Increasing Your

Bank’s
Profitability
David Mendoza – Senior Business Consultant
Sales and Service Solutions
FIS
 Market Challenges
• Bank revenues are under pressure
– Reg E overdraft amendment / Durbin amendment
– Decrease in loan demand
– Commercial credit renewals 2011-2013
– Consumer confidence / unemployment
– Additional regulation - Future Focus of Consumer Protection Agency?
– TCF moving to flat OD fee policy – Will end per item OD fee by year end

Checking Account Income Components

Annual Income in $Billions

$4B $3B Exception Fees (Mainly

NSF/OD) TowerGroup estimates that
Interchange Fees
regulatory changes will
$22B Net Interest Margin reduce bank fees by an
$36B
estimated $25B annually
Transaction Fees

Maintenance Fees
Durbin? $12B
Source: Federal Reserve Bank (Transaction Deposits, Commercial Banks)
Source: Profit vs. Growth: Banks Unveil New Checking Account Pricing Strategies, July 2011
© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
2
 Build a Foundation for Profitable Growth
Back to the Basics

 Understand the profitability of your customers.

 Develop segmentation schemes that divide customers into useful and actionable
segments based on profitability, demographic, and lifecycle attributes.

 Leverage technology, people, and process to execute tactics based on customer

segments.

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

3
 Relationship Profitability
A Bottom-Up Approach

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

4
 Why Customer Profitability Still Matters?
80/20 Rule Too Optimistic

$1,400
Rolling 12 Average Profit
370 of 4,000
(9.2%) customers
drive 85% of total
profits $700

54% of customers
have sub-par
returns of LESS $0
than $25
per month

($700)
Decile 10 9 8 7 6 5 4 3 2 1

Source: FIS

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

5
 Actionable Strategies

• Assign relationship managers to top 100 customers and have proactive calling effort
to ensure their on-going satisfaction with bank.
• Empower employees to make pricing and fee decisions.
• Identify unprofitable customers with a:
– Waived fee status and evaluate if the status is correct
– Negative Net Interest Margin and determine why. Use information in re-pricing efforts
– Single product and cross-sell profitable product or change product features
• Incent relationship managers to increase the profitability of their portfolios.

… to achieve Profitable Customer Growth

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 Why Product Profitability is Important…

Our industry is
evolving and
customers have
more choices
than ever!

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

7
 Top Banking Trends
#1 retail banking re-pricing

“By the end of 2011, customers will have to earn

the right to waive fees with behaviors and
balances.”
Top 10 Trends in Retail
Banking, 2011
February, 2011

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

8
 What is Best Approach to Change
Consumer Behavior?

What is the most

effective approach
to attract and
retain profitable
OR
customers?

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

9
 Do Carrots Really Work?
Lift in adoption of services

100%
99%
90% 94%
90% 90%
80% 83%
70%

60%
61%
58%
50% Behavior Not Required
40% 46% Behavior Required

30%

20%

10% 12%
1%
0%
Check Card Online Banking Electronic Direct Deposit Valid E-Mail
Penetration Enrollment Statements Address

Source: Case study from financial institutions based in West

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
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 Do Carrots Really Work?
Lift in monthly transaction activity

25
25

20

15
Behavior Not Required
13
Behavior Required
10

5
4
3
1 1
0
Bill Pay Transactions ACH Transactions Debit Card Transactions

Source: Case study from financial institutions based in West

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
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 Popular automatically
offers higher rates on
existing CDs if
customers open
additional deposit
accounts with
qualifying balances.

• Average CD balances
60% higher
• 50% penetration of
accounts with
Checking, Money
Market, and Savings

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

12
 Build a Foundation for Profitable Growth
Back to the Basics

 Understand the profitability of your customers.

 Develop segmentation schemes that divide customers into useful and actionable
segments based on profitability, demographic, and lifecycle attributes.

 Leverage technology, people, and process to execute tactics based on customer

segments.

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

13
 2. Develop Customer Segments

• Segmentation provides a framework to

group customers together that:
– Behave in a similar way
– Have similar needs, profit clusters,
attitudes, and preferences
• Segmentation helps answer questions
like:
– Who are my best customers?
– What are they like?
– How do they use bank products?
• Why segment?
– Offer more relevant products
– Better understand customer value
propositions
– Project customer reaction to change

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

14
 Overlay External Demographic Data
Gain a richer understanding of customer segments

The solution leverages external

data, like Nielsen-Claritas P$YCLE
lifestage segmentation, to better
understand product buying and
usage propensities of individual
households and customer
segments:
– Financial behavior
– Investment behavior
– Household Income
– Age of Householder
– Family Composition
– Household size
– Presence of children
– Home ownership
– Own/Rent
– Single-family home
– Multi-family dwelling
Courtesy of the Nielsen Company
© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
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 Analysis Output = Product Reconfiguration

• Most banks are re-thinking their products

• Some are already re-positioning and re-pricing
• Old customer value propositions are being tweaked
• New propositions are being developed

• Some trends are emerging...

More qualifiers for Customized "build it"
"free" checking accounts

More emphasis on Renewed focus on New OD protection

"relationship" electronic channels or credit offerings

New propositions on Less aggressive debit Totally electronic

savings "discipline" card rewards accounts
© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
16
 Build a Foundation for Profitable Growth
Back to the Basics

 Understand the profitability of your customers.

 Develop segmentation schemes that divide customers into useful and actionable
segments based on profitability, demographic, and lifecycle attributes.

 Leverage technology, people, and process to execute tactics based on customer

segments.

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 Connections Profitability

With CONNECTIONS’ Profitability Analysis, you can determine the net profit of each
product, account, household, branch location, and employee portfolio in your
institution. CONNECTIONS calculates profitability in an income statement format.

Considerations Captures
Each account’s interest income or expense Individual account fees
Cost of funds (loans) Volumes
Earnings credit (deposits) Transactions
Direct and indirect fees
Non-interest expense

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 Connections – High Value / Low TCO

Browser Based Solution

 Requirements: Computer; Internet; User ID/Password
Integrated with core
 Account information automatically updated daily
Interface with non-core systems that house customer information
 Wealth Management
 Trust/Investments
 Mortgage
 Insurance
Householding
 Updated daily based on address and tax ID
Demographic Data
 Appended to each household to build customer profile
 Data includes: average age, income, marital status, children, own/rent, etc.

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 Relationship
Sales Management
Management

Connections

Marketing
Profitability
Automation

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 An End-to-End Business Strategy

Profitability

Relationship /
Product Marketing
Pricing

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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Demo

22
 Profitability Displayed at Customer Level

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 Profit Ranking by Deciles Summary

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 Profit Ranking by Detail

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 Product Profit / Loss

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 What-If Modeling

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 What-if Modeling – Adding Products

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 What-if Modeling – Apply Discount

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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 Surveys

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

 Let's Summarize…

• Regulatory and market changes are driving innovation in

retail strategy and product offerings.

• Consumer attitudes and expectations are changing and

shifting toward value-based offerings.

• To win, banks must better understand the profitability of

customers so as to better define actionable business
strategies.

• FIS can help!

© 2011 Fidelity National Information Services, Inc. and its subsidiaries.

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David Mendoza
Senior Business Consultant
Sales and Service Solutions
FIS
951-789-0425
[email protected]

LinkedIn / Keywords: David Mendoza