You’re going to lose fifteen basis points in ROA
News from the Fed: On July 1, your customers will need to opt into your ATM/POS courtesy pay program. Getting opt-in agreement will be extremely onerous: after all, how often do your customers read statements or other important notices? In that regard, it’s not unreasonable to expect a very small percentage of existing customers to opt in.
So what does that mean? I’m currently in California working with a large institution to boost their revenue opportunities. I’ve crunched their numbers, and between lost interchange and lost courtesy pay fees, they’re going to lose six basis points in ROA.
It gets worse. This institution has done a reasonable job diversifying their non-interest income stream; many have not. The average institution in our CEO Strategies program depends on courtesy pay for 38% of non-interest income. The Fed estimates that 41% of NSF transactions are debit/ATM. As a percentage of assets, the average institution will lose 15-20 basis points in ROA.
What are you going to do? Strategies will vary from institution to institution, but my colleagues in the Strategic Advisory group and I have consistently been finding 20 – 40 basis points of additional revenue that institutions are leaving on the table. Given the threat from this decision, I encourage you to give us a call and see what we can find for you. Contact RFG for a strategic analysis of revenue improvement opportunities and implementation solutions at 800.827.3500 or email.
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I see this problem as more of a lack of customer response when bank requests OPT in than of a large number of OPT out responses. Less than 5% of checking customer base accounts for 95% of income so if there is a focused program to contact these customers who currently use the service with follow up to non-responders, the loss of fee income can be mitigated. Most accounts will be contacted but it is the 5% that drive fee income. If Congress would hurry up and pass the legislation so we could start the process sooner rather than later, we can better deal with those that do not respond. July 1, 2010 is a watershed date. The more time we have to follow up with non-responders the lower the loss of income. Now if there is a cap on fees or prohibition on card transactions, all bets are off for fee mitigation. Back to monthly flat fees or transaction fees for 35-45% of accounts.
[...] You’re going to lose fifteen basis points in ROA [...]
For CUs without overdraft protection on their debit cards, opt-in isn’t even an option. If funds are available when the authorization is approved, but unavailable when then the debit is processed, the debit is still required to be processed. Opting in would only be opting into the fee, who would do that? Extended holds are the only way to go in this case, but then there’s the member service aspect of that. Hopefully the Federal Reserve will reconsider this poorly thought out rule.
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