How Can Retail Branches Become More Profitable?


fishbowl.jpgI have two grown children, 25 and 28 years old, who have checking accounts, but have never been in a bank office.  Yet, despite all the evidence that branch usage is in decline over the past decade, the industry continues to build new offices.  As a director of 10 different FDIC-insured banks during my 25 years as a consultant/investor for the financial services industry, I do not envy the job of current bank directors preparing for the future.  With a large amount of capital tied up in single-purpose real estate and fees on accounts restricted by regulators, where can bank management and directors turn to make the branch profitable again?  The answer to this problem may lie in the historical study of how we got where we are today.  

In the first 10 years of my banking career at Trust Company of Georgia (now SunTrust), I held responsibilities in both management and internal consulting of operations and technology.  I remember going to our Fulton Industrial Boulevard branch on a payday Friday and hearing the branch manager ask, “What can we do to get all these people out of our branches?”  Well, mission accomplished!  These days the long lines on payday are more frequent at a Walmart financial center than at a bank branch.  What will draw these people away from Walmart, check cashers, payday lenders and title pawn shops and turn them back into profitable bank customers? Evolutions in technology, social media and product offerings now provide the solution.

Asset quality disasters, regulatory concerns and other survival issues have consumed the lives of many bankers as of late, leaving little time to pursue the five-year plan.  Banks now must begin to reshape business plans to reflect the evolution in technology and consumer behavior or become the next victim of obsolescence, much like such industries as home entertainment, photography, telecommunications and specialty retail.  Can a full function ATM machine replace a branch the way that a Blockbuster Express self-service movie rental kiosk replaces a store?  Never has the role of a bank director been more important than today; financial institutions must proactively chart a new course for retail banking.  Personal interaction with successful retailers in other industries can provide directors with the needed experience to guide their own companies.  Think of the experience of renting a movie from a kiosk instead of going into a store and compare it with using a full-function ATM instead of visiting a branch.

Now is the time to begin the evaluation of which branches are crucial to the customers in an area, provided all of the other ways that are now available to meet their banking needs.  Given the unlikely event that margins will grow, replacing fee income lost as a result of regulatory changes for most banks is critical to future earnings growth.  Directors need to be proactive in encouraging management to recruit customers that the bank lost to alternative financial services providers, such as check cashers and payday lenders.  To get these customers back, banks must offer a new suite of products and services, which includes cashing checks, money transfer, money orders, prepaid cards, reloadable cards, and fees to guarantee funds. In the future, perhaps a cash advance fee at a bank can replace payday lending.  These services can be highly profitable, as evidence by the large number of alternative financial services providers in the market place. 

An argument usually brought up by bankers is that no other bank is doing this. That’s not true. Regions Bank recently announced Regions Now Banking in all 1,700 branches.  The products mentioned earlier are all included in this offering.  Early results are extremely pleasing to Regions’ management team, which expects the new fee income will replace revenue lost as a result of regulatory changes.

When an industry must react to changes in technology and consumer behavior, the first thing to ponder is if the consumer still needs the product.  Does the public still need financial services?  The answer is yes.  So, how can banks use new technology?  The answer is still evolving, but every bank director who  has purchased something on Amazon, rented a movie from a kiosk, or used the self-service checkout at the grocery store has a personal experience that can be valuable in shaping the future retail bank customer experience.

For Banks, Maximizing The Small to Medium Business Opportunity Starts With Remote Deposit Capture


challenge.jpgThe nation’s 27 million small-business owners are busy people, dealing with countless tasks every day to make a go of it. That’s why many consider their trek each business day to the bank to deposit checks and other customer payments to be a hassle. That time adds up. A technology solution, remote deposit capture (RDC), exists that lets businesses transmit checks electronically to the bank for posting and clearing. It saves them time and money.

Here’s the rub: While a majority of banks provide such technology, just 5 percent of small businesses are using it, even though nearly half of them say they would prefer using the remote route (Aite Group report, Nov. 3, 2011).  

