Bill Handel Regulation CEO Forum 2011

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Bill Handel Regulation CEO Forum 2011

  1. 1. <ul><ul><li>The Regulatory Challenge </li></ul></ul>
  2. 2. Regulation in Financial Services Pre-1980s 1980s 1990s 2000s 2010s Environment <ul><li>Highly Regulated </li></ul><ul><li>Regulatory Phase-out </li></ul><ul><li>Remember the DIDC? </li></ul><ul><li>Dismantling of Geographic Constraints </li></ul><ul><li>Limited Regulatory Product Hurdles </li></ul><ul><li>Card Act </li></ul><ul><li>Dodd-Frank </li></ul><ul><li>CFPB </li></ul>Industry Dominance <ul><li>Top 5 Banks Control <5% of Deposits </li></ul><ul><li>Top 5 Banks Control <10% of Deposits </li></ul><ul><li>Top 5 Banks Control 15% of Deposits </li></ul><ul><li>Top 5 Banks Control 30% of Deposits </li></ul><ul><li>Top 5 Banks Control 50% </li></ul>Innovation <ul><li>Little Product Diversity </li></ul><ul><li>Large Banks Differentiate </li></ul><ul><li>Differentiation across all sizes </li></ul><ul><li>The Era of “Free” </li></ul><ul><li>Share of Wallet Focus </li></ul>Trends <ul><li>Checking </li></ul><ul><li>Savings </li></ul><ul><li>Loans </li></ul><ul><li>Branch-based Delivery </li></ul><ul><li>ATMs </li></ul><ul><li>Home Equity Introduced </li></ul><ul><li>First Relationship Packages </li></ul><ul><li>Cards as an ROE Product </li></ul><ul><li>Home Equity Grows </li></ul><ul><li>Relationship Packages are Common </li></ul><ul><li>Free Checking / OD Programs </li></ul><ul><li>Electronic Banking </li></ul><ul><li>Rewards Programs </li></ul><ul><li>Technology-intensive Relationship Banking Re-emerges </li></ul><ul><li>Profitability is a High Priority </li></ul>
  3. 3. Checking Account Fee Income Threat: Reg II Source: Raddon Financial Group, CEO Strategies Group Threat: Reg E “Opt-In” Requirements Threat: Consumer Financial Protection Bureau
  4. 4. Key Provisions of Reg II <ul><li>Caps the fee per debit card transaction at $0.21 + </li></ul><ul><ul><li>Applies to both PIN and signature transactions. </li></ul></ul><ul><ul><li>Applies to institutions with assets over $10 billion. </li></ul></ul><ul><li>Merchants must be provided with a minimum of two non-related debit networks to process transactions. </li></ul><ul><li>Certain government-administered payment programs and reloadable pre-paid cards are exempt. </li></ul><ul><li>Implementation Date: </li></ul><ul><ul><li>$0.21 cap – October 2011 </li></ul></ul><ul><ul><li>Multiple networks – April 2012 </li></ul></ul>
  5. 5. The $10 Billion Exemption <ul><li>Question: </li></ul><ul><ul><li>How protected are “protected” institutions (those with assets under $10 billion)? </li></ul></ul><ul><li>Answer: </li></ul><ul><ul><li>Not very, regardless of Senator Durbin’s statements to </li></ul></ul><ul><ul><li>the contrary. Why? </li></ul></ul><ul><ul><ul><li>Merchants must be provided a minimum of two networks through which transactions can be processed. </li></ul></ul></ul><ul><ul><ul><li>Merchants can direct transactions to the lowest cost network. This will force transaction fees down for competitive reasons. </li></ul></ul></ul><ul><ul><ul><li>Large banks will not allow a significant interchange fee differential to continue to exist in perpetuity. </li></ul></ul></ul>
  6. 7. What We Might Expect From the CFPB <ul><li>“ Reasonable and proportional” overdraft fees </li></ul><ul><li>Caps on ATM surcharges </li></ul><ul><li>Limits on credit card annual fees </li></ul><ul><li>Maximum daily overdraft charge </li></ul><ul><li>Waiver on de minimus overdraft charges </li></ul><ul><li>Increased disclosure requirements on all accounts </li></ul>
  7. 8. Impact of Re-Regulation <ul><li>Will reduce the size of the playing field </li></ul><ul><li>Industry concentration is likely to increase </li></ul><ul><li>Will bend the industry cost curve up </li></ul><ul><li>Limits the ability to subsidize products or members </li></ul><ul><li>“ Free” becomes a less viable strategy for many financial institutions </li></ul><ul><li>Increases the focus on relationship development and share of wallet </li></ul>
