Bank Director | Bank Accounts Archives

How Banks Can Benefit From Adopting Automation for Month-End Close

Posted on August 16, 2022 at 12:01 am.

The finance industry is no exception when it comes to the general shift toward automation in daily life.

Automation is a powerful tool that eliminates repetitive manual processes, whether it’s to improving the bottom line by increasing productivity and output or offering better service to bank customers. One area of the business that bank executives and boards should absolutely take full advantage of automation is back-office accounting. Here are some of the top benefits banks can gain from automating the month-end close process.

Perhaps the most immediate benefit of automation for banks is the amount of time they can expect to save. Many bank accounting and finance teams are not closing on a timeline they or their CFOs are satisfied with. The month-end close is not something that can be skipped, which means allocating the time it takes for a full close can encroach into other projects or duties. Executives who have worked as accountants know that if the month-end close is not done on time, stressful days turn into late nights in the office. Automating areas of the close, such as balance sheet reconcilements, can free up time for more high value work such as analysis.

It is not uncommon for bank accounting teams to run lean. Cracks in the month-end close can lead to an overburdened workload, burnout and mistakes. When accountants work under stressful conditions, exhaustion that results in an error can be common. Even one mistake on a spreadsheet can create a material cost for the bank; it’s amazing how the tiniest miscalculation can multiply exponentially. One way to reduce human error is to automate processes with a program that can complete recurrent work using algorithms.

An additional pain banks must consider is compliance: external auditors, regulators and more. Things can start to go downhill if the finance team doesn’t properly generate a paper trail. That’s assuming they have, in fact, properly completed the close and balance sheet reconcilements. When a bank takes shortcuts or makes errors in their accounting, it can result in heavy fines or in extreme cases, even sanctions. In this context, automating the month-end close assumes the ethos of ‘An ounce of prevention is worth a pound of the cure.’ Digitizing the month-end close and supporting documents makes it easier to locate important data points and lessens the potential for discrepancies in the first place.

Lastly, accounting automation can help minimize a bank’s fraud risk. Fraud can go undetected for a long time when banks don’t perform due diligence during the month-end close. Reconciling accounts every month will make it easier to spot any red flags.

Companies that take advantage of available, advanced technology available have more chances to keep up with the ever-shifting business landscape. Bank accounting teams can benefit hugely by automating month-end close.

The Untapped Market Hiding in Consumer Bank Accounts

Posted on July 26, 2022 at 12:01 am.

Written by Erin Register

Banks are sitting on an untapped opportunity to increase revenue and deepen relationships hidden within the data running through their ecosystem. It’s the small or micro businesses operating out of customers’ personal accounts — not through business accounts.

These small and micro businesses have a significant impact on the economy. According to the Small Business Administration, there are 31.7 million small and medium businesses; 81% have no paid employees. Additionally, there are 41.1 million self-employed workers, according to MBO Partners, redefining the needs for small business banking. According to a 2021 survey by gig economy platform Upwork, 59 million Americans performed freelance work in 2021 and contributed $1.3 trillion in annual earnings to the U.S. economy.

The scope of this untapped opportunity may surprise bankers, especially those without robust data analysis services. It impacts banks of all sizes. According to data pulled from transactions of two financial institutions by Segmint and recently presented at the Experience FinXTech Conference, 26% of U.S. consumer deposit accounts have ongoing business transactions and payments.

The research methodology involved examined data from a number of banks ranging from $600 million in assets to $15 billion. Here’s a snapshot of the findings at two community banks:

The $15 billion bank:
• 520,603 total customers
• 51,842 business accounts
• 136,476 consumer accounts with ongoing business transactions

That’s 2.6 times more “hidden” business accounts than actual business accounts.

The $600 million bank:
• 18,431 total customers
• 1,659 business accounts
• 5,625 consumer accounts with ongoing business transactions

That’s 3.4 times more “hidden” business accounts than actual business accounts.

These numbers represent an opportunity for banks to gain revenue by converting consumer accounts to business accounts and processing their transactions. It can also serve to deepen relationships with those customers, increasing product utilization and brand loyalty. But how do banks identify those accounts?

Robust data analysis of account holder activity is the best — if not only — way to identify small and micro businesses operating out of consumer accounts. Financial institutions are flooded with transaction data, the richest kind of data that can produce insights to target these consumers.

Merchant payment cleansing
Merchant payment cleansing is a critical tool to help banks better understand customer transaction behavior and model spend patterns. It is nearly impossible to indentify merchants in transactions without merchant payment cleansing translating the cryptic merchant name on the transaction description to the actual company name. For example, “JDF Revolving” on a transaction translates to John Deere Financing, categorized as business equipment lease financing. “VSA PUR ETI Financial Corp” is actually Honor Capital, which provides business financing services. Without merchant payment cleansing, banks won’t have that important information.

