep in mind that I can assist you with a variety of strategic, operational, and technical issues. Currently, I’m assisting banks in these ways:
  • Core system contract and vendor negotiations
  • GLBA Risk Assessment for Operations and Technology
  • Teller Capture Vendor Assessment and Implementation Planning
  • Branding and Advertising Initiatives, including Internet/Social Media Strategies and specific product and service promotion
  • Remote Deposit Capture Implementation and Marketing Services

Upcoming Speaking Engagements
August 2011
  • 16: Graduate School of Banking, University of Wisconsin-Madison “Reinventing Your Bank's Marketing Focus”
September 2011
  • 27: South Dakota Bankers Association Technology Conference, Sioux Falls
  • 28: Wisconsin Bankers Association Technology Conference, The Dells

October 2011
  • 7: Washington Bankers Association Technology Conference, Seattle
  • Graduate School of Banking, University of Wisconsin-Madison, First Annual Technology
Management School https://www.gsb.org/it.htm, October 16-20, 2011 (NOTE: this school was so popular that GSB has added a fall session)

That's it for this issue - please call, email (or tweet or FB) if I can help you with these or other matters.

Trent's Comments is published six times each year and provides insight into strategic topics facing financial institution executives.  Please feel free to share this with your staff and colleagues. 
Should you not wish to receive this newsletter, simply send me an email and I will remove you from future mailings.

Trent Fleming

Wednesday, July 13, 2011

Debit Interchange - A Call for Common Sense

Now that we have a ruling on debit interchange, I wanted to remind you that debit cards, used in place of checks, remain a significant advantage to the bank, apart from any interchange fees you receive.  The transaction itself (especially if we look at average dollar transactions) is less expensive to process, and the long term impact of storage and retrieval (essentially an 80 to 100 byte record vs 25 to 50 thousand bytes for checks) is greatly reduced. While your interchange fees will drop, as a result of the cap on interchange, imposing fees for debit card use constitutes an economic barrier to acceptance that sends the wrong message to your customers who have already embraced debit cards.  Due in part to costs, you may need to reduce or eliminate rewards programs associated with debit cards, but these are not the only driver of customer use of debit . . . convenience and purchase protection are equally important.  In terms of incentives, take time to re-evaluate simple utilization incentives, perhaps partnering with merchants, that will serve to build more volume for your debit card program.

Long term, electronic transactions are the way to go, and you want to continue to foster that mentality.  Let's not overreact and destroy the benefits we've built with debit cards. 

Friday, June 3, 2011

Article on Mobile Banking from OK City Journal Record

Reprinted, with permission, below, is a very nice article done in conjunction with my speech to the OBA's Annual Convention and Leadership Conference in May.  Thanks to Brian for including me in his article.

The Journal Record  

Expert: Banking industry needs to keep up with mobile market
by Brian Brus
Published: May 23rd, 2011
OKLAHOMA CITY – The consumer adoption of mobile banking is dependent on how quickly banks offer simple, secure access, Trent Fleming said.
“When we look at the typical bank customer today who is perhaps using a telephone banking product or Internet banking, they are going to adopt a mobile banking capability as soon as you make it available to them,” said Fleming, a banking industry technology expert. “There is more demand than there has been supply at this point.
“Community banks are somewhat lagging behind, and nothing from a technology or cost standpoint is keeping them from doing it,” he said. “It just hasn’t been high on their priority list, even though their customers are very interested.”
Fleming will share advice on developing a mobile banking strategy at the Oklahoma Bankers Association’s Leadership Forum and Annual Convention continuing Tuesday at the Embassy Suites hotel in Norman.
The event began with a golf tournament Monday. Tuesday’s features include a breakfast welcome by Frank Keating, former Oklahoma governor and current chief executive of the American Bankers Association, and several topic sessions similar to Fleming’s throughout the day. Topics include risk control, industry regulations and customer loyalty.
Fleming is a professional consultant and speaker with nearly 30 years of experience in bank technology. The last major industry change he helped banks navigate was the adoption of check imaging systems and improving consumers’ comfort with that new component.
He said that as multiuse cellphones and other personal data assistant devices have become more widespread, consumers and vendors have seemed to be in a race to find ways to leverage them. Mobile banking, for example, broadens options for handling deposits and multiple-party payment transactions without the need to find a full-size computer screen hooked up to the Internet. Many institutions have already implemented the technology to stay competitive, provide convenience and reach more tech-savvy customers.
The market seems to have already reached a critical density of consumer use that means mobile technology isn’t much of an option anymore – it’s a necessity.
“The adoption rates that we’re seeing are pretty dramatic,” Fleming said. “Even just a year or so ago, when one of the larger banks, TD Banknorth (in Maine), offered its iPhone app for mobile banking, they had about 100,000 downloads in the first couple of weeks. So it’s obvious there’s a lot of demand for it from the customer side.”
According to statistics from CTIA, the international association for the wireless telecommunications industry, the ratio of cellphones to population in the United States was nearly one to one in 2010, or 95 percent, across all socioeconomic levels. That technology access also opens opportunities to provide services to segments of the population that have traditionally shied away from traditional banks, he said.
But bankers also must be careful to recognize one application does not fit all – individual consumers have different needs and expectations than business customers, he said. So part of a bank executive’s challenge will be rolling out mobile services to market segments in a way that makes the most sense for the most users, via partners that can support those services most securely.
“We’re finding that in mobile banking, in the next three to five years or sooner, will become a key part in business banking simply in acknowledging the nature of business owners today, who are constantly on the move,” Fleming said. “They need to be able to sign a check and approve a wire transfer on the go.”