Budgeting for Profitability in 2016

Posted by Jeff Harper, President, BSG Financial Group on Sep 15, 2015 2:25:00 PM

Budget for ProfitabilityIt’s that time of year again, when financial institution management teams around the nation are in some stage of planning and budgeting for 2016.

When seeking areas for investment, non-interest income is still front and center, along with compliance and customer communications. All of these areas of potential growth can be addressed with innovative technology solutions, which will be crucial to create sustainable profitability and enhanced customer service for next year and beyond.

According to a recent study by Cornerstone Advisors, roughly half of community banks and credit unions will spend slightly more on IT in 2015 than they did in 2014. This growing trend in technology investment is likely to increase even more next year.

To that end, many a CEO/CFO would like to find that “ace in the hole” line item project that will deliver an immediate increase in revenue without taxing compliance or IT resources. Listed below are two such solutions that your management team should consider. (You can download a complete list here: 'Four Surefire Ways to Improve Your Financial Institution's Performance.')

Each solution has proven successful in helping other financial institutions just like yours generate non-interest income; streamline processes; or maintain compliance without compromising their financial institution's resources.

Solution #1: Profitable, Personalized Checking Accounts

Get out of the “free checking” bind that can cost your institution $250 to $400 per account annually to sustain. Instead, offer a fee-based checking account that is enhanced with value-add products and services that are important to the customer, who will pay a small fee for extras they find useful.

Bundled, fee-based accounts can include benefits like:

  • Identity Theft Protection (70% of consumers say they want ID Protection and Credit Monitoring. In fact, these features are likely to become the deciding factor in the selection of their financial institution.)
  • Cell Phone Protection 
  • Entertainment and shopping discounts

These checking accounts offer a maximum return for a modest investment and can provide a turnkey, quick-to-market program that helps: increase non-interest revenue; deliver additional customer value to impact loyalty and retention; and create a competitive advantage in the marketplace.

When seeking a fee-based checking solution, be sure to find a provider that is expert in customizing the program to fit your customer/market profile as well as your institution’s specific needs and strategic goals. If you don’t want to eliminate free checking altogether, that’s OK; the goal is to structure your entire checking offering to best service your customers in the most profitable way.

Read a success story about how one client bank ($1.2 billion asset bank with over 40 branches) expects to generate >$800K per year while reducing free checking accounts and retaining the majority of their most profitable customers.

Secure Checking Success Story

Solution #2: Implement a Compliant Courtesy Overdraft Program or Improve Your Existing Service

Though courtesy overdrafts have come under scrutiny in recent years and overdraft income is down as a whole, overdraft fees still remain an important and viable source of non-interest income for FIs. 

If your financial institution does not currently offer a courtesy overdraft solution, it is still a good time to reap the rewards. Though some in the media portray these services as predatory, a significant number of consumers do, in fact, rely on and appreciate their financial institution providing this type of short-term liquidity that saves them from embarrassment and additional merchant fees. The key is to select a provider that with responsible best practices and that ensures compliance now and in the future.

When seeking to implement an overdraft service (OR if you are evaluating the performance of an existing program), look for:

  • A Cloud-Based Solution (for more information on the advantages of moving to the cloud, see “Reasons to Move Your Financial Institution to the Cloud.”)
  • Dynamic Limits—Sophisticated overdraft solutions use customer data to provide auto-updating overdraft limits that are customized to an account holder’s ability to repay. This improvement in setting limits, not only serves customers better, it keeps banks aligned with federal directives from regulators to monitor the “credit worthiness” of account holders and to adjust participation in an overdraft service when needed. 
  • The Ability to Capture Debit Denials—With the rise in debit card usage and the decline in checks as a form of payment, a new opportunity has surfaced in “NSF Debit Denials,” which are debit card transactions that are attempted, but denied at point of sale or ATM due to “reasons of NSF.” The attempted transactions are typically denied because the customer has not opted into Reg. E., which covers one-time point of sale and ATM transactions, or because the customer’s overdraft limit was exceeded.  ‘Second generation’ overdraft solutions can help your institution identify these ‘debit denial’ opportunities, communicate to customers about obtaining Reg E opt-in, and apply dynamic limits to those who do. The result is a profitable program with an emphasis on risk management.

Download Four Surefire Ways to Improve Your Institution's Performance
Download our complete list of budget strategies: Four Surefire Ways to Improve Your Institution’s Performance.


Topics: Fee-Based Checking, Courtesy Overdraft, Fee Income, Budgeting