researching the financial services industry since 1983. impact of recent regulatory changes on bank...
TRANSCRIPT
![Page 1: Researching the Financial Services Industry Since 1983. Impact of Recent Regulatory Changes on Bank Pricing, Services, and Trends](https://reader030.vdocuments.site/reader030/viewer/2022032800/56649d215503460f949f72b2/html5/thumbnails/1.jpg)
Researching the Financial Services Industry Since 1983.
Impact of Recent Regulatory Changes on Bank Pricing, Services,
and Trends
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2Knowledge is profit
Agenda• Introduction
• Summary of regulatory changes• Product Impact and Industry Trends
• Products and Services Analysis• Rate Environment• Fee Environment
• Final Thoughts• Recommendations for 2012• Projections for 2013 and beyond
• Contact Information
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Researching the Financial Services Industry Since 1983.
Summary of Regulatory Changes & Product Impact and Industry
Trends
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Regulatory & Technological Changes• Regulatory Changes
• Repeal of Regulation Q• Durbin Amendment• FDIC Changes
• Technological Changes• Web Portals• Security Devices• Mobile Banking
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Researching the Financial Services Industry Since 1983.
Earnings Credit Rates
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5 Year ECR Historical
Data compiled from institutions with an asset size of $100 Billion+ as of April 2012.
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5 Year T-Bill & Fed Funds Historical
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5 Year Historical TrendFed Fund 5.25%T-Bill Rate 4.76%
Fed Fund 3.00%T-Bill Rate 2.25%
Fed Fund 1.00%T-Bill Rate 0.355%
Fed Fund 0.00% - 0.25%T-Bill Rate 0.025%
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Researching the Financial Services Industry Since 1983.
Hybrid Commercial Checking Accounts
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OVERALL
<$1 Billion
$10 Billion - $1 Billion
$20 Billion - $10 Billion
$50 Billion - $20 Billion
$100 Billion - $50 Billion
$100+ Billion 0%
20%
40%
60%
80%
100%
120%
79%
60%68%
83% 86%
100%
90%
21%
40%32%
17% 14%
0%
10%
YESNO
Source: Informa Research Services 2011 Impact of Regulation Q Study
Do you offer or plan to offer a hybrid option that both offsets fees and pays interest on excess balances?
Many institutions have not changed their perspective on offering the hybrid product from 2010 to 2011.
2011 Regulation Q Study (overall)• 79% will offer the hybrid product• 21% will not offer the hybrid product
2010 Regulation Q Study (overall)• 76% are planning to offer the hybrid product• 24% are not planning to offer the hybrid product
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42%
8%17%
33%
PRODUCT STRATEGY
SYSTEM LIMITATIONS
LACK OF INTEREST FROM CLIENTS
OTHER
Source: Informa Research Services 2011 Impact of Regulation Q Study
Which of the following reasons prevented your financial institution from introducing a hybrid product?
Reasons for not offering the hybrid product:
• 42% is product strategy• 17% indicated there was a lack of
interest from clients• 8% indicated that there were
system limitations• 33% of those who responded had
a different reason for not offering the hybrid product:• Core vendor cannot support
the product • Other priorities limit focus at
this time• Clients wish to leverage
100% FDIC coverage
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87%
2% 11%THE PRODUCT HAS AN ECR RATE TO OFFSET THE FEES AND AN INTEREST RATE EARNED ON THE EXCESS BALANCES
THE PRODUCT DOES NOT HAVE AN ECR, BUT THE INTEREST EARNED IS USED TO OFFSET THE FEES AND IF THERE IS EXCESS INTEREST THE CUSTOMER IS PAID IN-TEREST
WILL OFFER BOTH OPTIONS LISTED ABOVE
Which of the following methodologies would define how your Hybrid product will work?
Traditional Hybrid Option:• Overall 87% indicated that the
hybrid product offered will have an ECR rate to offset the fees and an interest rate earned on the excess balances
Non Traditional Hybrid Option:• Overall 2% indicating they will
offer a product that does not have an ECR, but the interest earned is first used to offset the fees and if there is excess interest earned, the customer is paid interest.
Traditional and Non-Traditional:• Overall 11% of those that
responded indicate they will offer both hybrid options.
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Researching the Financial Services Industry Since 1983.
Commercial Interest Checking Accounts
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OVERALL
<$1 Billion
$10 Billion ...
