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Mobile + debit ranks higher than core

Take closer look at processor bills

Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission. Obvious and mediocre won’t be found here—but “Why didn’t I think of that?” will! Challenging the banking status quo is Dan Fisher’s personal mission.

 Selecting and managing a core banking application is no longer the most important technology decision your financial institution will make.

Why? Mobile banking has replaced internet banking and your lobby with respect to account information, products, services, and even customer-to-institution communication. 

Likewise, the debit card has replaced the check—no “duh”—but it is much more than that. Your debit card represents global convenience for your customer and a huge revenue opportunity for your institution. Institutions, depending on size, can generate $50,000 or more each month in revenue—and that is for a relatively small institution.

When properly managed, debit card income will eclipse all other forms of non-interest income at your institution.

Understanding the platform

When it comes to internet banking, a host of vendors offer mobile banking that requires the customers to also have an internet banking account. This is confusing to the customer and doubles your cost because you as the institution have to pay for both accounts, internet and mobile.

Great for the vendor, bad for you and the customer.

If your contract is coming due with this vendor you need to visit with them about a stand-alone mobile platform. If they do not have one, you should start looking for another vendor.

If you want to stay with this vendor, you at least should not be double dipped. You should not have to pay for their bad design.

Same deal with mobile capture is the same:

Are they going to charge your institution for the check capture on the phone, then the deposit, then the posting, and then the image record?

Add it up, you could be paying 75 cents per item! Or more...

Great deal for the vendor—not so much for you.

These services bring huge efficiencies, but the benefits should be equally shared.

Why the disconnect?

Why doesn’t pricing follow efficiency?

Most large vendors have organized products into groupings and created separate business units. Consequently, these business units focus on their product profitability and not the bigger customer picture.

It can be frustrating and costly to the financial institution.

From the debit card perspective, why is your institution being charged for pre-authorizations and completed transactions?

This is another form of double dipping the customer. Purging inactive cards is another form, used or not. Your institution could be paying full price on the card each month.

Take a look at your monthly invoice and first subtract the interchange income, the net will tell you how much your institution is really paying for debit card service. Do the math—it will not take you long to figure out the products where potential double dipping is occurring at your expense.

Next, make a list of the items you are going to want to talk to your vendor about at contract re-negotiation time.

Another contract twist

Escalation clauses can really kill you, too. If you have a five-year contract and you agree to a 5% or CPI (whichever is greater) annual increase to begin in year two, at the start of year five your price has increased 21.5%.

To put that in perspective, if you negotiated an 8% discount at the time you renegotiated the contract, at the beginning of year three your discount is gone

And you thought you had great deal.

A word about interchange …

By the way, interchange income clouds what you are actually paying for services, but more importantly … is your institution receiving all of the interchange your card base is creating?

That would be a great question to ask your vendor—and have them prove it to you!

Rule of thumb here … segregate your income and processing fees, then analyze them separately. Only then will you understand your portfolio.

Also, watch out for Apple Pay. I still insist that it’s not a good deal for financial institutions. [See Dan’s previous blog, “Adopt Apple Pay? Not so fast!”]

Remember what’s important to people

Finally, understand that your customers do not care about your core.

They care about the internet and the accessibility to your institution using their smartphone and debit card. 

The customer desires more control of their card, but before you negotiate your next vendor contract, you should start thinking like the customer. If you design a product that relates to their lifestyle they’ll stay with you and your portfolio will grow.

Mobile banking and the debit card … it is the core of your customer relationship!

The Wombat!

Dan Fisher

Dan Fisher is president and CEO of The Copper River Group, a consulting firm headquartered in Fargo, N. D., that focuses on technology and payment systems research and consulting for community financial institutions. For nearly 30 years, Fisher has worked in the financial industry using technology to improve the bottom line. He was CIO of Community First Bankshares (now part of Bank of the West), has served as a director of the Federal Reserve Board of Minneapolis, the chairman of the American Bankers Association Payment Systems Committee, and was a member of the Independent Community Bankers of America Payments Committee. Fisher has written numerous articles on banking technology and the payments system. He has authored or co-authored six books and recently published a book titled, "Capturing Your Customer! The New Technology of Remote Deposit." You can contact Fisher at [email protected] or at 701-293-6222.
P.S. To understand Dan's nickname, check out "About the Wombat" on his website.       

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