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Banks and Credit Unions Are Leaving Money on the Table

For a typical $1.5 billion financial institution generating 1.33% of assets in non-interest income, closing the performance gap could result in a 50% increase in their non-interest income.

A Snarketing post by Ron Shevlin

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

Fintech is coming! Fintech is coming!

Subscribe TodayThe press is dominated by news of fintech startups allegedly disrupting established financial institutions and stealing business, customers, and profits:

  • A study by PwC found that existing providers think they could lose almost a quarter (23%) of their business to fintech firms. The fintech firms themselves are even more optimistic—they think that a third of traditional financial services business is up for grabs.
  • An analysis from McKinsey predicts even more dire results for traditional banks. The consultancy believes that 60% of traditional banks’ profits and 40% of revenue could disappear by 2025.
  • A report by Bain claims that, in the lending arena, if traditional financial institutions don’t respond to fintech challenges, more than one-third of revenues are at risk.

My take: These threats are greatly overstated. There is no doubt that fintech startups are coming to market with new innovations, but many are:

  • Filling gaps in the market (i.e., serving underserved consumers)—not cannibalizing existing business.
  • Offering ancillary services, not core deposit, credit, and lending products/services.
  • Looking to partnerships with traditional financial institutions as a path to growth.

We Have Met The Enemy…

I do believe, though, that there is a revenue threat for banks and credit unions: under-performance.

Underperforming the leaders in the market—in terms of revenue per member or customer, revenue per account, and revenue per employee—can cost a financial institution millions of dollars in revenue.

Using the Cornerstone Performance Report benchmark data, I’ve identified gaps and improvement opportunities for non-interest income in five product areas — checking accounts, credit cards, investments, insurance, and member business lending — that amount to more than $10 million for a $1.5 billion (in assets) institution.

For an institution of that size, generating 1.33% of assets in non-interest income, that $10 million represents a 50% increase in revenue.

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In other words, financial institutions that underperform the market are leaving money on the table.

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The Impact of Under-performance

Here are some of the findings from the benchmark database that underscore the revenue opportunities for performance improvement:

  • Checking account penetration. Among credit unions, there is an 18 percentage point difference in checking account penetration between credit unions at the 25th percentile of performance and those at the 75th percentile. For a credit union with 100k members, earning the median level of fees per account (excluding overdraft and NSF), making up the difference in performance adds more than $350,000 in revenue.
  • Debit income per account for the highest performers is 47% higher than it is among the lowest performers. All other things being equal, for an institution with 100k checking accounts, closing that gap is worth more than a quarter million dollars in additional revenue.
  • Other fees per account (excluding OD and NSF) are three times higher for the performers at the 75th percentile than those at the 25th percentile. Assuming 100k checking accounts, that’s $1.2 million in “lost” revenue.

The growing importance of marketing credit cards to the credit union member base, or to the bank’s checking account customers, should make the gap in performance a cause for concern for low performers:

  • Credit unions at the 75th percentile have put their credit cards in the hands of twice as many members as the credit unions at the 25th percentile, and 50% more than the credit unions at the median.
  • Compared to low-performers, high-performing financial institutions see 42% more transactions per credit card, generate 63% more interchange per card, and earn nearly five time as much in fees per card.

Many of the credit unions (and mid-sized banks, for that matter) that I’ve been talking to, and working with in their strategic planning efforts, are focusing on growing their wealth management and commercial lending businesses, as well. Throwing more bodies at the business is no guarantee of success. Investment income per investment rep is nearly double for the high-performers, compared to the low-performers. Likewise, commercial loan commitments per lending officer is 55% higher among the top-performers than it is at the median financial institution.

Driving Blind

zztopZZ Top fans will surely recall a song from the band titled “Arrested for Driving While Blind.” I’m often reminded of that song when working with credit unions and banks on their strategic planning efforts (many of which are kicking off right about this time of year).

Many financial institutions are looking to grow non-interest income, yet are planning while blind, because they have little insight into how their current levels of performance compare to other institutions’ performance.

To get the detailed set of revenue performance benchmarks, click on the link for more information on Cornerstone Advisors’ report Money On The Table: Credit Union Benchmarks to Size and Identify Revenue Gaps and Opportunities.





Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. Ron,

    Could not agree more with your assessment here.

    In the retail checking area, your fee revenue lift number of $350,000 generated from better checking penetration into the member base with existing products can likely come close to being doubled if there was also a better checking line-up than a typical FI has.

    Our research shows there is about a $400,000 recurring fee revenue pick-up per billion of assets of an average FI that can be gained by providing and selling a better line-up – simpler/smarter account design, more modern products and more reality-based relationship pricing terms.

    Not knowing the details underlying the difference between your 25% percentile and your 75% percentile performance to determine your $350,000 number, there is probably some overlap in your revenue increase from higher checking penetration and our revenue increase from having a better line-up.

    Nevertheless both would be material numbers accounting for the overlap, which reinforces your headline of leaving money on the table.

    And a better line-up would likely boost the revenue lift you show above in debit and other fee income as well.

    Lots of opportunity for ample and attainable financial reward for fixing under performance, if the FIs would focus their attention on it.


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