$20 Billion ...
$50 Billion ...
$100 Billion...
$100+ Bill...
0%10%20%30%40%50%60%70%80%90%
100%
70%
60% 64%
83% 86%
71% 70%
30%
40% 36%
17% 14%
29% 30%
YES NO
Do you currently offer a commercial interest checking account?
There was a slight downward trend in the percentages on offering a commercial interest checking product from 2010 to 2011.
2011 Regulation Q Study (overall)• 70% will offer a commercial interest checking product • 30% will not offer a commercial interest checking product
2010 Regulation Q Study (overall)• 85% are planning to offer a commercial interest checking product • 15% are not planning to offer a commercial interest checking product
Source: Informa Research Services 2011 Impact of Regulation Q Study
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Researching the Financial Services Industry Since 1983.
FDIC Fees
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32%
84%
35%
75%
SMALL BUSINESS ACCOUNTS
MIDDLE MARKET/LARGE CORPORATE ACCOUNTS
SMALL BUSINESS PUBLIC FUND ACCOUNTS
MIDDLE MARKET/LARGE CORPORATE PUBLIC FUND AC-COUNTS
On which of the following segments will your financial institution be passing a standard FDIC fee on to a Non-interest DDA?
2011 Regulation Q Study (overall)
Overall, the majority of respondents indicated that an FDIC fee would be passed onto a non-interest DDA.
• 84% indicated they would pass an FDIC to the middle market/large corporate segment .
• 32% will pass on an FDIC fee to the small business segment.
2010 Regulation Q Study (overall)
• 62% of respondents stated that they are not planning to pass on the FDIC charge to their non-analyzed account holders .
• 21% of respondents are planning to pass on the FDIC fee to the small business customer segment
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65%
51%70%
26%19%
11%
INTEREST-BEARING CHECK-ING FOR COMMERCIAL AND CORPORATE CLIENTS
INTEREST-BEARING CHECK-ING FOR PUBLIC FUND CLIENTS
HYBRID CHECKING FOR COMMERCIAL AND COR-PORATE CLIENTS
COMMERCIAL AND COR-PORATE MONEY MARKET DEPOSIT ACCOUNTS
PUBLIC FUND MONEY MARKET DEPOSIT AC-COUNTS
DO NOT OFFER ANY OF THE ABOVE PRODUCTS
Do you currently charge or anticipate charging an FDIC fee on the following products?
Products assessed an FDIC Fee:
65% - will pass FDIC fee on commercial checking70 % - will pass FDIC fee on a hybrid checking11% - do not offer any of those products
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Researching the Financial Services Industry Since 1983.
ECR, Hybrid and Commercial Interest Checking Strategies
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ECR and Hybrid Rates Comparison
Data compiled from institutions with an asset size of $100 Billion+ as of April 2012.
Analyzed ECR Only
Analyzed ECR With Interest
(Hybrid)
Institution Tier Earnings Credit Rate Earnings Credit Rate
Bank A $100,000 0.45 0.20
Bank B $100,000 0.20 0.20
Bank C $100,000 0.30 0.20
Bank D $100,000 0.35 0.20
Bank E $100,000 0.25 0.20
Bank F $100,000 0.15 0.25
Average $100,000 0.28 0.21
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Commercial Interest Rates
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Checking Accounts Statistical Data• 60% - 15 out of the top 25 institutions currently offer a Commercial
Hybrid Checking product
• 60% of the top 25 institutions currently offer both an Analyzed ECR product & Commercial Hybrid Checking product.
• 68% - 17 out of the top 25 institutions offer a Commercial Interest Checking Product
• 56% - 14 out of the top 25 institutions are currently offering both a Commercial Hybrid and a Commercial Interest Checking Product.
• 56% - 14 out of the top 25 institutions are currently offering an Analyzed ECR, Commercial Hybrid, and a Commercial Interest Checking Product
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Researching the Financial Services Industry Since 1983.
FDIC Insured Sweeps
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Do you anticipate making any rate changes to the commercial money market/savings or sweep product options you offer as
a result of the repeal of Regulation Q?
