Lecture Materials RETAIL BANKING. Robert D. Dye. Dye & Associates Inc. Wheaton, Illinois

Transcription

1 Lecture Materials RETAIL BANKING Robert D. Dye President and CEO Dye & Associates Inc. Wheaton, Illinois July 31, 2017

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3 Retail Banking Day 1 Bob Dye President and CEO Dye & Associates Inc. Wheaton, Illinois rdye@dyeassociatesinc.com 1

4 Agenda I. Brief Overview of the Retail Banking Section II. Non-Interest Revenue III. Review 4 Intersession Project Options Overview of the Retail Banking Section Monday Tuesday Wednesday Dye Sullivan Hubbard Monday Tuesday Wednesday Kemp Heyburn Hershberger With Linkage of the Year 2 Retail Banking Section to the Year 1 Marketing Section plus Electives 2

5 Overview of the Retail Banking Section Revenue Improvement Is Critical To Long-term Profitability In The Long-Term Your Bank Cannot Expense Control Its Way To On-going Success Your bank cannot solve a revenue problem with an expense solution. Efficiency Ratios. There is very little Expense/HH difference between the top and the bottom performers - but there is a Huge Revenue/HH Difference between the top and bottom performers. Most Banks with the best Efficiency Ratios are high performers because of Superior Revenue Overview of the Retail Banking Section What Do Retail Banking Customers Want? 1. Convenience (place and time). 2. To Feel Appreciated/ Valued. 3. To Simplify Their Lives and To Feel In Control (customers like choices and options). 4. To Have Confidence that any Problems Will Be Resolved Promptly and Fairly. 3

6 Overview of the Retail Banking Section Impact of The Internet Approx. 90+% of the U.S. adult population has access to the Internet/ More than 200 billion s per day were sent worldwide in 2016 and approximately 66% of them were Spam Approx. 100 million U.S. residents performed some kind of banking transaction through the Internet NOTE: As many did a bill payment through biller direct options or PayPal as through bank Internet banking systems Expect Big Time Future Competition For Payments Business and Payment Processing Revenues Note: There are more than 350 million mobile phone subscribers in the United States. 98% have phones that are text-enabled. 48% of teens send 50 or more text messages a day. One in seven send texts a day, or between 3,000 and 6,000 texts a month What Are We Learning? 1. Client Relationships 2. Channel Usage, Channel Proliferation, and the Problem of Layered Expenses. Just because a customer starts using a new channel does not mean they totally stop using their old channels...it is not a 1-for- 1 trade-off 3. Profitability- Six Factors What people buy How much they buy Interest margins Fees collected 4

7 What Are We Learning? 4. Share Of Wallet Opportunities Potentially Many Banks Could Nearly Double Their Loan and Deposit Totals - Without Adding Any New Customers If They Could Simply Capture a Bigger Percentage Share of Their Customer s Wallet. LOANS. Banks average less than a 30% Share Of Wallet. Double loan balances (without consumers taking on any more debt), and most banks still only have less than 60% of their customer s loan balances What Are We Learning? 4. Share Of Wallet Opportunities DEPOSITS. Banks average a 37% Share Of Wallet. Increase deposits SOW by 50%, and most banks still only have just over 1/2 of their customer s deposit balances MULTIPLE ACCOUNT RATIOS. Banks average about 1.7 deposit and loan accounts per household. An improvement to 2.0 accounts per household would lead to a 18% increase against your current deposit and loan mix. NOTE: There is a difference between Accounts Per Household, and Services Per Household 5

8 What Are We Learning? 5. Lots of Subsidy Within Our Portfolios Bigger Problem Than Most Banks Ever Imagined 80/20 Principle Does Not Apply to Household Profitability Top 30% May Produce % of the Profits Many Banks Know Their Portfolio-Level Profitability But They Have Never Identified Their Most Profitable Households Within Their Portfolios $ Ave. Pretax Profit Non-Interest Revenue... It s Really Important To Your Bottom-Line Not Unusual For Non-Interest Income To Represent More Than 50+% Of Your Bank s Total Net Operating Income. It Deserves Significant Time and Attention Measurement, And Assigned Accountability Are Good Indications Of The Actual Importance That Your Bank Gives To Non-Interest Income. Despite It s Importance Some Banks Devote Very Little Time/Attention To Sustaining, Expanding, and Diversifying Non-Interest Income 6

