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    Debit interchange is one of the key fee income drivers, especially for community banks. But many institutions struggle to find strategies that fuel revenue growth, especially as merchants become more sophisticated in directing debit transactions to lower cost PIN vs. signature.


    In today’s environment are debit rewards programs successful in stimulating demand? Can they help you jump-start performance? Is there sufficient payback after expenses are considered?


    We believe there are more effective ways to improve debit revenue.


    Rewards programs reached their peak in 2009 when they were offered by 58% of financial institutions. This dropped to a low of 32% in 2012, before stabilizing at 38% during the past two years. The decline in rewards programs gives us a test case to measure effectiveness. What happened when rewards programs were discontinued? Are the banks with the highest debit revenue generation offering rewards, or are they improving revenue through other means?


    There are 3 drivers of debit revenue: penetration, activation, and usage


    • High performing institutions have significantly higher penetration of their customer base – more customers have cards, and are active. At the top quartile of performance, 92% of customers have a debit card. This compares to the average for all financial institutions of 77%, and only 62% for the bottom quartile.


    • We often hear that “many customers don’t want a debit card” or that “many of our customers don’t qualify for a card”.? But top performers have demonstrated that high penetration is possible. If customers don’t have a card, they can’t use it.


    • Best in class banks encourage their customers to use their cards more. At the top quartile, active cardholders use their card 31 times per month, vs. an average of 22 for all institutions, and a low of only 14 times per month for the bottom quartile of performers.


    Data analytics is key to improving usage. Well performing institutions understand who is using their card, and where they are using it. They have programs to target activation (get non-users to make at least one transaction), and to encourage users to transact more (“you used it at the gas station, now try it at the supermarket”).


    What about rewards programs? The decline in rewards participation is driven by the recognition that most customers receiving rewards are already predisposed to debit use. When programs were discontinued there was no significant diminishment in activity – certainly not enough to offset the savings from program management.


    Instead of the highest users, spend your time and energy to identify non-users, or low users, and incent them to increase activity.


    Remember PAU (Penetration, Activation, Usage) and establish metrics to measure, monitor – and improve – performance.


    The following article, quoting Peak Performance Consulting Group’s President David Kerstein, appeared in S&P Global Market Intelligence on August 8


    By??Kate Garber?and?Kellsy Panno


    Some of the largest U.S. banks hope to entice their customers with real-time, P2P payment capabilities like those offered by?PayPal Holdings Inc.?and other fintech companies.


    As member banks go live on the clearXchange network, a unified payments?channel, customers will be able to send and receive money in real time. So far,?Bank of America Corp.,?Capital One Financial Corp.,?JPMorgan Chase & Co.,?U.S. Bancorp?and?Wells Fargo & Co.?have the real-time payments capability up and running. Fellow network owners?PNC Financial Services Group Inc.?and?BB&T Corp.?have yet to go live on the network. An Early Warning spokesperson said that while all members are in the process of integrating the capability, go-live dates vary by bank.


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    Digital Payments are growing, and financial institutions have high expectations for adoption. But with usage rates stalled, is this the right time for community and regional banks to invest, or should other options be considered first?


    We just finished an analysis of Mobile Wallets and P2P payments. Here’s a few key points, but read the full article for more detail.


    There is wide belief among financial services executives that mobile wallets and P2P payments will shortly become basic table stakes, similar to mobile banking. According to the 2016 Debit Issuer Study, commissioned by PULSE, almost three quarters of financial institutions expect at least 15% of debit transactions will migrate to mobile in the next 5 years, and nearly half believe the migration will be in excess of 25%. They have invested accordingly: issuer adoption of mobile payments has surged and 65% of debit cards are now eligible to be loaded into mobile wallets, up from 30% in 2014.


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    A modified version of this article was originally published in BAI Banking Strategies on November 13, 2015.


    As the Millennial generation increases its economic clout, banks need to adapt strategies that enable them to profitably attract, serve and grow with these new customers.