This offers large and small financial institutions alike an opportunity. By executing remote-deposit strategies expertly, they can reap some of the estimated $700 million in revenues being lost now because businesses with less than $10 million in annual revenues aren’t employing these services, according to Aite Group

Banks realize they have an opportunity they haven’t tapped. Fifty-one percent of banks surveyed acknowledge they haven’t been effective in educating their business about remote deposit.  Further, one-third of surveyed SMBs say such a service is important/very important to them (Aite Group, August 2011)

What’s sparking the disconnect?  Banks cite:

  • A lack of resources to enroll and support all interested customers, primarily because they’re using manual systems for such enrollment. Banks say it’s expensive to roll out remote deposit for SMBs.
  • Inadequate training resources to educate potential SMB customers about remote deposit as well as training required to educate internal associates allowing them to sell the solution.  According to Aite, nearly three-quarters of all small business either have not heard of RDC or have heard of it, but aren’t familiar with the details.
  • Poor marketing as the technology isn’t often packaged for SMB needs, which means small businesses aren’t even aware of it. Insufficient understanding and evaluation of the risk associated with the SMB market and difficulty managing risk and monitoring an account once an SMB has enrolled.  

One other obstacle exists. Providing technology that allows small businesses to just automate checks only addresses a segment of their needs. They need a turnkey solution that lets them process checks as well as electronic forms of payment, including one-time and recurring ACH, debit and credit transactions.

As for the SMB community, not all of them are prime candidates for remote capture. Five segments, though, comprise half of the SMB deposit opportunity: professional-services firms, construction, property management, medical and education services.  

For banks and SMBs, help has arrived. Recent turnkey solution offerings promise to remedy many of the headaches for banks with remote capture. They include quick, easy online enrollment forms for banks to use that automatically set up new SMB customers. Also, such turnkey solutions are available that provide marketing materials, return-on-investment calculators, automated setup, hands-off training for users, scanner sales, delivery and support.  These systems accept checks and ACH, and the captured payments can be viewed via a single online portal. 

Risk-monitoring capabilities also are available to allow financial institutions to set up queues to manage and monitor deposit behaviors. Automated setup based on underwriting results speeds up the onboarding process.  In addition, systems now can help to handle changes to existing customer profiles, eliminating the need to manually modify a customer and reducing costs. 

Such turnkey solutions will do much to clear up the problems plaguing banks from enlisting customers and small businesses from using remote deposit capture. And just how lucrative could this prove for banks?  One major financial institution is actively pursuing the SMB market.  It figures that its more than 1,000 branches can add thousands of new small-business customers in total each year for the next three years. 

Financial institutions recognize the demand for remote check deposit among small businesses, but limited resources and management tools have kept them at bay.  With the new turn-key solutions available, financial institutions can capitalize on the significant growth opportunities this huge market segment presents. 

Face-to-Face Still Trumps Technology

cornerstone.jpgUpon reading the news and listening to industry experts, you may think bank branches are going the way of the buggy whip.  News reports claim: “For the first time in 15 years, banks across the United States are closing branches faster than they are opening them,” and “Bank Branches Are Closing; People Using Nearby ATMs Don’t Notice”(time.com).

In November 2010, analyst Meredith Whitney predicted 5,000 branches would close in the next 18 months (fortune.cnn.com) and according to author and consultant Brett King, “The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years,” (banking4tomorrow.com).  To paraphrase a quote from Mark Twain, reports of the death of the branch have been greatly exaggerated.

As part of the 2011 Bank and Credit Union Satisfaction Survey, Prime Performance surveyed more than 12,000 retail bank customers.  The findings from this survey show that the branch continues to play a vital role in the customer experience. 

4 Reasons Why the Branch Remains the Cornerstone
of the Retail Banking Relationship

1. 59 percent of customers performed a teller transaction at a branch within the last two weeks
Even though branch transactions are declining, branches continue to be highly visited. In 2011, 59 percent of customers performed a teller transaction at a branch within the last two weeks. While younger customers make more use of self-service channels, they still frequently visit the branch.  Among Gen Y customers, 56 percent performed a teller transaction at a branch within the last two weeks.

2. 74 percent of bank customers said they opened their most recent account in a branch
Most customers still choose to open their bank accounts in a branch.  Almost 3 out of 4 (74 percent) bank customers said they opened their most recent account in a branch.  This compares to 19 percent opened on-line and 6 percent by phone.  As expected, older customers (born before 1965) were more likely to open their account in a branch, and 81 percent did so.  Among Gen X, 69 percent opened their account in a branch, and surprisingly 74 percent of Gen Y did so as well.

