June 30, 2022
The issues bankers face regarding modern retail banking products and strategies aren’t for the faint-hearted. You have to make decisions with conviction and then be able to zig when you need to and zag when you have to. Otherwise, your FI will fall behind.
And catching up isn’t easy.
Here’s our scoop on the latest industry news.
CFPB Dialing Up the Pressure on Overdrafts
CFPB’s regulation by press release has been ratcheted up. It’s “conducting research” by analyzing actual key metrics related to overdrafts, a much-needed complement to various market surveys and distracting political theater. A ton of analytical investigation isn’t needed to verify that ODs serve a valuable purpose to select consumers and some FIs have overdone it by exploiting vulnerable consumers. OD fees aren’t inherently bad. They are inherently priced too high for the risk in providing this service. This whole process can be sped up (to move on to bigger issues) if FIs lower OD fees to more reasonable levels; are more transparent in their disclosures; and cap the OD occurences over a defined period of time.
Breaking News: Consumers Don’t Like Bank Fees, Like Subscriptions
Not really breaking news as this is the sentiment of every demographic, especially Gen Z and Millennials, who have made subscribing to almost anything a lifestyle choice. Selected banking services creatively bundled and marketed by digital banks and fintechs (Revolut, NuBank, Qapital, Aspiration, N26, and Acorns) are already capitalizing. Legacy FIs are getting lapped in this race for consumer-friendly recurring revenue badly needed to mitigate reliance on transaction-based fees. Consumers are speaking with their wallets when it comes to subscriptions and legacy FIs aren’t listening, stubbornly hanging on to penalty fees, while revenue challenges proliferate.
Primacy, Primacy, Primacy
Defining and identifying which customers/members view your FI as their primary one is the key to unlocking more revenue and account value than just spending time and money to get the next new account - that has a 35% chance of not generating enough revenue to cover your FI’s cost to maintain and manage that account! Quantifying primary relationships (ideally by revenue and not activity) and optimizing that primacy is how your FI wins. Opening a lot of new accounts that never become primary will continuously drag down your earnings. Less accounts with more primacy trumps more accounts with less primacy.
New Research from Ron Shevlin
According to the new research report, Creating a Fintech Revenue Engine, after a record-setting financial performance in 2021, community financial institutions are now quickly staring down the barrel of a revenue recession in 2022. Ron Shevlin and Tristan Green of Cornerstone Advisors provide compelling insights and solutions to address the revenue recession driven by declining fee income and waning interchange income. Download the free report.