15%5%
5%
75%
YES, RATE CHANGES TO BOTH COMMERCIAL MONEY MARKET/SAVINGS AND SWEEP PRODUCTS
YES, RATE CHANGES TO MONEY MARKET/SAVINGS ONLY
YES, RATE CHANGES TO SWEEPS ONLY
NO CHANGES
Source: Informa Research Services 2011 Impact of Regulation Q Study
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After the Repeal of Regulation Q, did you create or are Did you create, or are you planning to create a
commercial DDA product that includes an investment sweep into a bank Money Market Deposit Account?
OVERALL
<$1 Billion
$10 Billion - $1 Billion
$20 Billion - $10 Billion
$50 Billion - $20 Billion
$100 Billion - $50 Billion
$100+ Billion
0%
20%
40%
60%
80%
100%
120%
23%
0%
32%
0%
43%
29%
10%
77%
100%
68%
100%
57%
71%
90%
YESNO
Source: Informa Research Services 2011 Impact of Regulation Q Study
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FDIC Insured Sweep Examples
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Investment Sweeps Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Credit & Dual Sweeps Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Researching the Financial Services Industry Since 1983.
Commercial Checking Account Fees
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OVERALL
<$1 Billion
$10 Billion - $1 Billion
$20 Billion - $10 Billion
$50 Billion - $20 Billion
$100 Billion - $50 Billion
$100+ Billion
0%
20%
40%
60%
80%
100%
120%
73%
33%
64%
100%
67%
100%
71%
28%
67%
36%
0%
33%
0%
29%IDENTICALDIFFERENT
If you anticipate offering an interest-bearing checking product for commercial customers, will your Cash Management fee structure be identical to or different from commercial
checking accounts with earnings credit?
Source: Informa Research Services 2011 Impact of Regulation Q Study
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Commercial Account Fees
Monthly Maintenance Deposit Ticket Deposited Item Paid Item
Analyzed ECR Only
Analyzed ECR &
InterestAnalyzed ECR Only
Analyzed ECR &
InterestAnalyzed ECR Only
Analyzed ECR &
InterestAnalyzed ECR Only
Analyzed ECR &
Interest
Bank A $20.00 $20.00 $0.75 $0.75 $0.15 $0.15 $0.20 $0.20
Bank B $18.00 $40.00 $1.00 $1.00 $0.15 $0.15 $0.22 $0.22
Bank C $15.00 $30.00 $1.40 $1.40 $0.11 $0.11 $0.15 $0.15
Bank D $15.00 $15.00 $0.80 $0.80 $0.20 $0.20 $0.20 $0.20
Bank E $20.00 $30.00 $0.80 $0.80 $0.12 $0.12 $0.17 $0.17
Bank F $30.00 $30.00 $1.00 $1.00 $0.17 $0.17 $0.20 $0.20
Data compiled from institutions with asset size of $100 Billion+ as of April 2012
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31Knowledge is profit
Commercial Checking Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Deposited Item Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Researching the Financial Services Industry Since 1983.
Virtual Banking
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34Knowledge is profit
Information Reporting Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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ACH Monthly Fee
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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ACH Transaction Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Domestic Outgoing Wires - Web
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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International Outgoing Wire - Web
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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• Remote deposit capture (RDC) has become a convenient service for business customers and now even retail clients.
• RDC has grown 13% over the past two years, mainly due to the expansion to the consumer market.
• The benefits of RDC greatly outweigh the cost of processing paper checks.
• Smart phones will increase the number of users.
Remote Deposit Highlights
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Lockbox Monthly Fee
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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41Knowledge is profit
Remote Deposit Monthly Fee
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Key Trends• Commercial Business Segment:
• Overall lower service fees in 2011 compared to 2010 - 2009 averages.
• Monthly fees can be based on number of accounts, locations, or check scanner equipment.
• 62% of financial institutions only offer one RDC solution for all business clients regardless of business size.
• Small Business Segment: • Growing market with specific remote deposit capture and
mobile banking solutions. • Lower monthly fees for remote deposit packages available
for analyzed and non-analyzed clients. • The further development of small business mobile remote
deposit will help make RDC more affordable. • Two most common services thought after by new clients –
remote deposit capture and mobile banking
www.wellsfargo.com
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Key Trends
• Retail Segment: • Remote deposit capture has
expanded to the personal account level where checks can be scanned and deposited via web connection by taking a picture with a mobile phone or using a check scanner.
• The remote deposit service and mobile banking are generally free with certain deposit limitations, such as total daily and monthly deposit limits, to reduce incidence of check fraud and liability.
www.chase.com
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Researching the Financial Services Industry Since 1983.
