THE OPPORTUNITY IN PROVIDING BANKING SERVICES Presenter: Bill Handel Vice President, Research & Develpment, Raddn Financial Grup NFCA President s Sectin April 13, 2010 Hllywd, Flrida
The RFG Slutin Understanding the needs f the custmer Industry Research (since 1983) Strategic Analysis (since 1988) Understanding the cmpetencies f the rganizatin RFG has been prviding services t the financial services industry since 1983. Research & Analytic Prgrams Sftware Marketing Autmatin sftware Leverages RFG analytics and research prgrams Slutins Center (since 2007) Sftware Slutins (since 1997) Data Slutins Enhancing the efficiency f sftware tls Cnsulting Aligning prducts, systems, peple, and prcesses Marketing, sales, and management tls Marketing, prduct design, pricing slutins
3 Banking Industry Paradigm Shift 1. Industry cnslidatin is likely t accelerate ver the curse f the next several years. Increasing cst f cmpliance, default risk and interest rate risk will be majr hurdles t vercme. 2. The banking industry has cmmditized the result is significant margin cmpressin. 3. Nn-interest incme is significantly threatened by a Cnsumerist envirnment. The banking industry is lking fr nn-traditinal incme surces. 4. The banking industry is fcusing n acquisitin f cre relatinships husehld grwth, checking accunt grwth, cre depsit grwth and lan grwth is mre imprtant than depsit r asset grwth. 5. Cnsumers are restructuring their persnal balance sheets and lking fr a Trusted Financial Advisr. 6. We are lking at the biggest transfer f generatinal wealth in ur cuntry s histry. Strength with the parents can lead t success with the children. 7. New entrants int the banking space are having significant success by prmting their difference. USAA, ING Direct, PayPal, etc
4 Cnslidatin f the Industry Cntinues The number f banks and credit unins have bth declined by ver 36% since 1994. By 2014 there is likely t be 6,500 banks and 6,100 credit unins. 12,604 12,201 Prjectin 10,222 10,754 8,976 9,128 8,012 7,794 6,482 6,124 1994 1999 2004 2009 2014* Banks and Savings Institutins Credit Unins Surce: FDIC and NCUA; prjectins by RFG
5 Small Banks Are Disappearing The decline in the number f banks can be attributed t the very small, defined as assets under $100 millin. The number f institutins with assets abve $100 millin has increased ver this time frame. 9,000 8,000 7,000 8,270 Cmmunity Institutins 6,000 5,000 4,000 3,000 2,846 4,207 5,002 2,000 1,000 0 167 173 Under $100M $100M t $5 B Over $5 Billin Assets 1994 2009 Surce: FDIC
6 Small Credit Unins Als Decline Similar t the banking industry, the decline in number f credit unins is attributable primarily t the very small, again defined as assets f under $100 millin. 14,000 12,000 10,000 11,606 Cmmunity Institutins 8,000 6,000 4,000 2,000 0 6,315 1,236 582 13 159 Under $100M $100M t $1 B Over $1 Billin Assets 1994 2009 Surce: NCUA
Share f Wallet Tends t Be Lw 7 Banks and credit unins typically cntrl apprximately ne-third f the lan and depsit relatinships f their custmers and members. 40% share f wallet is very gd; 50% is exceptinal. 38% 36% 30% 31% Depsit Share f Wallet Bank Credit Unin Lan Share f Wallet Surce: Raddn Financial Grup
Segmentatin is Critical t a Successful Strategy 8 18-34 35-44 45-54 55-64 65+ $125,000+ Upscale 11% $50,000 - $124,999 Credit Driven 10% Middle Market 18% Middle Incme Depsitr 12% Under $50K Fee Driven 19% Lw Incme Depsitr 31% Segment Age Definitin Incme Definitin % f Husehlds Avg. Age Annual Incme Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale 18 t 44 18 t 34 35 t 54 45 r Older 55 r Older 35 r Older Less Than $50K $50K r Mre $50K t $124,999 Less Than $50K $50K t $124,999 $125K r Mre 19% 10% 18% 31% 12% 11% 31.2 28.8 44.7 65.9 64.4 53.7 $27,172 $88,319 $84,536 $24,355 $84,787 $166,774
Average Depsit, Lan and Investment Balances Vary Dramatically by Segment There are stark differences between the cnsumer segments in regard t the depsit, lan and investment balances. Nte that investment and lan balances are an average fr thse using thse services. Nearly all husehlds have depsit balances. $196.7 $244.2 $198.9 Balances ($000) $121.9 $114.7 $57.8 $51.1 $164.1 $66.3 $137.1 $82.5 $58.0 $48.6 $90.2 $78.7 $26.5 $15.0 $3.2 $17.2 $19.6 $18.3 Ttal Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale Average Depsit Balances Average Investment Balances Average Ttal Lans Surce: Raddn Financial Grup
Insurance Prducts Used By U.S. Husehlds Aut 86% Hmewner 66% Nn-Wrk Health Cverage Term Life AD&D Whle Life 40% 37% 35% 32% Disability Insurance 25% Persnal Liability 15% Renter 14% Fld, Earthquake, r ther Disaster Variable Life Credit Life 3% 5% 12% U.S. husehlds tend t be significant users f insurance prducts. The largest categries are aut insurance and hmewners insurance. Surce: Raddn Financial Grup
Insurance Use Prpensities Vary By Segment 100 = An Average Index 200 180 160 140 120 100 80 60 40 20 105107 99 Insurance usage als tends t vary by segment. While nearly all husehlds use aut insurance with similar prpensity, there is significant variatin fr mst insurance prduct types. 92 110 105 50 85 127 97 136 136 73 108 149 81 95 124 59 97 116 94 131128 180 160 160 100 60 40 0 Aut Hmewner's Term Life Whle Life Variable Life Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale Surce: Raddn Financial Grup
