In the past, we talked about the fees, profit and risk profile of why banks should utilize an automated loan sweep (ALS) that moves excess funds to pay down the outstanding balance on revolving line of credit (HERE). In this article, we look at an equally overlooked derivation of the product where excess operating funds are used to pay down a term facility instead of balances on a revolving line of credit.
Tag: Bank Product
Three social scientists, Suk, Lee, and Lichtenstein, walk into a bar… No joke, they do, and they observe patrons for eight weeks and watch how they order off specially designed beer menus. One beer menu has a variety of beers ordered with prices from high to low. The other beer menu has a menu of beers ordered with prices from low to high. Are the results the same? How does it compare to a randomly ordered menu? Does it really matter? And, most importantly, what happens if you did the same test for banking?
One of the best predictors of bank performance is the level of fee income. The more fee income a bank has, the more likely they have above average performance. Fee income creates a more stable and less interest rate sensitive revenue stream. It amazes us how few banks offer a loan sweep (sometimes called an “ALS” or Automated Loan Sweep) where a customer can set their operating account to sweep balances to reduce their borrowings on their line of credit. CenterState Bank offers the product, and this lays out a case of why you may want to consider the product.
When it comes to creating value through digital channels, online and mobile bill pay is one of the best products to do that. Marketing dollars spent on targeting new customer acquisition or bill pay routinely produces return on investment (ROI) of over 55%. Getting a customer on bill pay means a customer is almost two-thirds less likely to defect. This dramatically improves a customer’s lifetime value by increasing their lifespan as a customer.
Something might be getting lost in the payment debate among banks. At conferences and publications, most of the information targeted at banks is whether banks should go on Apple Pay or other payment platforms; should a bank get a mobile wallet; and, our favorite, can banks still win the payment game? The answers to those questions are: Yes, banks need to get on Apple Pay and all other payment platforms readily available. Yes, banks should support some mobile wallet in order to get their card in the payment stream.
Virtual reality is all the rage this week. Facebook released their Oculus Rift headset and it was announced that the NCAA Final Four basketball games will be live-streamed in virtual reality. This all has the “Wow” factor but the reality of virtual reality is that it leaves much to be desired. It is no surprise that, in our opinion, the technology is over-hyped and out over its skis. We demoed the headset and got nauseated.
In the quest for greater profitability, one strategy that we are employing here at CenterState Bank is the move to be less transactional and more relationship based products. While lots of banks say they are about the relationship, few banks can point to anything more concrete other than delivering “the personal touch.” Having good people and an accessible CEO is just the price of entry for relationship banking. True relationship banking requires products, process, culture and marketing in order to capture the hearts, minds and wallet of the customer.
If your bank has ever tried to introduce an environmentally-friendly checking account, then this will resonate with you – Ask a customer in a survey would they sacrifice interest to support the environment and more than 70% of your respondents will say “yes.” At a different time, ask potential customers in a branch to actually open a green checking account, and less than 5% will do so.
While the eulogy for checks has already been written, the pallbearers are now in place. This week, Bank of America launched Digital Disbursements, a new payment application that allows organizations to make payments to customers or vendors digitally instead of issuing a check. This is a person-to-person application restructured for organizations such as small businesses, middle market companies, larger corporations, non-profits and municipalities.