Increasing Your Bank s Profitability. David Mendoza Senior Business Consultant Sales and Service Solutions FIS

Transcription

1 Increasing Your Bank s Profitability David Mendoza Senior Business Consultant Sales and Service Solutions FIS

2 Market Challenges Bank revenues are under pressure Reg E overdraft amendment / Durbin amendment Decrease in loan demand Commercial credit renewals Consumer confidence / unemployment Additional regulation - Future Focus of Consumer Protection Agency? TCF moving to flat OD fee policy Will end per item OD fee by year end Checking Account Income Components Annual Income in $Billions $22B $4B $3B Exception Fees (Mainly NSF/OD) Interchange Fees $36B Net Interest Margin Transaction Fees TowerGroup estimates that regulatory changes will reduce bank fees by an estimated $25B annually Durbin? $12B Maintenance Fees Source: Federal Reserve Bank (Transaction Deposits, Commercial Banks) Source: Profit vs. Growth: Banks Unveil New Checking Account Pricing Strategies, July

3 Build a Foundation for Profitable Growth Back to the Basics Understand the profitability of your customers. Develop segmentation schemes that divide customers into useful and actionable segments based on profitability, demographic, and lifecycle attributes. Leverage technology, people, and process to execute tactics based on customer segments. 3

4 Relationship Profitability A Bottom-Up Approach 4

5 Why Customer Profitability Still Matters? 80/20 Rule Too Optimistic 370 of 4,000 (9.2%) customers drive 85% of total profits 54% of customers have sub-par returns of LESS than $25 per month $1,400 $700 $0 Rolling 12 Average Profit ($700) Decile Source: FIS 5

6 Actionable Strategies Assign relationship managers to top 100 customers and have proactive calling effort to ensure their on-going satisfaction with bank. Empower employees to make pricing and fee decisions. Identify unprofitable customers with a: Waived fee status and evaluate if the status is correct Negative Net Interest Margin and determine why. Use information in re-pricing efforts Single product and cross-sell profitable product or change product features Incent relationship managers to increase the profitability of their portfolios. to achieve Profitable Customer Growth

7 Why Product Profitability is Important Our industry is evolving and customers have more choices than ever! 7

8 Top Banking Trends #1 retail banking re-pricing By the end of 2011, customers will have to earn the right to waive fees with behaviors and balances. Top 10 Trends in Retail Banking, 2011 February,

9 What is Best Approach to Change Consumer Behavior? What is the most effective approach to attract and retain profitable customers? OR 9

10 Do Carrots Really Work? Lift in adoption of services 100% 90% 80% 90% 94% 83% 90% 99% 70% 60% 50% 40% 46% 58% 61% Behavior Not Required Behavior Required 30% 20% 10% 0% Check Card Penetration Online Banking Enrollment 12% Electronic Statements 1% Direct Deposit Valid Address Source: Case study from financial institutions based in West 10

11 Do Carrots Really Work? Lift in monthly transaction activity Behavior Not Required Behavior Required Bill Pay Transactions ACH Transactions Debit Card Transactions Source: Case study from financial institutions based in West 11

12 Popular automatically offers higher rates on existing CDs if customers open additional deposit accounts with qualifying balances. Average CD balances 60% higher 50% penetration of accounts with Checking, Money Market, and Savings 12

13 Build a Foundation for Profitable Growth Back to the Basics Understand the profitability of your customers. Develop segmentation schemes that divide customers into useful and actionable segments based on profitability, demographic, and lifecycle attributes. Leverage technology, people, and process to execute tactics based on customer segments. 13

14 2. Develop Customer Segments Segmentation provides a framework to group customers together that: Behave in a similar way Have similar needs, profit clusters, attitudes, and preferences Segmentation helps answer questions like: Who are my best customers? What are they like? How do they use bank products? Why segment? Offer more relevant products Better understand customer value propositions Project customer reaction to change 14

15 Overlay External Demographic Data Gain a richer understanding of customer segments The solution leverages external data, like Nielsen-Claritas P$YCLE lifestage segmentation, to better understand product buying and usage propensities of individual households and customer segments: Financial behavior Investment behavior Household Income Age of Householder Family Composition Household size Presence of children Home ownership Own/Rent Single-family home Multi-family dwelling Courtesy of the Nielsen Company 15

16 Analysis Output = Product Reconfiguration Most banks are re-thinking their products Some are already re-positioning and re-pricing Old customer value propositions are being tweaked New propositions are being developed Some trends are emerging... More qualifiers for "free" checking Customized "build it" accounts More emphasis on "relationship" Renewed focus on electronic channels New OD protection or credit offerings New propositions on savings "discipline" Less aggressive debit card rewards Totally electronic accounts 16

17 Build a Foundation for Profitable Growth Back to the Basics Understand the profitability of your customers. Develop segmentation schemes that divide customers into useful and actionable segments based on profitability, demographic, and lifecycle attributes. Leverage technology, people, and process to execute tactics based on customer segments. 17

18 Connections Profitability With CONNECTIONS Profitability Analysis, you can determine the net profit of each product, account, household, branch location, and employee portfolio in your institution. CONNECTIONS calculates profitability in an income statement format. Considerations Each account s interest income or expense Cost of funds (loans) Earnings credit (deposits) Direct and indirect fees Non-interest expense Captures Individual account fees Volumes Transactions 18

19 Connections High Value / Low TCO Browser Based Solution Requirements: Computer; Internet; User ID/Password Integrated with core Account information automatically updated daily Interface with non-core systems that house customer information Wealth Management Trust/Investments Mortgage Insurance Householding Updated daily based on address and tax ID Demographic Data Appended to each household to build customer profile Data includes: average age, income, marital status, children, own/rent, etc. 19

20 Relationship Management Sales Management Connections Marketing Automation Profitability 20

21 An End-to-End Business Strategy Profitability Relationship / Product Pricing Marketing 21

22 Demo 22

23 Profitability Displayed at Customer Level

24 Profit Ranking by Deciles Summary

25 Profit Ranking by Detail

26 Product Profit / Loss 26

27 What-If Modeling

28 What-if Modeling Adding Products 28

29 What-if Modeling Apply Discount 29

30 Surveys

31 Let's Summarize Regulatory and market changes are driving innovation in retail strategy and product offerings. Consumer attitudes and expectations are changing and shifting toward value-based offerings. To win, banks must better understand the profitability of customers so as to better define actionable business strategies. FIS can help! 31

32 David Mendoza Senior Business Consultant Sales and Service Solutions FIS LinkedIn / Keywords: David Mendoza