Bank Prducts Used By U.S. Husehlds Sme bank prducts, such as checking and credit cards, are nearly universally used by U.S. husehlds. Other accunts tend t be niche prducts used by segments f the market. Checking Accunt 98% Any Credit Card 83% Regular Checking 62% First Mrtgage 46% Interest Checking 49% Hme Equity Line r Lan 25% Any Savings Accunt 71% New Aut Lan 19% Certificates f Depsit 23% Used Aut Lan 16% Mney Market Accunt 21% Student Lan 15% Surce: Raddn Financial Grup
Investment Prducts Used By U.S. Husehlds 36% Slightly mre than ne in three U.S. husehlds has mutual funds beynd what they hld in qualified retirement prgrams. One in five husehlds hlds individual stcks, and ne in ten hld Treasury securities r annuities. 18% 10% 9% 4% Any Mutual Fund Individual Stcks Treasury Securities Annuities Individual Bnds Surce: Raddn Financial Grup
Depsit and Investment Prpensities Vary By Segment Which Cnsumer Segments Open Depsits and Investments? Depsit and investment prduct usage als tends t shw great variability by cnsumer segment. 250 225 222 209 200 189 100 = Average 150 100 115114 140 167 170 153 131 128 115 106 100 105 155 109 172 50 0 27 60 Mney Market Accunt 84 71 46 53 54 49 32 28 8 Certificates f Depsit Any Mutual Fund Individual Stcks Annuities Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale Surce: Raddn Financial Grup
Lan Use Prpensities Vary By Segment Which Cnsumer Segments Open Lans? 250 Lan usage tends t be cncentrated in three cnsumer segments Upscale, Credit Driven and Middle Market. 200 185 197 185 100 = Average 150 100 50 167 156 153 95 70 46 157 148 88 79 33 158 115 77 45 49 157 145 103 58 51 149 122 124 83 77 61 0 Mrtgage HE Lan HELOC New Aut Lan Used Aut Lan Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale Surce: Raddn Financial Grup
Prduct-t-Prduct Crrelatin Indexes Selling Investment and Depsits t Insurance Users 250 Nte that buyers f insurance prducts are much mre likely t use depsit and investment accunts than the average cnsumer. Nte the strng crrelatin indexes fr Variable Life plicy hlders. 236 200 180 100 = Average 150 100 160 140 121 115 111113 102 100 103 97 148 140 130 126 126 119 119 118 116 107 109 110 101 50 MMDA CD Any Mutual Funds Stcks Annuities Aut Hmewner's Term Life Whle Life Variable Life Surce: Raddn Financial Grup
Prduct-t-Prduct Crrelatin Indexes Selling Lans t Insurance Users 250 Insurance users are als much mre likely t use lan accunts than the average cnsumer. Similar t the pprtunity fr depsits and investments, an insurance prvider can have great success in selling lans t its plicy hlders. 200 180 180 200 100 = Average 150 160 154 141 134 130 123 106 109 103 138 139 127 130 116 119 120 103 105 106 102 105103 100 50 Mrtgage Aut Lan Equity Lan HELOC Credit Card Aut Hmewner's Term Life Whle Life Variable Life Surce: Raddn Financial Grup
Hw Cnsumers Prefer t Buy Insurance In Hme with Agent, 13% Internet, 10% Via Telephne, 35% At Agent's Office, 42% The preferred methds f buying insurance are at an agent s ffice and ver the telephne. Only ne in ten cnsumers says the Internet is the preferred sales channel. Hwever, the data n the fllwing page shws hw this differs by segment. Surce: Raddn Financial Grup
60% Hw the Segments Prefer t Buy Insurance Prducts Different Cnsumer Segments express preferences in terms f hw they want t buy insurance services. These preferences tend t mirrr clsely their preferences fr buying bank depsit and lan services. 52% 50% 43% 43% 43% 45% 40% 34% 36% 35% 38% 37% 34% 30% 26% 26% 20% 18% 18% 19% 10% 5% 4% 12% 8% 4% 2% 12% 9% 0% Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale At Agent's Office Via Telephne In Hme with Agent Internet Surce: Raddn Financial Grup
Wuld Cnsider Bank as a Surce fr Insurance Services 20% 19% 16% 15% 14% 15% 13% 10% 10% 11% 5% RFG research indicates that there is receptivity n the part f cnsumers t cmingle their banking and insurance relatinships. Expect mre banks t get int the business f insurance as they search fr nn-interest incme. 0% Ttal Fee Driven Credit Driven Middle Market Lw Incme Depsitr Middle Incme Depsitr Upscale Surce: Raddn Financial Grup
1. Utilize target marketing tls Keys t Success Use prduct-t-prduct crrelatin data t sell depsits and lans int yur insurance base Cnsumer segmentatin will refine targeting effrts 2. Fcus n building cre depsit and lan relatinships Checking / debit card / nline banking Mney market accunts Credit cards key t a strng relatinship Equity lines f credit 3. Enhance yur rle as Trusted Financial Advisr Differences with the large banks shuld be stressed Affinity can trump lcatinal cnvenience and interest rates 4. Fcus n trans-generatinal marketing Utilize yur strength with lder segments t sell int yunger segments 5. Braden yur marketing and delivery channels Internet marketing is critical fr the yunger segments
Thank Yu! Bill Handel Raddn Financial Grup Lmbard, Illinis bhandel@raddn.cm