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Developing a revenue strategy to counter fee income pressure

Revenue pressure grows

Bankers are under relentless financial pressure now accelerated by the economic slowdown, regulatory attention to overdraft charges, and decisions by larger banks to waive operational fees. Community bankers are right to eye fee income constraints with growing concern relative to their bottom lines.

According to a recent S&P Global article, overdraft (OD) fee income constitutes a larger part of community banks' operating revenue than for larger banks. In the third quarter, the median ratio of OD fees to operating revenue across community banks between $1 billion and $10 billion in assets stood at 0.84%, compared to 0.67% among banks with over $10 billion in assets.  And the following chart highlights the overall drop in OD income contribution in banks over $1 billion in assets:

Establish a revenue strategy  

Savvy community bankers will address fee income challenges head-on by developing comprehensive plans to create alternative and additional revenue sources. Such plans, or strategies, start with an inventory of all current sources and amounts of bank revenue, along with a careful analysis of how expenditures align with revenue generation efforts.

Revenue planning sessions should include all stakeholders within the financial institution who can impact revenue. Bankers should consider gathering the collective wisdom of external stakeholders as well, such as board members and key business partners, to gain new and broader perspectives in revenue brainstorming sessions.

Dovetailing from the strategy sessions, executive and client-facing teams within a financial institution should engage in account planning. Within the FIS organization we’ve found the account planning discipline creates a thorough analysis of the most valuable customers, while gaining perspectives on growing a relationship from multiple viewpoints. These exercises are invaluable to stimulating revenue growth initiatives.

Five ideas that can help now

With a revenue strategy established, community banks should look at all new products and services that can grow revenue, especially fee income. Specific tactics that I have seen resonate in other organizations include:

Consider Banking as a Services (BaaS) BaaS seamlessly integrates as many banking functions as needed into one comprehensive process to complete a financial service in an effective and timely manner to non-traditional financial technology customers. This is a non-traditional source of revenue that requires out-of-the-box thinking coupled with an ability to quickly offer components of banking services to complement innovative new partnerships.  

Examples of embedded BaaS solutions include allowing consumers to take out a small loan when they pay for a holiday on a travel site; the instant calculation and sale of micro-insurance for newly purchased jewelry; or a small enterprise mitigating its cashflow.

Leverage data to enhance cross-selling efforts. The data bankers can access should not be overlooked within programs to increase revenue. Insight into customers’ spending, savings, and transaction activities should create immediate opportunities for offers and in some cases for human interaction. Act on them.

Evaluate agent programs. Bank executives should consider revisiting programs such as credit cards that they currently offer in conjunction with a third party acting as their agent. Credit cards offer a consistent source of fee income, and a different delivery model could help create a permanent bump to a bank’s bottom line.

Consider expanding trust and advisory services. Almost all the major banks offer trust accounts that give an institution the authority to hold legal title to assets while managing them for the benefit of customers. An expansion of services in this area could immediately boost fee income. Likewise, offering additional services areas such as the high-growth financial wellness arena can grow both revenue and relationships.

Review opportunities with business customers. The account planning process mentioned earlier in this article can undeniably create value in reviewing your small business and commercial customer relationships.

These types of customers are understanding of efforts associated for robust online banking services. Evaluate whether opportunities exist within this base of customers for ACH, wire transfers, or concentration accounts. Quite often these areas develop into consistent sources of fee income for banks.

Getting started

The best revenue generation scenarios will still require the bank’s personnel “on the ground” to properly execute strategies and tactics while enthusiastically engaging customers and prospects. Community banks that continuously invest – and re-invest – in sales training programs that reinforce a culture of customer engagement stand to both implement and then cement any new revenue generation programs.

And the time to start revenue strategy development, customer reviews and introducing new offerings is right now. There is too much at stake for banks not to jump in the water, but with a clear idea of where they are swimming and what the ultimate prizes are.

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