3. 52 percent say branch location is the top reason why they selected a bank
Customers claim convenient branch locations is the primary factor in selecting a bank.  Fifty-two percent of new customers who opened their account in a branch rated convenient branch locations as the number one reason for selecting the bank and 74 percent said it was one of the top three reasons. New customers who opened their most recent account online also rated convenient branch locations as the number one reason why they selected the bank, even though they chose not to open the account in a branch.  Twenty-seven percent of customers who opened their account online rated branch locations as the number one reason why they selected the bank and 43 percent ranked it in the top three reasons (35 percent and 49 percent among Gen Y).

4. Live interactions continue to drive customer satisfaction and loyalty
While self service channels can play an important role in the customer experience, interactions with bank representatives are, by far, the primary drivers of customer satisfaction.  Regression analysis on over 12,000 customer surveys showed that customer satisfaction with the branch had the greatest influence on their overall satisfaction with the bank, how likely they are to recommend the bank and how likely they are to return to the bank first for future financial needs.  Still in its infancy, at this point in time, mobile banking is showing virtually no impact on customers’ overall satisfaction.  The branch has over three times the influence on overall satisfaction than both the internet and ATM channels.  Customers value self-service channels, but don’t see them as significant differentiators between banks. Ultimately, their interaction with humans has the greatest affect on how they feel about their bank, for good or ill.

Ron Johnson, who left Target to build the Apple Store from scratch and now is the CEO of J.C. Penney Co.,  said in a recent Harvard Business Review interview, “The only way to really build a relationship is face-to-face.  That’s human nature (hbr.org).”  As long as customers continue to place significant value on the locations of branches and the interactions they have with representatives in branches, banks needs to continue to make the branch the cornerstone of their retail strategy.

Banks must recognize that strong customer relationships are the key differentiator that will drive long-term growth and the branch is the key to developing and nurturing those relationships. Successful banks listen to their customers and use that feedback to energize behavior change and create a shared vision of consistent service excellence, and then deliver on that vision on each and every customer interaction.

Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions


mystery.jpgCustomer satisfaction has become a hot topic in banking.  Recent studies have concluded:  “Delivering a positive customer experience is one of the few levers banks can use to stand out in today’s market (Capgemini 2011 World Retail Banking Report)” and “organic growth rooted in strong customer relationships, and the economic rewards they deliver, will be the best path forward for retail banks in the years ahead (Bain & Company Customer Loyalty in Retail Banking: North America 2010)  and from J.D. Power and Novantas, 2009: “Across all driving factors, satisfaction provides the most sustainable competitive advantage.”

With all of the advantages that come with high levels of customer satisfaction, it is no wonder that most banks and credit unions want to measure their customer satisfaction.  According to the Capgemini World Retail Banking Report:  “Banks are taking a closer look at the ways in which they incent and reward branch employees. Increasingly, they are using customer satisfaction as a key measure of employee performance. This process requires more frequent measurement of customer satisfaction and clear communication of the results to branch staffers.”  Many banks today will claim that they measure customer satisfaction through mystery shops.  While mystery shopping can play a role in improving the customer experience, it does not measure customer satisfaction.  To help banks and credit unions understand the limitations of mystery shopping, Prime Performance has published a white paper entitled “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions.” 

Available as a free download here, the “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions” white paper outlines the seven major reasons why mystery shopping fails to accurately measure customer satisfaction.

  1. Mystery Shoppers Cannot Accurately Gauge Customer Satisfaction
  2. Mystery Shoppers Do Not Represent Typical Customers
  3. Mystery Shoppers are Not Representative of the Entire Customer Base
  4. Mystery Shops Do Not Reflect Variations in Service Based on Time of Day or Day of Week or Month
  5. Mystery Shops Do Not Reflect Levels of Service Provided by Different Employees
  6. Substantial Variation between Shops Diminishes Value of Results
  7. Mystery Shops Do Not Provide Enough Observations to Draw Accurate Conclusions

The white paper discusses other challenges with mystery shopping including mystery shoppers being identified by bank employees and the unintended consequences of a mystery shop program.  The paper also describes when mystery shopping makes sense, such as when customer contact information is not available or when it is used to supplement a robust customer satisfaction survey program.