Card & Cash Transaction Processing
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Credit and Prepaid Card Trends• Shift from Debit to Credit
• Regulations• Durbin Amendment• Overdraft Protection
• Reversed Trend• Credit Card vs. Debit Card Rewards
• Payroll Cards• Cost • Convenience
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Payroll Card Fees
Data compiled from the top 25 Banks and Thrifts with the Most Deposits in the American Banker as of April 2012
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Merchant Card Processing
• Interchange Rate• Alternative Providers• Rise of the quasi-merchant
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Virtual Cash Processing• Security• Convenience• Daily Credit• Information Reporting
Source: www.brinks.com
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Final Thoughts• Conclusions
• Where are we now?• What is going to happen?
• Product Recommendations• Industry Focus• Sophistication & Simplicity
• Projections for 2013 and beyond• Rate Environment• Fee Environment
• Questions
There are so many men who can figure costs, and so few who
can measure values.
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52Knowledge is profit
Contact Information
Randy Rosen, CTP
Manager Deposit ResearchInforma Research Services, [email protected]
Zoya Lieberman, CTPProduct Manager Commercial ServicesInforma Research Services, [email protected]
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Trends in Bank Pricing
What Corporate Treasurers Need To Know
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2012The extreme volatility of banking regulations, rates, fees,
lending, international exchange, and relentless bank revenue-generation tactics mandate now more than ever that
companies perform constant analysis and tuning of their bank relationships.
The Current Environment
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Common Problem, Few Solutions
Low Interest rates + new regulations + constant demand for new technology and latest products
The Current Environment
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FEESNew. Increased. Bundled.
The Current Environment
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Liquidity Performance
Bank
Cus-tomer
The primary objective of a bank is to earn as much yieldas possible on the liquidity of its depositors.
Liquidity Gross Potential Yield
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Liquidity Performance
Bank
Cus-tomer
The primary objective of a corporation is to earn as much yield as possible on their own liquidity.
Liquidity Gross Potential Yield
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Through persistent analysis, comparison, structuring, and negotiation.
BALANCE
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Trends in Bank Pricing – Our Focus
Regulation Evaluation
Negotiate Rates
Fees = Help, Please!
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Unlimited InsuranceThrough Dec 2012
Regulation Evaluation
Hard InterestTaxable
Alternate InvestmentCorps with dividend income can use hard interest in lieu of
MMAs
Decreased InterchangeDurbin caps debit card interchange fees at .12/c
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Regulations = Corporate Re-evaluation
Do the MathECR vs Hard Interest vs Hybrid
How much is the FDIC actually costing you?
What are ways to push cheaper payment alternatives and is it worth it?
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Earnings Credit Rates have been traditionally tied to LIBOR or T-Bill. The current environment gives banks more flexibility to set rates based on other factors, and therefore rates vary greatly
across institutions.
Negotiate Rates
Account Analysis Audit Period April, 2012
Bank ECR Rate Negotiated/ Exception ECR Rate
Industry Best Competitive Rate
Bank A 30 bps 55 bps 135bps
Bank B 20 bps 90 bps 135bps
Rates
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Negotiate Rates
Earnings Allowance = Fees = Balanced?
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Rate Trends
.13 bpsAverage ECR
(after FDIC insurance recovery)
“ECR rates of 0.35% and 0.50% were more prevalent if total service charges were above rather than below the median level.” (Phoenix Hecht Executive Summary)
Earnings credit rates are tiering backwards based on balances. Higher the balance, the lower the rate.
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Negotiate Rates
35bps ECR rate difference across
accounts for a companyunder a single Bank relationship
3rd Place
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Negotiate Rates
-0.12 %Actual ECR rate for a company
with $20M+ ADB at Bank(based upon a 1 bps rate and
13 bps FDIC insurance recovery)
$20 mill x .0001/12 = $167 less $20 mill x .0013 FDIC/12 = $2167-$2000.00
2nd Place
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FDIC Rates – Grand Prize Winner
The FDIC has no official position on if or how a bank chooses to pass along its insurance premiums.
I think the greatest resource at the moment is to convince customers that these fees imposed by their banks are negotiable and should be a point of discussion with their depository institution.
Anonymous, FDIC
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Fees = Help, Please!