  8. 9. Top 10 Largest Retail Banks - Free, if… Free Checking, if… $500 Direct Deposit or $1500 min chk balance or $5k combined balance eBanking: Deposits & Withdrawals made electronically or at ATM; and E-Statements required MyAccess: Direct Deposit or $1500 min avg balance Perform any of these 5 actions: Direct Deposit, Debit Card purchase, Bill-pay, Auto Deduction, ACH Payment, Check Paid, Cash Withdrawal at ATM Value Checking (no bill-pay): Direct Deposit or $1500 avg daily balance Custom Mgt Package: Checking and Savings packaged: $1,000 balance; or $25 auto transfer to Savings; or Direct Deposit FREE (no requirements) – No longer advertising Debit Card Rewards FREE (no requirements) – Debit Rewards being phased out (4/30/11); ATM rebates for Avg Monthly Bal $2k+ being phased out (9/12/11) Direct Deposit or $1500 Deposit Balances or $5000 Combined Balances FREE (no requirements) – No longer advertising Free Debit Card Rewards $100 Min Daily Balance (waived for 1 st 12 months); Includes Debit Rewards and ATM Rebates 6/3/2011 - FREE becoming “Bright Banking” (fee waived if direct deposit or $1500 chk balance, or $6k combined balance, or any BB&T mtg) = Recent change
  9. 10. Seven Factors in Free Checking Decision <ul><li>Bias towards growth or profitability? </li></ul><ul><ul><li>What is your current member profitability </li></ul></ul><ul><li>Your current market position – leader or niche player? </li></ul><ul><ul><li>How is the rest of the market responding? </li></ul></ul><ul><li>Demographics dictate potential </li></ul><ul><ul><li>Your current member base </li></ul></ul><ul><ul><li>The markets in which you compete </li></ul></ul><ul><li>How effective are you in selling product and building relationships? </li></ul><ul><li>What is your existing value proposition? </li></ul><ul><li>Do you have other options for growing non-interest income? </li></ul><ul><li>What are your core system capabilities? </li></ul>
  10. 11. If Free Checking Is Your Choice… <ul><li>Question: </li></ul><ul><ul><li>If you decide to continue to offer free checking, how should you leverage this decision? </li></ul></ul><ul><li>Answer: </li></ul><ul><ul><li>Set strict cross-sell metrics for the organization and measure at the branch level. </li></ul></ul><ul><ul><ul><li>Focus on reducing the percent of checking accounts that are “single-service.” </li></ul></ul></ul><ul><ul><li>Implement formalized Onboarding Program to enhance cross-sales after onset of new relationship. </li></ul></ul><ul><ul><li>Target “high opportunity” non-members within three miles of branches with direct mail. </li></ul></ul><ul><ul><li>Implement technologies that assist in the frontline cross selling process. </li></ul></ul><ul><ul><li>Aggressively push cost savings tactics such as e-statements. </li></ul></ul>
  11. 12. Example: Non-Free Checking Line Name Features Interest How to Get to Free Targets <ul><li>“ Basic” </li></ul><ul><li>“ Electronic” </li></ul><ul><li>“ Pay as You Go” </li></ul><ul><li>Flat monthly fee </li></ul><ul><li>Ala carte pricing </li></ul><ul><li>Debit card fee </li></ul>No <ul><li>E-statements, or </li></ul><ul><li>Minimum direct deposit, or </li></ul><ul><li>Debit card activity </li></ul><ul><li>Fee Driven </li></ul><ul><li>Low Income Depositor </li></ul><ul><li>Credit Driven </li></ul><ul><li>Minimum Balance Checking </li></ul><ul><li>Free debit card </li></ul><ul><li>Free online banking/billpay </li></ul>No <ul><li>Keep required minimum in checking account </li></ul><ul><li>Middle Market </li></ul><ul><li>Mid Income Depositor </li></ul><ul><li>Relationship Checking </li></ul><ul><li>Free debit card </li></ul><ul><li>Free online banking/billpay </li></ul><ul><li>Other benefits </li></ul>Yes <ul><li>Keep required total relationship balances </li></ul><ul><li>Include only “core” accounts </li></ul><ul><li>Mid Income Depositors </li></ul><ul><li>Upscale </li></ul><ul><li>Credit Checking </li></ul><ul><li>Couples checking with credit card </li></ul><ul><li>E-statement req. </li></ul><ul><li>Offer CC Rewards </li></ul>Yes <ul><li>10 credit card trans per month, or </li></ul><ul><li>$3000 in CC balances </li></ul><ul><li>Credit Driven </li></ul><ul><li>Upscale </li></ul>
  12. 13. What You Need to Do <ul><li>Determine whether you can continue to offer free checking. </li></ul><ul><li>Reduce the degree of subsidization in the member base. </li></ul><ul><li>Increase focus on margin income and reduce reliance on non-interest income. </li></ul><ul><li>Diversify non-interest income sources. </li></ul><ul><li>Focus on building share of wallet through more effective marketing and relational pricing. </li></ul><ul><li>Keep your fee structures simple. </li></ul>

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