Pub. 6 2018 Issue 2

www.uba.org 16 E very so often, service companies, industry associations, consumer advocacy groups, regulatory agen- cies and research organizations release a study on some aspect of consumer financial services. The purpose of the study could be to enhance the consumer experience, affect public policy or assist financial institutions in their efforts to adapt to economic, regulatory, legal or competitive conditions. Whatever the case, findings can serve as a reality check on how different strategies are playing out in real-time. One area in particular that has been stud- ied extensively during the last 10 years is overdraft revenue. According to recent results, financial institutions saw over- draft revenue reach $34.3B in 2017—the highest level since hitting $37.1B in 2009. Looking ahead, some projections suggest overdraft revenue could eclipse the 2009 total industry-wide by 2020. For their part, credit unions which have historically maintained lower overdraft fees than banks, have consistently in- creased overdraft revenue over the past 25 years—in spite of economic downturns during that timeframe. Industry Call Report data regularly reinforces the fact that overdraft pro- grams provide a healthy revenue source. However, banks and credit unions should be diligent when it comes to setting fee levels. While increased fees may initial- ly lead to increased revenue, this type of return can be difficult to sustain. In fact, some industry data suggests that institutions having a higher fee structure actually lose overdraft revenue, while those that consistently maintain a lower overdraft fee earn a higher percentage of non-interest income. For example, a $30 per overdraft fee would result in $4,500 on 150 overdraft transactions. However, if the fee was reduced to $25 and the program was opened to all eligible account holders— resulting in an increase to, say, 203 trans- actions—a financial institution could make an extra $575. This is a compelling example of why maintaining reasonable overdraft fees—and benefitting a greater number of account holders—can actually raise revenue. Keep the end user in mind for long- term success There is a valuable lesson to be learned from consumer reaction to price increases on services over the years—from cable television to cell phone and internet, newspapers, airlines and checking ac- counts. Typically, the increase results in reduced consumption or leads to a search for lower-cost providers. Likewise, over time overdraft revenue can decline as account holders—who may already be facing a financial hardship— limit their usage or look for less expensive options to meet their emergency and short-term funding needs. Historically, one of the most common reasons consumers cite for leaving their existing financial institution is fees. A 2016 FICO® survey found this to be espe- cially true for Millennials. Repetitive fee increases can lead to price elasticity that can greatly diminish the demand account holders have for any service. Unfortunate- ly, many institutions may not know that they’re losing revenue because they don’t have the tools or the time to analyze their existing account holder activity. Recover lost revenue with reasonable fees and user-friendly procedures We know that consumers are willing to pay a reasonable charge for a reliable service that is convenient and meets their everyday needs—think Amazon, Star- bucks and Netflix. When was the last time you did a competitive analysis of the overdraft fees in your market? Two of the most common types of advice consumers want from their financial institution are help with improving their financial situation (41%) and advice to help them keep track of their spending and household budget (33%), according to a J.D. Power 2018 Retail Banking Advice Study. From a service perspective, a fully disclosed, overdraft program provides your account holders with a dependable, worry-free solution many are looking for when and if they are faced with an unex- pected financial challenge. From a performance and regulatory standpoint, a 100% compliance-guar- anteed program with updated strate- gies, analytics, and account tracking and reporting capabilities can provide between 50-300% sustainable increases in non-interest income from a broad base of eligible accounts—along with com- plete compliance peace of mind. As you continue to monitor your growth strategy throughout the remainder of 2018, don’t miss out on increased earning potential. Think of the improvements and account holders service upgrades you could imple- ment with your share of a proven reliable revenue source. n By Richard Miller, Executive Vice President, John M. Floyd & Associates NSF AND OD INCOME CONTINUES TO RISE ARE YOU GETTING YOUR PIECE OF IT? Richard joined JMFA after a 23-year career in banking, providing JMFA and our clients a broad base of manage- ment experience in community banking, from chief lending officer to president of small and medium-sized financial insti- tutions. Richard supervises JMFA’s sales activities across the nation, establishing valued relationships and helping JMFA and the financial institutions we serve achieve their goals. He began his banking career in 1972 with American Bank of Tulsa, advancing to chief lending officer by 1980. During that time, the bank engaged JMFA, resulting in substantial earnings gains that made American Bank of Tulsa the highest earning bank in the region, posting ROA’s near 3% and ROE’s close to 25%. In 1982, Richard and his management team left American and chartered Southern National Bank in Tulsa, which was sold in 1992 to Boatman’s Bancshares of St. Louis, Missouri. After a restructuring consulting assignment with a New Orleans financial institution, Richard joined JMFA as sales director for the South- eastern region and began rising through the ranks. He is a graduate from the University of Tulsa and the Southwestern Graduate School of Banking at Southern Methodist University in Dallas, Texas.