The paper goes on to explain why telephone customer surveys are a superior approach for banks and credit unions, “based on decades of experience, we believe strongly that phone surveys are vastly superior to mystery shopping as a way for banks to gauge the quality of their customer service. Phone surveys are fast, efficient, effective and relatively inexpensive. They deliver data that is reliable, consistent and actionable. Clients welcome phone surveys that allow them to praise – or criticize – companies they know well. In fact, greater customer loyalty is an unexpected benefit of phone surveys.”

Five Tips to Sell Better in Your Branches


sales-training.jpgDoes this sound familiar? Your bank is launching a new product or sales technique that’s going to be a surefire hit with your customers. You’re expecting big results in growing customer relationships. But, the results don’t meet expectations. The new ideas fail to infect your branch teams with your enthusiasm. In my experience, lackluster training is usually the culprit. But even the best instructional content is not guaranteed to produce great results. Don’t take chances with the success of your retail initiatives. Follow these five ideas to add new life to your branch sales performance. 

1. Create the Right Environment  

First of all, don’t call it, sales training. Branch employees hate the “S” word. Instead, focus on customer service training. Your front line will be more open to your ideas and their emotional buy-in can be the difference between success and failure. 

If you want your branch teams to care, then you have to show them that you care, too. Have senior managers kick off the training sessions—let them hear the critical messages directly from you and your senior management team. Share your passion with them. Tell them why the training is important and what success can mean for the bank and its customers.

Let’s face it—bank sales training can be boring. Just a few details can add a little pizzazz to your sessions and leave a lasting impression on your branch teams. Blast some upbeat music for arriving students. Provide some goofy training gifts (see me after class for your  “I know the Secret of the Bank Secrecy Act” T-shirt).

2. Market Your Training to the Front Line

Involve your marketing team in your training initiatives. Give them a budget. Set goals for how the training should be communicated to targeted employees. Create an internal email campaign or a fun video at the beginning of each training session to solicit buy-in from your retail team.

3. Practice, Not Role Plays

There’s no better way to be a better seller than to learn new sales techniques by role playing.  However, just saying the words, “role play” will incite panic attacks in most retail bankers.  Don’t single out participants for role playing exercises in front of their peers. It freaks them out. Instead, pair off the participants and let them practice with each other without the pressure to perform in front of the whole class.

4. Target and Reinforce Simple Training Behaviors

Even great trainers are lucky if participants remember 20 percent of what they hear in a training class. Make the target skills easy to remember. At our company, we use memorable phrases like: “Remember the 1-2-3.” Reduce key ideas down to something as easy as 1-2-3. You’ll have a better chance of connecting with your trainees.

Don’t train new sales behaviors and then hope for the best. A wise sales manager once told me: “There are only two ways to get people to adopt new behaviors pleasure or pain.” Without pleasure or pain, people usually just revert back to the same comfortable behaviors as usual. So, focus on the key activities and behaviors that you want to change, and then reinforce these behaviors with things that make people feel good. Include lots of public recognition for top performers. How about a sales contest to reward the new sales behaviors?  Or announce a spot incentive to put the focus on a new goal.

5. Don’t Forget the Branch Managers

Too often, sales training focuses just on sales behaviors. But managing new behaviors is equally hard. Help your branch managers develop a “fast start plan” to guarantee a successful implementation of new sales skills in their branch. Brainstorm a list of easy five minute sales meeting huddles. Be sure to plan fun reward and recognition activities that sustain the enthusiasm of your front line. Over the years, I’ve grabbed dozens of inexpensive ideas from the book,”1001 Ways to Reward Employees,” by Bob Nelson.  Every person in a leadership position should have a copy of this book.

Execution is always the difference.  We’d love to hear about things that your team has done to take your training events to the next level.

Nothing for Something?


empty-tray.jpgEvery consumer is intrigued by the offer of something for nothing. Retailers have depended on the positive, natural response of consumers to this marketing message for decades to generate purchasing interest.

So it is odd, strange and frankly confusing that mega banks (Bank of America, JPMorgan Chase and Wells Fargo), which claim to be retailers, are doing just the opposite by offering “nothing for something” when it comes to charging their customers for debit cards.

Sure, debit cards have inherent value. But financial institutions of all sizes have diluted that value by giving the cards away for many years. This has trained consumers to feel that banks can make money by providing them for free and are now being greedy by charging for them.

