Tuesday, February 23, 2016

Thoughts on Fee Income: Merchant Processing Services

Virtually every bank I speak to feels the pressure to increase earnings.  In advising banks on such matters, I try to focus on items that are relatively easy to implement, and will generate a stream of earnings with minimal ongoing effort.  Merchant Processing Services fall into this category.  It’s this simple, really: every one of your business customers that accept debit and credit cards (and digital wallet payments) need this service.  Too many banks have the attitude of “we can provide that if they need us to” instead of very intentionally trying to be the primary provider of such services.

It is exactly this type of thinking that prevents you from collecting all the fee income you should.  Begin now to assess your current program in terms of pricing, functionality, and marketing support.  If it is not what you need to be competitive, look at renegotiating with your current vendor, or evaluate alternate vendors.  Get a program in place that you can be proud to offer.  Then, incorporate this service into all your sales training, calling officer preparation, and marketing materials.  Leverage the relationships you have to sell more Merchant Services to your existing customers, and make the product you offer a selling point for prospective customers as well.

Properly executed, this plan will generate fee income in two ways: signing bonuses for new accounts, and per transaction fees monthly.  A third benefit is a stronger, more exclusive relationship with your business customer.  These benefits alone should make you invest the time to focus in deploying a Merchant Processing Services program.

Tuesday, February 9, 2016

Comments on Fiserv Acquisition of ACI

A number of you have asked me about implications of the ACI acquisition by Fiserv.  Here are some thoughts.

By now you have seen news of the acquisition by Fiserv of ACI’s Internet Banking solutions group.  I want to address this at a macro and a micro level.  First, let’s take on the macro side.  The banking software industry has mirrored the banking industry itself, by consolidating.  We now have an oligopoly in banking software - three firms control a majority of the market.  In such an environment, further consolidation is almost inevitable, as the big players seek to drive more revenue from ancillary products.  You will see more of these types of acquisitions, as it becomes harder for third party, best of breed solutions to sell product into banks directly.

At the micro level, this is a win for Fiserv.  It gives them an integrated product that works across all platforms, and includes both business and personal Internet banking capabilities.  As mobile becomes increasingly important - to both consumers and businesses - demand for enhanced capabilities will increase.  Fiserv’s current setup features distinct products for consumer and commercial, creating an unnecessarily complex delivery channel.  If you are an ACI customer using a Fiserv core today, you may find that your product becomes the main Fiserv offering, rather than being replaced.  When you consider that Fiserv acquired fewer than 600 customers, many of who are Credit Unions, you will see that this was more than just an effort to buy customer base.  The product is important, and that’s good news for ACI customers.

Monday, February 1, 2016

Strategies for Success

As we move into the new year, I wanted to offer you some ideas for improving your bank that don’t necessarily require new investment in hardware or software.  I trust you will find some of them applicable. 

Innovation 
It’s hard to read any of the banking trade publications these days without seeing this word. It is in my top 5 overused words for 2015.  For most community banks, innovation can be a challenging word.  You won’t typically develop your own mobile applications, or write software to improve loan operations.  Let me interpret innovation differently then: think of it as improving the way you already use your information technology, like parsing data for a marketing campaign, or creating a new checking account product that appeals to a section of your current (or desired) customer base.  For example, use your report writing capabilities to parse your customers' payment habits, and learn where they shop most often in your community.  If the businesses you identify aren’t currently customers of your bank, perhaps there is an opportunity to engage them regarding the value of doing business with you.  Again, looking at payment habits, can you identify a group of customers who almost exclusively use their debit card rather than writing checks?  If so, they may be candidates for a streamlined checking account that better reflects their payment habits, and lifestyle.  

Finally, when thinking about innovation, be sure that you are pushing your software vendors for new products and services in a timely fashion, and for operating parameters (later cut off times for remote deposit or longer operating hours for your non-traditional branches) that allow you to compete effectively in your markets.  Allowing vendors to dictate your operating hours is not an ideal situation. 


Fee Income Opportunities 
One failing in our industry has been our consistent approach of giving away virtually everything, to the point that our customers have come to expect it.  As I told one banker a few years ago, “you already have free business checking . . . you just call it ‘we don’t charge for that’”  There are two areas to consider here.  First, improved collection of fees you are already due . . . NSF, OD, loan late charges, research charges.  There’s no reason not to impose such fees unless the bank is at fault for the problem.  Typically you are not.  For fees that are already published, start with your employees.  Help them to understand why we need to collect these fees, and give them training on how to approach customers.  In my experience, employees are often reluctant to impose such fees because of customer reaction.  These employees need guidance, and to be reminded that fee income is part of the bank’s revenue, driving salaries and helping offset overhead costs.  New services present a tremendous opportunity for educating customers that they should expect to pay for value when it is delivered.  “app stores” from Apple and Google have taught consumers to expect to pay in small increments for products that they want.  Leverage this mindset, and impose such fees when you begin to offer new products, including mobile capture, person to person payments, or other enhancements to your electronic delivery channels.  


Staffing 
Like many of you, I’ve been doing this banking thing for a while.  I’m in my fourth decade.  I always try to look for common concerns and considerations.  One of those remains staffing issues.  I know that I’ve written about this fairly recently, but I believe it is valuable to talk about it again.    Many community banks are overstaffed. (the numbers back me up - banks under 1 billion in assets tend to have 2 times the employees per million in assets that banks over 1 billion have)  At best, they aren’t staffed with the right people.  

A good bit of this issue is a result of poor HR practices that contribute to a tolerance of mediocre performance.  While I am not an HR expert, I know this for sure: it is impossible to fairly evaluate an employee’s performance if you have not established clear expectations for them.   

Most managers dread annual performance reviews.  As a result, such reviews are often late, done poorly, and contribute to an employee morale issue.  But if the manager builds a good job description, clearly communicates it to each employee, and uses that document as a means of continually evaluating employee performance, the task becomes easier.  Coaching events - positive and negative - are dealt with in a timely fashion, properly documented, and when annual review times comes around, both the manager and the employee will have a good idea of what to expect.  A much better situation than a hastily done performance review that leaves both parties with a bad taste in their mouth. 

Improving your managers engagement with their employees as it relates to performance reviews is a key first step in better management.  I believe just implementing these basic steps will go a long way toward improving both employee productivity and morale.  

As always, I stand ready to assist you with these or other matters.  Please reach out to me anytime. 

Upcoming and Recent Speaking Engagements
January 
19-20: Kentucky Bankers Association Payments Symposium, Louisville
21: Private Event: Industry Update
April
8: Ohio Bankers League: Technology Conference, Columbus
18: Graduate School of Banking: IT Management School, UW-Madison, 
May
3: Ohio Bankers League: CEO Conference, Columbus
4: Southern Financial Exchange: Annual Conference, Memphis
11 Maine Bankers Association: Directors Forum Augusta
June
22 Florida Bankers Association: CyberSecurity Conference, Orlando
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. 
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