Treasurers Banks
profits
regulationbranchoverhead
capital ratiosrelationship ambivalence
risk management
fee overload
volatilitynear or less than zero
interest rates
no timelack of transparency and no
means for comparison
automation
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Fees – Help, Please!
2,566AFP Domestic Service Codes
for Bank Fees
850AFP Global Service Codes
for Bank Fees
$378Average Monthly Bank Fees
Per Account
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Fees – Help, Please!
72%Companies That Do Not Perform a Detailed Account Analysis Review
4%Actively Challenge Banks on Their Account Analysis Review Findings
21%Average Number of Unnecessary
or Duplicate Services
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Benefits of a Detailed Review of Fees
DDA Statement Mailed: Four accounts are set up with this service, at a rate of $25 per account ($100 per month). Bank should ensure that all 13 accounts in the group are set up with “DDA Statement -Internet," which provides the statements online with a $0 charge; currently 10 accounts are set up with this.
Acct Maint Services: The math on the analysis is wrong. Comp X is being charged $15 with a volume of 2 - the total charge should be $30. The analysis reflects a $40 charge. This extra $10 needs to be credited, and the go-forward rate should remain at $15.
Wire Transfer Advice- Mail: This service should be eliminated unless there is a need for some % of wires to have paper confirmations mailed.
Returns - Alternative Address Services: This is a new service; we need Bank to define what this is.
General Checks Paid - Not Truncated: One account has been setup to "not truncate" checks that are paid – (acct ending in XXX). This is the only account set up this way. It should be modified to truncate all paid checks, similar to all other accounts in the group.
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New Fees
Incoming Wire Fees Rising
Averaging fees - Individual lockbox prices are higher/lower but the average stays the same
Bundled Pricing/ Changing Line Item
Wires with Additional Remittance Data - Enabling STP
Going Green
Additional Online Banking fees - Tokens, Users, Value-Added
When a bank changes a price or adds a new charge, they are required to notify you in two different ways.
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Cash Letter Charges
Online banking wire approvals – Mobile Maintenance and Per User fees.
Pos Pay Reject Notification (without image) - Customers pay more if they want an image of the rejected item.
Advices!
UPIC (Universal Payment Identifier Code)- shadow code that enables posting of credit payments to a bank account without having to give the vendor your bank instructions (routing, account#, etc) as a means of fraud prevention.
New Fees- Continued
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Fees – 3rd Place Winner!
$25 Monthly fee now charged to clients
who request an invoice detailing fees.
3rd Place
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Fees – 2nd Place Winner!
$25NEW “PAPER DEPOSIT MAILED” LINE ITEM MAY
DISPLAY ON YOUR ACCOUNT ANALYSIS STATEMENT BEGINNING IN JANARY 2012, IF YOU
SUBSCRIBE TO ONLINE DEPOSIT STATEMENT ACCESS AND ALSO RECEIVE PAPER
STATEMENTS THROUGH POSTAL MAIL. THIS SERVICE WILL BE PRICED AT $25.00 PER
STATEMENT GENERATED.
Runner Up
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Fees – Grand Prize Winner!
Image Clearing - IRD Creation
When Bank receives images from you via Image Cash Letter or Remote Deposit, they can many times send those images directly to the receiving bank for settlement of funds. Some
banks, however, cannot receive images to settle funds and your bank has to create an
Image Replacement Document, and (in essence) send them paper to facilitate the
settlement of that deposit.
Instead of charging the bank who cannot accommodate Images – YOU are charged.
Grand Prize
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There is a disconnect within companies between people generating reports, people performing different functions through an online banking platform, and the people in charge of billing.
97 wire notifications
37 people generating wires
Why?
Ways to Reduce Fees Within Company Walls
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RFP RIPOccasional pricing does little to counter
daily banking volatility.
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How is Liquidity Performance Optimized?
There are numerous ways to achieve optimal liquidity performance:
• Negotiate and Reduce Fees• Improve ECR• Eliminate Redundant & Unnecessary Services• Implement New Services• Resolve Price Inconsistencies• Leverage Regulatory Allowances• Optimize Internal Processes• Integrate Technology Platforms• Utilize Third Party Services – Co-Source• Float Compress
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Questions & Answers
About the Presenter:
Bridget Meyer [email protected]
Product Manager, BRM Services for The Montauk Group
Product Manager, AFP Accredited Service Code Provider Program
Project Manager/Author of the AFP Global Service Codes