Pub. 3 2014 Issue 2

March 2014 23 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s no corresponding increase in revenue. To make matters worse, interest rates have declined – making DDA funds less valuable to FI’s than they were in years gone by. The result? We’re experiencing the perfect storm for DDA profitability. So now what? The solution to this problem is fairly simple – the proper execution of that solution, though, is critical. We need to implement monthly services charges for a majority of our DDA customer base – and at the same time avoid complete elimination of free checking. But how? As an industry, we’ve spent over 20 years convincing consumers that no one should pay a fee for their DDA relationship! To execute this solution effectively, we need to implement a simple customer segmen- tation strategy and then build a package of services that drive balance consolidation, increase fees, and create value for each segment. The optimal way to drive strategic value within our deposit base is to increase balances. Optimistically, we may have opportunity to drive increased deposit balances sufficiently to generate a profitable relationship with 20% of our base. For the remaining 80% we need to implement a fee strategy – because increased fees will be our only avenue to achieve profitability with these customers. But, you don’t just want to charge fees for services that you have been providing for free. Enhancements are added to the Value Checking product that are in high demand by consumers and are features consumers are willing to pay for based on extensive market research. These enhancements must be low cost to the bank, but high value to the consumer. Enhancements could include identity theft protection with total identity monitoring alerts, credit file and credit score monitoring alerts, fully-managed recovery and reimbursement, and something else just about everyone needs, cell phone insurance. To avoid elimination of free checking we recommend maintaining a free “e-checking” product as a fall back for clients who want only very basic banking services and are not willing to pay a fee. Strunk has effectively implemented our strategy for institutions of all sizes, in both rural and metropolitan markets, increasing fee income per DDA by $36-$60 per account per year with nominal reduction in the core customer base. Our industry is facing increasing regulatory pressure that is both increasing our cost base and decreasing our sources of fee income. The interest rate environment and low to modest loan demand has squeezed margins. Increasing capital requirements will create additional pressure. The time has come to diversify sources of fee income – and our large – and largely unprofitable – DDA base is the first place to look for that diversification. Strunk has developed and implemented successful profit improvement programs for hundreds of community FIs over a period of more than thirty years. In addition to our core Overdraft Privilege Service (ODP), we offer other simple programs that help FIs boost the profitability, customer loyalty and regulatory compliance of their core customer base. Strunk provides the focus, experience and resources your organization needs to increase the value of the 80% of your customer base that is unprofitable…with no expense to your institution beyond reimbursed travel for training your employees. To learn more, contact Mike Sobba at 877-485-8808 or msobba@strunklp.com .