An FI can leverage this clean, categorized and tagged data to evaluate a more organized and select audience. The right partner should offer the bank a robust taxonomy and execute at tremendous speed and scale — all while protecting the privacy and security of account holder data. Knowing the actual merchant names and type of business allows a bank’s data analysis to dig deeper into things like:

Spending With Competitors
Some identifiers of business spend with a competitor include:

Competitive loans for business and business insurance
Competitive equipment financing
Competitive invoice factoring
Competitive merchant services

In our analysis, the total of competitively processed deposits came in at more than $8.6 billion, representing 70% consumer and 30% business accounts. Competitors included Venmo, Cash App, Zelle, Ally Bank, Apple Cash, WorldPay, Square, Intuit Payment Solutions and more.

Business Customer Receipts
Transactions with business-type receipts are also indicative of businesses operating out of consumer accounts. These can include:

Uber freight income
“Vendor to” transactions
“Supplier to” transactions
com marketplace recipients

Business Expenditures
The companies below are widely known, but they could have cryptic transaction descriptions that leave banks wondering. However, they’re easily identifiable after merchant payment cleansing.

Facebook advertising
Intuit Quickbooks
Etsy sellers fee
Shopify
Amazon Web Services
Calendly
Canva
HubSpot
Salesforce
Constant Contact

For more unknown brands, merchant payment cleansing becomes even more critical.

Banks can use these insights on transactions to deliver unique, personalized engagements with their customers and make data-backed decisions. With it, banks can:

Identify how big of an opportunity small business accounts are for them.
Decide if they should invest in small business loan origination service or payment technology.
Invest in group buying opportunities.
Develop integrations with platforms like Quickbooks, Shopify, Etsy and others.
Organize small business workshops around certain vendors to support your small business banking products

By targeting the right bank customers with products like business loans, business checking, equipment loans, and merchant services like remote deposit capture and payment processing to customers, banks can increase revenue, reduce competitive business spend and deepen relationships with their customers.

Adding Value With Merchant Services

Posted on December 11, 2020 at 12:08 am.

Written by Tricia Lesh

Leading with merchant services can help a bank acquire new customers, according to a recent Accenture study commissioned by Fiserv. On average, these accounts are more profitable: Compared to other business accounts, merchant account holders generate 2.6 times more revenue. In this video, Michael Rogers of Fiserv explains how these accounts help banks grow and offers considerations for how bank leaders can enrich this valuable product.

Leading With Payments
Building Relationships
Strengthening Your Offering

To access Fiserv’s study, “From Revenue to Retention: Growing Your Deposits With Merchant Services,” click HERE.

The Impact of Micro-Savings Fintechs on Banks

Posted on October 8, 2019 at 12:01 am.

Written by Tricia Lesh

Despite net zero outflows, banks should closely watch the impact that micro-savings firms have on their financial statements.

There are a number of fintech firms chasing bank customers with innovative features, all aiming to disintermediate customers from their financial institution. Scores of new and established companies in the savings and wealth fintech sectors offer services across three areas: micro-savings, micro-investing and macro-investing. The leading players in these three areas combined are responsible for net annual outflows of about 5% from retail banking accounts.

Micro-savings firms, like Digit and Qapital, use algorithms to automatically transfer small amounts of money out of banks and into goal-based savings accounts. Micro-investing firms, like Robinhood, Stash, and Acorns, also move small amounts from bank accounts into low cost, self-directed or automated brokerage accounts. The final group, macro-investing, includes mature robo-advisory firms like Betterment and Wealthfront, as well as more established firms like Vanguard, Fidelity, and Charles Schwab, whose efforts in technical automation allow them to offer services with zero-dollar starting balances.

The lion’s share of net outflows from bank accounts — about 75%, by our calculations — go to the macro-investment firms; the remaining 25% is directed to micro-investing firms. Given that these are net outflows from the bank, one can assume that the money isn’t coming back anytime soon.

What about the micro-savings firms? If the micro and macro-investment companies consume 100% of net outflows, why do the net outflows for micro-savings total zero? The same amount that is going out is evidentially coming back. If that’s the case, are these companies even worth worrying about?

Net outflows to the microsavings firms are zero almost by design: when people finish saving for whatever it was that they were saving for, the micro-savings fintechs don’t have an easy way to fulfill the actual goal.

Most bank customers already hold a debit card from their existing bank, and most micro-savings firms don’t offer a debit or prepaid card as a vehicle to spend the saved sum. Even if it is offered by the fintech, there’s no guarantee that consumers will opt-in for yet another new card product.

It’s also incredibly easy for customers to transfer the amount out of their micro-savings account back to their bank. If it wasn’t extremely simple for customers to transfer money back to their bank, micro-savings firms could find it very difficult to attract new customers.

But banks should still worry about these companies, even if there is ultimately zero net outflow.

