Growth and revenue potential of EFS

Market Rates Insight
Growth and Revenue Potential
of
Emerging Financial Services
Consumer, Competitive & Optimization Study
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The most comprehensive
consumer, competitive and
fee-optimization study on
emerging financial services.
Featuring empirical findings
on the importance and value
of emerging services.
Exhibiting findings by size of
institution, national, regional
and local, and by type; banks
and credit unions.
Introducing the industry’s
first optimization method for
service-fee revenue.
PROSPECTUS
For additional information, contact:
Dr. Dan Geller
Direct: 415-448-8813
[email protected]
275 Greenfield Ave. San Anselmo, CA 94960
Phone: 415 448-8800, Fax: 415 259-0701
Email: [email protected]
www.marketratesinsight.com
© 2013 All rights reserved
Market Rates Insight
Introducing the most revealing and informative
research study ever conducted on financial
services combining consumer, competitive
and optimization data and analysis.
Complete and comprehensive
Revealing and useful information
Section One - Growth Potential of Emerging Financial Services - The high potential financial institutions have for growing service penetration
from the current level of 13% to the potential
level of 54%.
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Section Two - Importance and Value of Emerging Financial Services - showing the relations between the level of importance and the monthly
fee consumers are willing to pay for each service.
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Section Three - Demographics and Channels of
Emerging Financial Services - Factors financial institutions should consider in their mix of channels, such as the demographic makeup of their
customer base.
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Section Four - Revenue Optimization of Emerging Financial Services - The industry’s first optimization method for fee revenue featuring analysis
of service bundles that produce the optimal fee
revenue to the financial institution.
Section Five - Competitive data of Emerging Financial Services - Analysis of data from the top
five banks, top two credit unions and three innovative institutions.
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Financial institutions can sell four times the
number of financial services they currently
do by offering customers more leading-edge
services that consumers find important and
valuable.
Currently, only 13% of consumers receive
emerging services from their financial institutions, yet 55% of consumers who don’t have
such services find them important and valuable.
The average value placed on individual
emerging service is inverse to the age group
of consumers. Mature consumers (age 67
and over) value each services at an average
of $1.18, baby boomers $2.47, Gen X $3.19,
and Gen Y $3.79.
Consumers value specific bundles of emerging services more than they value each of the
included services individually.
The mid-range monthly fee consumers are
willing to pay for an optimal bundle of
emerging services is $10.12 per month. The
range varies by the combination of services
in the bundle, which ranges from $8.38 to
$11.85 per consumer per month.
Service bundles have a point of diminishing
return beyond which the addition of more
services does not increase the value consumers place on the bundle.
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Market Rates Insight
PREVIEW PAGE
Growth Potential of Emerging Financial Services - Overall
These findings are significant because they come in a time when banks are experiencing a decline in fees on traditional services such as NSF and interchange fees due to new regulatory provisions
and greater scrutiny by the Consumer Financial Protection Bureau. Additionally, banks are now facing
competition from non-banks, Wal-mart, for financial services such as prepaid reloadable cards.
The good news is that all financial institutions have ample room for growth and revenue enhancement by providing the emerging financial services that customFinancial institutions
can sell an average of four
ers desire. The level of growth potential of emerging financial sertimes the number of financial vices varies by the type of service. Among the services with the highservices they currently do by
est growth potential are identity theft alerts at 70.8%, credit score
offering customers more leadreporting at 71.4%, payment protection service at 64.6% and sameing-edge services.
day bill pay at 58.7% (Figure 1)
The services that are the least used, as of now, and which have good growth potential are
eldercare services at 0.2% current vs. 46.7% potential, prepaid reloadable cards at 1.8% current use vs.
39.6% potential and location-based couponing currently at 2.9% use vs. 53.1% potential growth.
Figure 1 - Percentage of current use and growth potential of emerging financial services - overall
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Market Rates Insight
PREVIEW PAGE
Identity theft alerts - All institutions
Overall, 70.8% of
consumers who do not
currently have Identity
theft alerts find this service important to some
degree (Figure 2).
Figure 2 - Distribution of importance - Identity theft alerts
About 8.6% of
consumers indicated slight
importance, while 22.4%
indicated that this service
is extremely important to
them.
The average value
consumers place on this
service is $2.71 (Figure 3).
