AUSTIN, Texas-Two traditional sources of fee income-ATM and NSF fees-are unlikely to return to previous levels in the coming year.
"This industry for quite a while had things pretty darn good, but got fat living off NSF fees," said Hal Oswalt, president and CEO of consulting firm Brintech. "We are going to have to work harder if we want out institutions to survive, and to boost the bottom line."
For banks in the United States, net interest margin hit a peak of 4.03% in 2001, but by Q1 2009 that figure had dropped to 3.39%, or only slightly higher than the 3.2% recorded in 2006, he said.
"This is because many financial institutions have been more selective about lending and are not chasing the competition quite as much," he assessed. "But there still is a need for discipline and a pricing model."
According to Oswalt, too many financial institutions waive too many fees; he recommends collecting at least 90% of stated fees. He further urged development of a written fee collection policy, with someone assigned to monitor adherence to the guidelines.
To what degree credit unions will follow is unsure, but Oswalt said for-profit institutions will be exploring new fee opportunities, including restructuring existing fees according to segment. For many banks, he said, the advice has been to "restructure existing fees by segmenting. Fees should be adjusted by the profitability of the client, and/or the amount of work required by the client. If you don't know your customer, your competition will. Make sure you keep your valuable assets, and charge for premium service that is given."
With debit card usage only projected to increase, Oswalt urged credit unions to ensure they are getting a "fair share" of the market, in part by using loyalty programs. Oswalt said every financial institution should establish a debit loyalty program or reframe existing programs to focus on deposits or cross-selling. Another potential growth area he identified: business debit cards.
"If 30% are using debit cards, concentrate on the other 70% to get usage up."
Financial institutions should focus on core deposit growth by cross-selling. Oswalt said most bank customers, for instance, have two services or fewer. He suggested installing a reward/recognition component that motivates employees to sell.
Two opportunities Oswalt foresees as newsmaking in 2010:
- Multi-use Cards-many universities are issuing cards that fulfill multiple functions, including student ID, library card, dorm meal plan card and ATM card.
- Contactless Chip Technology-this is allowing vendors to experiment with smaller cards.
"In all new or existing strategies to increase fee income, manage to the bottom line, not just the revenue line," he counseled.