Three, four or five dollars per month for a debit card probably won’t put many more people in the poor house, but it sure feels unfair. Response has been overwhelmingly negative by customers, non-customers, consumer advovcates, politicians and even other financial institutions.

As a practicing amateur psychologist, it is easy to see why the reaction has been so negative. Nobody: rich/poor, male/female, black/white/brown, gay/straight, or city slicker/hayseed likes to get nothing for paying something. It violates what economists call the “fair exchange of value.” It violates what I call common sense.

And that’s what these big banks miscalculated here. It’s not the amount of the fee itself that is riling up the masses, nor is it the justification of why fees must be charged:—the government made us do it.

Rather, it’s the perception of the fee as unfair that’s causing the uproar. Earlier this year, Russell Herder, a Minnesota-based marketing research company, conducted a survey of more than 500 United States bank and credit union checking and savings account customers to ascertain if, and to what degree, loyalty to their financial institution is impacted by fees.

The bottom line, according to the survey: “The belief that a particular bank fee is unfair has a much stronger impact on consumer sentiment than the fee itself. In fact, as long as charges are perceived to be fairly assessed, the research showed no negative impact on consumer sentiment whatsoever.”

If you don’t believe these results, tell me how you feel about having to pay for your luggage when you fly.

It’s this miscalculation of the impact of these fees on the collective psyche that provides a fantastic opportunity for competing financial institutions. It offers a “bags fly free” type of marketing opportunity to gain market share and mind share of consumers just like Southwest Airlines has.

There are smarter ways to get more fee income from consumer checking customers than, in their minds, getting charged something and getting nothing. You have to be creative and not rely solely on traditional checking design and pricing, because these also face customer backlash given the value perception in customers’ minds anchored around “getting charged for using my money”.

But it can be done. Hundreds of banks are successfully doing this already and there are millions of checking customers gladly paying fees equal to or greater than what these big banks are requiring customers to pay for debit cards. Customers are willingly paying $5-$7 per month for benefits like local merchant discounts, identity theft protection and accidental death insurance (bundled with traditional checking benefits). These benefits provide tangible value to customers in terms of real savings and ample personal security. In other words, banks are simply asking customers to pay a modest fee for something that is perceived as and is valuable, instead of for paying something and getting nothing new for it in return.

Someone said “chaos creates opportunity”. And when it comes to consumer checking accounts, this is just the beginning of chaos that we’ll see as banks try to recapture lost fee income. For some of you reading this, it’ll be your “bags fly free” opportunity. For others that follow the lead of Bank of America, it’ll be just another reason for consumers to broadly brush banks as out of touch with their customers.

Which one are you? 

Disruptive? Mobile? Regulated? Check, check, check


It’s funny the things that cross your mind in an airport. I snapped this picture of a classic American plane docked in Chicago pre-flight to China this morning. Patiently waiting by the gate must have been 200+ people, 95% of whom appeared glued to their iPad, iPhone or Android-powered mobile device. To say I was impressed is an understatement. Users of mobile technology are known for being many things: patient is not one of them. They want new tools, new applications and they want them today. Maybe I should have photo’d the departure lounge…

aa-flight.jpg

From the board room to a branch office, it’s no state secret that today’s mobile banking customers expect access whenever and wherever they are. With so many banks investing in new technologies that allow customers to complete transactions, manage accounts, and perform banking research via their mobile devices, one can see why. Mobile banking services — think remote deposit capture, two-way text banking, apps for locating branches and ATMs using GPS and bill payment — have become the norm. So how to differentiate your bank from your competitors?

In my next few posts, I’ll take a look at this question.  With banks (both big and small) riding the mobile wave to strengthen relationships and add to their bottom lines, I thought to set the table with insight gleaned from our friends at PwC.  Last month, the Banking & Capital Markets group published “How Retail Banks Can Thrive in a Disruptive, Mobile, Regulated World” to assess the implications and opportunities created by mobile phones and social media.  My cliff’s notes:

  • Social media continues to provide banks with new ways to improve brand recognition, expand customer reach, enhance a customer’s experience and introduce new products (for more, see these posts we ran in January about how to benefit from social media and social networking platforms);
  •  While most large national banks have slowed their pace of retail bank acquisitions because of regulatory limits, banks with access to capital continue to view acquisitions as a growth opportunity. Such acquisitions benefit banks by enabling them to (a) reduce combined operational costs by eliminating redundant back-office functions, (b) spread technology investments and regulatory compliance costs across a larger base, (c) gain access to new markets and customers for cross-selling, (d) increase the ability to invest in state-of-the-art technologies; and
  • Leading institutions are adopting a new customer-centric model to replace outdated product- centric models.