Consumers who view this
service as extremely important (22.4%) indicated
willingness to pay the lowest amount for it, $2.14,
while those who indicated
this service is of slight importance (8.6%) are willing
to pay an average of $3.31
for this service.
Figure 3 - Distribution of value - Identity theft alerts
Of the remaining
group of consumers,
21.1% already have this
service with their primary
financial institution, and
8.1% indicated this service
is of no importance to
them at this time.
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Market Rates Insight
PREVIEW PAGE
Banking channel distribution by age group - All institutions
Age-mature consumers, 67 and over, are the largest segment using branch banking as their primary banking channel - 38.2% compared to Gen Y, in the age range of 18-35, at 23.6%. However,
when it comes to online banking, it appears that all age groups, including those who are 67 and over,
have embraced this method as their primary banking channel. Although 69.3% of Gen Y, and 68.0% of
Gen X, use the online channel as their primary banking method, 61.0% of consumers who are 67 and
over have also embraced online banking as their primary banking channel (Figure 4).
When it comes to mobile banking, clearly Gen Y and Gen X are in the lead with 6.0% and 3.8%
smart phone use respectively. Tablet device adoption is still in its infancy, which only 1.3% use by Gen
X, and 0.2% by Gen Y. Surprisingly, Baby boomers show a slightly higher use of tablet devices as their
primary banking channel than Gen Y, which could be a function of availability due to the cost of the
device, and once tablets become more common and the price drops, this could change.
It’s important to note that consumers indicated these options as their primary banking channel
and not necessarily the only banking channel. In other words, it is very likely that some consumers use
a mix of these channels, yet these are their primary method of banking.
Figure 4 - Banking channel distribution by age group of consumers
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Market Rates Insight
PREVIEW PAGE
Optimal bundle of services - Option #1
Bundling Prepaid reloadable cards, Online personalized couponing and Overdraft protection
produces an optimal value of $11.85 for this set of emerging financial services (Figure 5). Although the
overall monthly fee may be slightly higher when including additional services in this bundle, the incremental amount per additional service diminishes beyond the point of bundle optimization (figure 6).
Figure 5 - Overall monthly fee from bundled services
Figure 6 - Incremental monthly fee from bundled services
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Market Rates Insight
COMPETITIVE SURVEY
Prepaid reloadable cards - Top five banks
Fees
Top five banks (Alphabetically)
Prepaid Reloadable Cards
Fees
Bank of
America
Chase
Citibank
U.S. Bank
U.S. Bank
Wells
Fargo
Not Offered
Chase
Liquid®
Not
Offered
U.S. Bank
Visa Box
Card
U.S. Bank
Convenient
Cash™ Card
Wells Fargo
Prepaid
Cards
$10.00
$3.00
Purchase Fee
Additional Card Issuance Fee
(per card)
Monthly Fee
$5.00
$4.95
Reload Fee
Replacement Fee
Replacement Fee - Expedited
Fee
$5.00
$0.00
$3.00
$3.00
$0.00
$0.00
$0.00
$10.00
$15.00
$5.00
$20.00
$30.00
$15.00
$3.00
$3.00
Signature or PIN based
purchases (combined) - Daily
Minimum Load Amount
$25.00
Maximum Load Amount
Benefits
Personalized
x
$1.00
$0.00
$10.00
$500.00
$0.00
$2,500.00
x
x
Ways to Load Card
Bank Transfer
x
x
Online Deposit
x
x
Phone Deposit
x
x
Direct Deposit
x
Other
Chase
QuickDepo
sit℠
_
x
x
x
x
check card,
credit card,
or checking
account
Branch; Visa
ReadyLink
Merchants
Visa
ReadyLink
Service;
scheduled
transfers
x
x
x
Comments On Benefits
Type of
Card
MasterCard
Visa
x
American Express
Comments
Institution
Service
Comments
Notes
Chase
Chase Liquid®
Purchases up to $3,000 per day;
withdrawals of up to $500 in cash per day from ATMs
None
U.S. Bank
U.S. Bank Visa Buxx
Card
$15 purchase fee non U.S. Bank customer;
$2.50 reload fee from non-U.S. Bank funding source;
maximum load amount $2,000 per 30 days;
maximum amount on card $2,000
Targeted to teens
U.S. Bank
U.S. Bank
Convenient Cash™
Card
Wells Fargo Prepaid
Cards
None
No bank account or credit
check required
None
No bank account or credit
check required
Wells Fargo
© 2013 All rights reserved
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Market Rates Insight
OVERVIEW
Scope of research
The scope of this research study is to examine the level of importance and monetary value
consumers place on emerging financial services individually and as bundles. The examination of importance and value was done separately by size of institution; national, regional and local, as well as by type
of institution; banks and credit unions. The study also includes an industry first optimization method
for fee revenue featuring analysis of service bundles that produce the optimal fee revenue to the financial institution. Additionally, the study contains competitive data from the top five banks, top two
credit unions and three innovative institutions.