Consider the typical distribution of funds for a micro-savings customer. Say a bank customer named Jen opens a micro-savings account to save for a $1,000 bike. Every month, she moves $100 from her traditional checking account to the micro-savings account outside of her bank. At the end of 10 months — after she has transferred a total of $1,000 from her bank — Jen moves the money back to her bank in order to buy the bike.

Over those 10 months, the micro-savings firm held the slowly building $1,000, earning whatever interest and fees they could. The bank earned nothing. If Jen kept the returned $1,000 in her bank account for a month before she purchased the bike, the bank would have earned only about 15% of the potential net interest margin they could have earned if they held the total deposits for the entire eleven months.

Even though there were zero net outflows for the bank — since $1,000 did a roundtrip from the bank to the fintech and then back again — the impact to its net interest margin was significant. This is the key threat banks face from direct-to-consumer micro-savings firms.

It’s not enough for your bank to only think about the tools you’ll use to combat the micro and macro-investing fintechs as you craft its digital savings and wealth strategies — such as your robo-advice offerings. Those offerings are important, given the large outflows to competitive fintechs.

However, goals-based micro-savings companies are growing as a direct-to-consumer offering. Even with today’s zero net outflows — which could change in the future — their impact on bank net interest margins is significant and worth your attention.

Alexa, What’s My Checking Account Balance?

Posted on November 27, 2017 at 10:08 pm.

Written by Sicily Axton

When Capital One Financial Corp. launched its integration with Amazon’s Echo device in early 2016, it was the first bank to give customers the ability to ask Alexa about their finances. Just like she’s able to tell users about the daily news and weather, Alexa can immediately answer customers’ questions about their checking, savings, credit card, and home and auto loan accounts.

“Conversational interfaces are the future of how people will engage with technology,” said Jim Kresge, head of mobile payments technology at Capital One, in a blog post for Amazon. “The Capital One skill for Alexa has enabled us to serve our customers through a differentiated experience and most importantly, making it even easier to manage their money whenever and wherever they are. Using the new skill for Alexa, Capital One customers can manage their money easily (hands free) and intuitively (conversational UX).”

Capital One customers can also ask Alexa about transactions at more than 2,000 merchants, including Starbucks, Whole Foods and Amazon. Customers can ask about their spending on a specific date or through a select time period, using natural language.

American Express Co. launched its integration with Alexa in May 2017, allowing the company’s card holders to check their account information and pay bills, and also access Amex Offers, which are exclusive discounts available to customers through their American Express card. U.S. Bancorp launched its Alexa skill in September 2017, giving their customers a new way to check account balances and transaction history.

Bank of America Corp. will launch its own digital assistant, Erica, which customers can interact with inside the bank’s mobile app via voice or text message.

The era of the digital assistant
Work, communication, education and finances have evolved from being managed on paper, to the computer, to now on our mobile devices. And the evolution continues as we enter the era of the digital assistant. In addition to the Amazon Echo, key players include Google Home and the Apple Homepod. Even Walmart is making the shift. The retailer partnered with Google to offer their products to shoppers using the Google Express digital shopping mall, so Walmart customers can place orders by speaking to Google Home or using the Google Assistant on Android.

Like these leading banks and retailers, the best companies are finding ways to get rid of complicated menus in their apps and create a more convenient experience for customers. According to the J.D. Power U.S. Retail Banking Satisfaction Study, JPMorgan Chase & Co. leads U.S. retail banks in customer satisfaction levels, followed by midsized banks, big banks and lastly, regional banks.

While it’s common to believe that a big bank will never be able to provide the personal customer service that a community bank can, big banks are soaring ahead with advances in technology—a leg up that is making the big banks more convenient and therefore more desired by customers.

It takes about 10 minutes to open a Capital One account online—already a score in convenience. Integration with Alexa is just as easy: Download the Amazon Alexa app and enable the Capital One skill. (“Skills” are Amazon’s name for Alexa apps.) Enter your Capital One account login information, and you’re ready to talk to Alexa about your account.

Of course, privacy concerns come into play when your bank account information is being accessed through a digital device like Alexa. In the setup process, customers can add a pin number that they’re required to tell Alexa before she shares any account information.

“Security is first and foremost in our mind as we develop any new product,” said Ken Dodelin, Capital One’s vice president of digital product management, in an interview with Mashable. The Capital One account information is encrypted, so even Amazon cannot access it, according to Dodelin.

“Our goal in developing the Alexa skill is to design for real-life conversations about money,” said Stephen Hay, head of content strategy and AI design at Capital One. “We want customers to speak naturally and feel confident we’ve got their back every time, wherever they are in life.”

Speeding Up the Account Opening Process

Posted on April 10, 2017 at 4:51 pm.

Written by kmineo

Many banks aren’t meeting customers’ digital expectations, and could be losing accounts as a result. Kimberlee Mineo of Bottomline Technologies explains why consumers abandon the account opening process and how financial institutions can improve the experience.

Why Customers Abandon Digital Account Applications
Tips to Streamline the Account Opening Process