9 Non-Interest Revenue... These Six Factors Can Impact Your Opportunities - and What Your Bank Collects. 1. Your Demographic Concentrations, and Your Related Market Opportunities Examples Include Highly Populated Metro vs Rural Markets Wealth, Household Income, Home Ownership. Age Distribution, etc. 2. What You Do or Do Not Offer and Diversification Many similarities but many differences between banks 3. The Interest Rate Environment Example: Recent history of Mortgage Refinance 4. The Actual Fees You Charge 5. Your Policies, Practices, Trigger-Points, and Caps By which the fees are assessed or capped 6. Your Waiver Controls, Tracking and Accountability Non-Interest Revenue... Fee Waivers Unfortunately - Many Waiver Decisions Are Not Based on Relationship Profitability Too often based on squeaky wheels - or on personal relationships Some Branches, and Some Employees Have Easy Touch Reputations NOTE: Business Bankers are Notorious For Waivers!! Without Tracking and Posting Results Most Employees Have No Idea How Much They Waive Compared To Others Stack Rank and Post Results at the Individual, Branch, and Group Level 80/20 May Apply Here 7

10 Non-Interest Revenue... Fee Waivers Waivers Should Be Noted For Future Reference This includes All Categories Of Fee Waivers (Not just NSF-Related Fees) NOTE: You Have An Entirely Different Customer Conversation - when you have the facts regarding the customer s previous history of waivers requested and granted Hard Waivers Should Be Reviewed Annually Some banks have not reviewed hard waivers for several years. Many Banks Are Now Setting Targets For Waiver Tracking and Control Purposes Some banks have set 5% to 20% overall waiver targets Some banks set different waiver targets for different bank services Non-Interest Revenue... Strategic Plans and Related Policy Peer Group Comparisons Many banks have established peer groups that are used for numerous performance comparison purposes. Averages (Mean and Median) can be helpful but Averages Alone can be Misleading (Often there can be Big variances). NOTE: Need To Look Under-The-Surface for the High and Low Performers in each performance category to spot big differences and the biggest opportunities for potential improvement (Total Non-Interest Income, Deposit Related, Fiduciary, Additional Detail Section ) 8

11 Non-Interest Revenue... Strategic Plans and Related Policy Some Banks Have Incorporated Portions From Their Non-Interest Income Intersession Project Into Their Bank s Strategic Plan Non-Interest Income Diversification: Some Banks Now Set Policy For No Single Category To Represent More Than X % Of Their Total Non-Interest Income Income Statement Diversification: Some Banks Now Set Policy For Their Total Non-Interest Income To Represent No Less Than Y % Of Their Total Revenue but No More Than Z % Of Their Total Revenue Non-Interest Revenue... Brief Discussion Of Opportunities Deposit Examples Loan Examples Business/Commercial Examples Fiduciary Examples Delivery Channel Examples Investment, Insurance and Other Examples 9

12 Non-Interest Revenue... Other Factors? Historically a Key Challenge has often been the Negative Mindset of some bank management and some bank employees toward fee income Truth: Often Our Customers Restrict Us Less Than We Restrict Ourselves Larger Banks Generally Produce More Non-Interest Revenue Than Smaller Banks...Why? Q: Are Their Actual Fees Sometimes Higher? Probably Yes Q: Do They Waive Fewer Fees? Probably Yes Q: Are Larger Banks Often Much More Engaged in Fiduciary and Additional Non-Interest Income Activities - Absolutely Yes Non-Interest Revenue... Please Reference Your Retail Banking Intersession Problem 10

13 Retail Banking Intersession Project Options A. What To Expect B. How To Score Well C. Other Stuff Overview of Retail Banking Session 4 Intersession Project Options Select 1 You will not be graded on what your Bank currently does or does not do There are no penalties if your bank is not doing some of the things we discuss in class You will be graded on how well you understand and apply key Retail Banking concepts that were presented in these classes This includes your rationale for your recommendations This includes your explanation of how you would make the changes happen that you recommend (if you had the authority to make them happen) 11

14 Best Wishes! You are welcome to call me using my Direct Line Number if you have any questions. Dye & Associates Inc