Methodology
The consumer survey consisted of a web questionnaire to current bank customers and credit
union members nationally. To qualify for the survey, subjects had to be 18 years old and over, and
have an active banking relations.
The web questionnaire was administrated randomly to about 150,000 subjects nationally. The
response rate was about 1%, thus producing a stratified simple random sample of 1,500 adults with
equal chances of being bank customers or credit union members.
The acquired sample
exceeds the minimum sample
required of 1,289 as determined
by a-priori, two-tailed test. The
t-Test was based on the following parameters: Alpha=0.05;
Power=0.95; Effect size=0.10
(See power chart).
The sample provides a
95% confidence level of a +/-3%
margin of error. The significance level is .05 or lower,
which means less than 5%
chance a relationship as strong
as or stronger than that observed would occur just by
chance of sampling - less than
5% chance of a Type I error.
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Market Rates Insight
STUDY AND ORDER INFORMATION
Study Components and Editions
Components
Publication price
Premium
$4,995
Essential
$2,495
Consumer study: Comprehensive analysis of the growth and revenue
potential from 13 emerging financial services. The study features the
importance level and value consumers place on each of these emerging
services segmented by large/national, medium/regional and small/local
institutions, as well as by all banks and all credit unions.
Competitive data: Survey of the adoption level of each of the 13
emerging services by the top and most innovative banks and credit unions (total of 10 institutions).
Optimization analysis: The use of advanced analytics in identifying
the optimal combination of services (bundles) consumers’ value the
most. The analysis features the optimal point for each bundle, which
produces the highest fee revenue for the least number of services.
Optimization session: An on-line session to review the optimization
analysis and the optimal point for each bundle, which produces the highest fee revenue for the least number of services.
Emerging Trends Spotlight: On a trimester basis delivery of a tracking report and commentary on adoption of emerging services of the
largest financial institutions and select innovative banking institutions.
Trend Analysis and Service Integration Strategy Online Seminars: Presentation on the tracking and commentary on shifts in financial
institutions adoption of emerging services and best practices for select
retail service products.
Order Information
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The Premium edition is $4,995, which includes all the indicated components.
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The Essential edition is $2,495, and includes the competitive data on emerging services.
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Premium edition orders also include a special fee-revenue optimization webinar in July.
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Premium edition orders also include a tracking and adoption webinar three times per year.
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Premium edition orders also included a special webinar on service integration strategy.
© 2013 All rights reserved
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Market Rates Insight
About the Researcher
Dr. Dan Geller is the Executive Vice President at Market Rates Insight, overseeing the research
and analytical services of the company. The analytical services provide clients in the banking industry
with greater insight into emerging trends in deposits and related services, which they leverage to optimize interest and non-interest income.
Dr. Geller is an expert in statistical modeling, and a pioneer in banking analytics. He introduced innovative analytical models to help banking executives price with the highest level of profitability and predictability. Dr. Geller earned his Ph.D. from Touro University, and has published numerous
peer-reviewed studies in professional publications.
About Market Rates Insight
Market Rates Insight is the trusted source for financial information and analysis to financial institutions. MRI’s financial data is complete, detailed and timely, which allows for the highest level of
pricing decisions and analysis. The use of MRI’s financial data ensures more informed decisions, higher
level of pricing precision, and above all, an absolute confidence in the validity of the data and analysis.
In addition to providing financial data and analysis to the financial industry, MRI is also a major
and trusted source of financial research and commentary to the media. MRI’ studies, reports, analysis
and findings are featured and referenced, on a regular basis, in major national, regional and local media
channels such as print, TV, and radio. MRI Trend Alerts have been featured on the front-pages of
many national publications.
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