A few big takeaways for me? Bank execs need to quickly and decisively adopt new approaches or risk being left behind. Moreover, by tailoring channels to a specific customer segment or purpose, banks are capitalizing on the distinct and complementary roles of distribution channel, all while managing costs. Yes, this is the land of opportunity, and the applications of new mobile technologies and strategies bears close watching. More to come next week.

For all of us, job one


Maybe it’s all the traveling I am doing these days, but customer loyalty is top of mind. From American Airlines’ advantage program to Hyatt’s guest rewards, sometimes the littlest of things add up to something big (e.g. 1,099,622 miles flown on AA as of this morning). So yes, customer loyalty and me have a special bond, one worth exploring in the context of today’s financial community.

customer-service.jpgCase-in-point, I had the chance to watch PNC’s president (and head of Retail Banking) Joe Guyaux share his hows and whys of focusing on customer loyalty for one of the nation’s largest diversified financial services organizations. A keynoter at American Banker’s recent Best Practices in Retail Financial Services Symposium, he talked about PNC focusing on customer loyalty as a means to build a differentiated brand and grow customers while increasing (but not always maximizing) revenues. As a loyal PNC customer, I made a point of introducing myself to Joe after his talk concluded. You see, from slides on PNC’s definition of customer loyalty (“an enduring emotional connection and bond beyond our customers, employees and the PNC brand”) to the bank’s approach to creating brand ambassadors through social media, I was impressed to hear “the message from the top.” Indeed, what he shared with bank execs in Miami translated to the branches I regularly visit in Washington, D.C.  

Truth be told, one slide really stood out: PNC’s framework for winning loyal customers. Sure, we all know that loyal customers are integral to any business model. Still, interesting to note the elements that PNC defines to build and maintain that loyalty. Naturally, it starts with (and requires) engaged and empowered employees — and extends to:

  • A drive to deliver exceptional customer service;
  • The challenge to protect and grow its payments business;
  • A focus on earning a “share of a customer’s wallet;”
  • The discipline to maintain positive operating leverage;
  • Managing risks; and
  • Encouraging real and ongoing community involvement among staff.

While a number of banks espouse similar approaches to customer loyalty, PNC’s rise to its current position in the marketplace reminds us all that customer service really is job one. Seeing a message like Joe’s distributed and embraced across a national franchise? Impressive, to say the least.

Why Smaller Banks Should Worry About Interchange Fees


If you’re a bank CEO or director, you’re probably getting a little tired of Uncle Sam reaching into your institution’s pocket and pulling out handfuls of cash. Last year it was the new federally-mandated restrictions on account overdraft fees, which threatened to deprive banks of an important revenue stream just as they were struggling to recover from the effects of a deep recession in the U.S. economy. Fortunately for the industry, a significant percentage of retail customers opted into their bank’s overdraft protection plan, so the economic impact has turned out to be less than feared.

But then along came the Dodd-Frank Act, which not only imposes a greater and more costly compliance burden on the banking industry, but also drastically reduces the interchange fee that big banks–defined as $10 billion in assets or larger–are permitted to charge merchants on debit card transactions. The Act directed the Federal Reserve to set the maximum rate for debit card transactions, and in December the Fed proposed a cap of 12 cents–down from an average of 44 cents per transaction today.

The Fed is still soliciting comments under its normal rule-making process, and is required by Dodd-Frank to finalize the new rate by April 21. A 12-cent cap would result in a 70 percent to 85 percent reduction in debit card income for large banks, according to an estimate by the consulting firm Raddon Financial Group.

As bad as that sounds (and it is bad), the outcome of this latest threat to bank profitability is far from clear.

