Impact of Recent
Regulatory Changes on
Bank Pricing, Services,
and Trends
Researching the Financial Services Industry Since 1983.
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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Summary of Regulatory
Changes & Product
Impact and Industry
Trends
Researching the Financial Services Industry Since 1983.
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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Earnings Credit Rates
Researching the Financial Services Industry Since 1983.
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 Trend
Fed 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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Hybrid Commercial
Checking Accounts
Researching the Financial Services Industry Since 1983.
Do you offer or plan to offer a hybrid option that both offsets fees and pays
interest on excess balances?
120%
100%
100%
80%
83%
79%
90%
86%
Many institutions have not changed their perspective
on offering the hybrid product from 2010 to 2011.
68%
60%
60%
40%
40%
YES
32%
NO
21%
17%
20%
14%
10%
0%
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
0%
$100+ Billion
$100 Billion - $50 Billion
$50 Billion - $20 Billion
$20 Billion - $10 Billion
$10 Billion - $1 Billion
<$1 Billion
OVERALL
Source: Informa Research Services 2011 Impact of Regulation Q Study
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Which of the following reasons prevented your financial institution from
introducing a hybrid product?
PRODUCT STRATEGY
33%
42%
SYSTEM LIMITATIONS
17%
8%
LACK OF INTEREST
FROM CLIENTS
OTHER
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
Source: Informa Research Services 2011 Impact of Regulation Q Study
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Which of the following methodologies would define how your Hybrid
product will work?
2%
THE PRODUCT HAS AN ECR RATE TO
OFFSET THE FEES AND AN INTEREST RATE
EARNED ON THE EXCESS BALANCES
11%
87%
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
INTEREST
WILL OFFER BOTH OPTIONS LISTED ABOVE
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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Commercial Interest
Checking Accounts
Researching the Financial Services Industry Since 1983.
Do you currently offer a commercial interest checking account?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
86%
83%
71%
70%
70%
64%
60%
YES
40%
30%
36%
30%
29%
17%
NO
14%
$100+ Billion
$100 Billion $50 Billion
$50 Billion $20 Billion
$20 Billion $10 Billion
$10 Billion $1 Billion
<$1 Billion
OVERALL
Source: Informa Research Services 2011 Impact of Regulation Q Study
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
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FDIC Fees
Researching the Financial Services Industry Since 1983.
On which of the following segments will your financial institution be passing a standard FDIC fee on to a
Non-interest DDA?
SMALL BUSINESS
ACCOUNTS
MIDDLE
MARKET/LARGE
CORPORATE
ACCOUNTS
32%
75%
84%
35%
SMALL BUSINESS
PUBLIC FUND
ACCOUNTS
MIDDLE
MARKET/LARGE
CORPORATE
PUBLIC FUND
ACCOUNTS
2011 Regulation Q Study (overall)
Overall, the majority of respondents indicated
that an FDIC fee would be passed onto a noninterest 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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Do you currently charge or anticipate charging an FDIC fee on the
following products?
19%
11%
65%
26%
70%
51%
INTEREST-BEARING
CHECKING FOR
COMMERCIAL AND
CORPORATE CLIENTS
INTEREST-BEARING
CHECKING FOR PUBLIC
FUND CLIENTS
HYBRID CHECKING FOR
COMMERCIAL AND
CORPORATE CLIENTS
Products assessed an FDIC Fee:
65% - will pass FDIC fee on commercial
checking
70 % - will pass FDIC fee on a hybrid
checking
11% - do not offer any of those products
COMMERCIAL AND
CORPORATE MONEY
MARKET DEPOSIT
ACCOUNTS
PUBLIC FUND MONEY
MARKET DEPOSIT
ACCOUNTS
DO NOT OFFER ANY OF THE
ABOVE PRODUCTS
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ECR, Hybrid and
Commercial Interest
Checking Strategies
Researching the Financial Services Industry Since 1983.
ECR and Hybrid Rates Comparison
Institution
Tier
Analyzed ECR
Only
Analyzed ECR
With Interest
(Hybrid)
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
Data compiled from institutions with an asset size of $100 Billion+ as of April 2012.
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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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FDIC Insured Sweeps
Researching the Financial Services Industry Since 1983.
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?
120%
100%
100%
100%
90%
77%
80%
71%
68%
57%
60%
YES
43%
40%
32%
NO
29%
23%
20%
10%
0%
0%
0%
$100+ Billion
$100 Billion - $50 Billion
$50 Billion - $20 Billion
$20 Billion - $10 Billion
$10 Billion - $1 Billion
<$1 Billion
OVERALL
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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Commercial Checking
Account Fees
Researching the Financial Services Industry Since 1983.