    It’s a simple fact: Millennials are your future customers. Already the largest group in the workforce, the leading edge is now in their 30’s and reaching an age when they have stable jobs, are forming families and buying homes. By 2020 they will have greater savings and investments than Baby Boomers. They are not just a customer category, but a massive segment that is driving change rapidly.


    And Millennials are critical to your bank’s growth strategy. Approximately 10% of households switch banks annually – a rate that has been relatively stable for the past decade. But this propensity to switch varies widely by age group. Older customers are more likely to have long-established banking relationships and their average switching rate is only between 3% and 4%, usually as the result of a service or moving issue. On the other hand, younger customers switch at a rate of between 15% and 20% annually. They are most likely to be attracted to financial institutions that offer the technology and online services they prefer.


    Banks need to take action or risk losing this segment to new entrants in the payment, consumer banking and business banking space. And there is cause for concern: we counted 38 different non-traditional competitors in the payments space alone, of which 10 were new in the last year.


    Up to now, these competitors have been mostly nibbling around the edges, but the introduction of Apple Pay significantly heightened awareness of the threat. In our recent industry survey, one bank CEO told us: “The fear is that Apple Pay and Google Pay reduce, if not eliminate, the need for banks to provide the payment stream. How do we compete with that? …. Not sure what the solution is at this point. Once the consumer leaves or never comes in to the system, will they ever join again? Jury is out but I am not optimistic.”

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    This article, by Peak Performance Consulting Group senior consultant Guenther Hartfeil, was originally published in?BAI Banking Strategies?on November 10, 2014


    Even simple segmentation approaches can yield substantial results if implemented with disciplined execution.


    We live in an age of “big data” but sometimes this amounts to data overload. What we really?need is more usable data that can translate into better customer service, improved sales, and greater profitability. One very effective way to organize data is to group customers or prospects into segments.


    The old saying “birds of a feather flock together” is a simple way of describing the dynamic that people tend to group together with those of like interests and similar behaviors. Segmentation is just a way to find people (or businesses) with common behaviors so that marketers and salespeople can then approach each segment in an appropriate manner. These different approaches may show up in product design, media used, pricing or distribution design.


    Bankers can gain tremendous benefits from even simple segmentation schemes that can help answer questions such as: How much time should be spent with a customer or prospect? How should the customer or prospect be contacted? And, when contacted, what should be communicated?

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    Two very different banks appearing at BAI Retail Delivery 2013 show how marketing success depends on utilizing each institution’s competitive advantages.


    (This article was originally published in BAI Banking Strategies on October 25, 2013)


    Big banks, small banks. Occasionally the differences are glossed over. Small bank leaders may overestimate their ability to replicate a large bank technology play. Large bank leaders may underestimate how impersonal the bank might look to someone accustomed to a true community bank.


    But just as often, the differences are exaggerated, as in: It takes huge scale for a bank to afford sophisticated marketing. Or: Large banks’ customer-centricity programs are but a pale imitation of community banks’ natural customer intimacy.


    The truth is more elusive, as will be demonstrated in a session at the upcoming BAI Retail Delivery 2013 entitled “Changing the Rules: Marketing Strategies that Grow Sales and Revenue.” In this presentation, moderated by me, two very different banks demonstrate that the ability of any institution to thrive depends entirely on what each does with its natural competitive advantages and how it shores up its disadvantages. Rockland Trust in Eastern Massachusetts has just under $6 billion in assets and 77 branches. At the far side of the size spectrum is Fifth Third Bank, the country’s 12th largest with $123 billion in assets and more than 1300 banking offices in 12 states.


    Both institutions were bent on achieving significant improvements in sales and revenue, and among their first commitments was that of listening carefully to their customers before making product, service and price decisions. On paper, “listen to our customers” sounds the same at both institutions. But how this maxim played out had very little in common – except in stellar results for both.

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