Raddon Vice President Bill Handel says that large banks like J.P. Morgan Chase & Co. are already considering a variety of strategies to mitigate the impact. For example, J.P. Morgan is testing a monthly $3.50 debit card fee in Green Bay, Wisconsin. (Under the current system, merchants end up paying the interchange fee, while retail bank customers are able to use their debit card for free.) The bank is also testing a $15 monthly checking fee in Marietta, Georgia.

One possible outcome of the new fee cap is that large banks will have to start charging for things–like debit cards and checking accounts–that used to be given away for the purpose of attracting core deposits. “The ‘free’ environment that we have been operating under will cease to exist,” says Handel.

The only problem is, Raddon’s research shows that consumers have become so accustomed to getting their retail banking services for free that they will balk at paying a monthly debit card fee. Instead, they will be more likely to either reduce their debit card usage in favor of paper checks (which are more costly for the bank to process)–or look for a free debit card at a smaller bank that isn’t affected by the cap. And that would seem to give small banks a huge competitive advantage since they could still offer their debit cards and checking accounts for free.

Not so fast. Smaller banks might think they’re shielded by Dodd-Frank from the sharp economic impact that large banks will feel, but that protection might not hold up in the real world outside of Washington, D.C. Predicts Handel, “We don’t believe the less-than-$10 billion exemption will hold up over the long haul.”

Visa Inc., the country’s largest card payments company, has said it will adopt a two-tiered pricing system for debit card transactions, one for large $10-billion-plus banks that will reflect the new Federal Reserve mandated cap on fees, and a second system for smaller banks that does not place a cap on fees. But Visa and its smaller payments competitor – MasterCard Worldwide – are member associations dominated by the same mega-banks that will be most hurt by a 12-cent cap. Handel says it’s not logical to assume that large banks like J.P. Morgan Chase and Bank of America will passively sit by while they lose debit card and checking account customers to small banks that can afford to subsidize those products with their higher interchange income.

“[The card companies’] brands are backed by the big banks,” says Handel. “If the big banks say to Visa and MasterCard ‘You can’t continue to have a two-tiered system,’ they will have to listen.”

A company spokesman said yesterday that MasterCard had not yet made a decision on whether it will adopt a two-tiered system for debit card fees, but don’t be surprised if the 32-cent per debit card transaction advantage that smaller banks seem to enjoy thanks to Dodd-Frank ends up much, much less.

Social Media Series: A Look Ahead


This is the fifth and final post on the value of social media for today’s financial services executive. Over the last month, we’ve looked at the fundamentals and why you need to care about newer trends and technologies, how some have successfully incorporated social media into their institutions way of doing business, the need for individuals and companies to be both authentic and transparent, and how you might personally get up and running if you’re not already. Today, we look ahead to social media in 2011.  

As this series draws to a close, cue the music*:

If this is it
Please let me know
If this ain’t love you better let me go
If this is
I want to know
If this ain’t love baby
Just say so

By now, we all know that social media marketing carries the same risks as traditional marketing. But with the continued surge in social services like those offered by Twitter, LinkedIn and Facebook, social networking platforms present powerful ways to connect with employees, consumers and shareholders of all generations.

fortune.jpg

Social media blends technology and social interaction; done right, it can be a win/win/win. Such networking co-creates value for you, your financial services company and your customers. Community building is something we all can do more of in 2011; hopefully these columns have inspired you to think about how you can get engaged and stay involved with conversations about your institution. Yes, a LOT has been written about social media, so I thought it would be interesting to share three predictions for 2011.  

Beyond the standard ‘you will train employees on the proper way to communicate with customers through social media,’ I’m excited to see the following take place:

  1. As more people take to mobile technologies (coupled with a wider adoption of tablets like the iPad), marketing efforts that incorporate online, in person and in print activities — supported by social media plans — will appreciate in value.
  2. Customer service departments take over as the main proponents of social media, with the full support of the CMO and leadership teams.
  3. Banks leverage geo-tagging applications to prepare/predict for traffic in their branches and at least one gets into social gaming in a big, big way.

Have a few predictions of your own that you’d like to share? Leave a comment for us below. While this is the last post on this particular series, our VP of Digital Strategy will be leading a panel discussion at our annual Acquire or Be Acquired conference in Scottsdale later this month. If you’re game to share your view(s) with her, I know she’d appreciate your thoughts.

*Can’t get the refrain out of your head? You have Huey Lewis & The News to thank for that.