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?
120%
100%
100%
100%
80%
73%
67%
71%
67%
64%
60%
40%
28%
33%
36%
33%
29%
20%
0%
IDENTICAL
DIFFERENT
0%
0%
$100+ Billion
$100 Billion - $50 Billion
$50 Billion - $20 Billion
$20 Billion - $10 Billion
$10 Billion - $1 Billion
<$1 Billion
OVERALL
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 &
Interest
Analyzed
ECR Only
Analyzed
ECR &
Interest
Analyzed
ECR Only
Analyzed
ECR &
Interest
Analyzed
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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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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Virtual Banking
Researching the Financial Services Industry Since 1983.
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 Highlights
• 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.
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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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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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Card & Cash Transaction
Processing
Researching the Financial Services Industry Since 1983.
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
There are so
many men who
can figure costs,
and so few who
can measure
values.
• Rate Environment
• Fee Environment
• Questions
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Contact Information
Randy Rosen, CTP
Zoya Lieberman, CTP
Manager Deposit Research
Informa Research Services, Inc.
818.871.2262
rrosen@informars.com
Product Manager Commercial Services
Informa Research Services, Inc.
818.961.8627
zlieberman@informars.com
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Trends in Bank Pricing
What Corporate Treasurers Need To Know
The Current Environment
2012
The 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
Common Problem, Few
Solutions
Low Interest rates + new regulations + constant demand for new
technology and latest products
The Current Environment
FEES
New. Increased. Bundled.
Liquidity Performance
The primary objective of a bank is to earn as much yield
as possible on the liquidity of its depositors.
Customer
Liquidity Gross Potential Yield
Bank
Liquidity Performance
The primary objective of a corporation is to earn
as much yield as possible on their own liquidity.
Customer
Liquidity Gross Potential Yield
Bank
BALANCE
Through persistent analysis, comparison, structuring, and negotiation.
Trends in Bank Pricing – Our Focus
Regulation Evaluation
Negotiate Rates
Fees = Help, Please!
Regulation Evaluation
Unlimited Insurance
Through Dec 2012
Hard Interest
Taxable
Alternate Investment
Corps with dividend income can use hard interest in lieu of MMAs
Decreased Interchange
Durbin caps debit card interchange fees at .12/c
Regulations = Corporate Re-evaluation
Do the Math
ECR 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?
Negotiate Rates
Rates
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.
Account Analysis Audit Period
Bank
April, 2012
ECR Rate
Negotiated/
Exception ECR Rate
Industry Best
Competitive Rate
Bank A
30 bps
55 bps
135bps
Bank B
20 bps
90 bps
135bps
Negotiate Rates
Earnings Allowance = Fees = Balanced?
Rate Trends
“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)
.13 bps
Average ECR
(after FDIC insurance recovery)
Earnings credit rates are tiering backwards based
on balances. Higher the balance, the lower the rate.
Negotiate Rates
3rd Place
35bps
ECR rate difference across
accounts for a company
under a single Bank relationship
Negotiate Rates
2nd Place
-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
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
Fees = Help, Please!
fee overload
profits
volatility
regulation
near or less than zero
interest rates
branch
overhead
no time
lack of transparency and no
means for comparison
automation
capital ratios
Treasurers
Banks
relationship
ambivalence
risk management
Fees – Help, Please!
2,566
AFP Domestic Service Codes
for Bank Fees
850
AFP Global Service Codes
for Bank Fees
$378
Average Monthly Bank Fees
Per Account
Fees – Help, Please!
21%
Average Number of Unnecessary
or Duplicate Services
72%
Companies That Do Not Perform a
Detailed Account Analysis Review
4%
Actively Challenge Banks on Their
Account Analysis Review Findings
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.
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.
New Fees- Continued
 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.
Fees – 3rd Place Winner!
3rd Place
$25
Monthly fee now charged to clients
who request an invoice detailing fees.
Fees – 2nd Place Winner!
Runner Up
$25
NEW “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.
Fees – Grand Prize Winner!
Grand Prize
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.
Ways to Reduce Fees Within Company Walls
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?
RFP RIP
Occasional pricing does little to counter
daily banking volatility.
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
Questions & Answers
About the Presenter:
Bridget Meyer bridget.meyer@themontaukgroup.com
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