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How to Market to Millennials: Tips You Can Use


Author: Barbara Vega,

If you remember a time before cable TV and microwaves, you’re not a millennial. If you remember a time before computers and cell phones, you’re not a millennial. If you remember a time when there was no ‘e’ before mail, you’re definitely not a millennial.

Millennials, or Gen Y’s, are those born between 1982 and 1993 and a generation that’s roughlymillennial mobile banking 77 million strong; larger than the Baby Boomer generation and three times the size of Generation X.  Generations, like people, have personalities. Millennials –teens and twenty-something’s currently making the passage into adulthood – have begun to build theirs: confident, self-expressive, liberal, upbeat and receptive to new ideas and ways of living.  And this generation is wired…or should I say wireless.

Today’s kids are tomorrow’s customers and members. If your financial institution is going to flourish in the future, you need to start courting the next generation of money-makers now. And be warned: these young consumers have very different financial habits than their parents! So what to do?

Understand them!

Ironically, we have a high-tech group of individuals that are very social, but in impersonal ways. These young people are very connected virtually; texting, tweeting, FaceBooking, Instagramming is the way to communicate.

This digitally endemic group has pushed back each of the five milestones of adulthood: completing school, leaving home, becoming financially independent, marrying and having children. The Pew Research Center’s survey, Young, Underemployed and Optimistic, gives us a great insight into Gen Y’s situation. The report showed, among other things, that 34% of 25-29 year olds have moved back home with their parents.

Access them through the technology and mobile arena

Connect with them where they exist! Millennials have grown up in a world where they are surrounded by technology, and that technology has developed at a faster rate than ever before.

A Cisco Connected Worldwide Technology survey discovered that 90% of Gen Y checks their emails, texts and social media accounts using their smartphones before they even get out of bed. There is also evidence that millennials do everything online, from shopping, to reading the news and watching television. Convenience and immediacy are priorities for this group of individuals, especially when it comes to banking. A LemonTree white paper, Understanding the New Age Wave: Gen Y, found 80% have used online banking in the past month, a higher percentage than any other generation. “They are less likely to ever enter a bank branch and want to do all their banking on their own schedule from home. Because of this, mobile banking has also taken off for Gen Y.” They also use this service more frequently than the average customer.

Educate them

Gen Y consumers don’t necessarily want high tech solutions in isolation; just as important, they want support, advice, and more knowledgeable people speaking to them than they currently experience in their banking interactions. A large number of Gen Y consumers have never balanced a checkbook, but instead they monitor their accounts online to manage their finances; and 25 percent say they do not manage their finances at all.  

Fifty-four percent of millennials are going into their bank branch for information; 62 percent are going online. While 59 percent reported that they are "extremely" or "very" knowledgeable about their day-to-day banking products like checking accounts, they still want advice on personal finance topics, including savings, creating a budget, and credit cards.

Unify your product landscape – make it easy and clear

A dedicated strategy is needed when engaging Gen Y. As millennials are different from other customers, roughly one third of financial institutions have designed specific strategies to win them over. Millennials are desperate for a better banking experience; one with lower, more transparent fees, convenient access and emergency credit options. Use of social media for marketing and reaching out to their customers to launch new products, make announcements and drive new conversations with their customers is becoming common place as a way to get the attention of this generation.

Focus on customer service consistency

One of the cornerstones of the Gen Y engagement is a great banking experience.  Enhancing the customer experience is the key to attracting millennial customers.  As payment behavior changes, and traditional bank customers give way to a younger generation, the relationship between a customer and its bank will help secure that banks are relevant. If banks want to serve these customers profitably, they will need to leverage that relationship and find new ways of doing business with them.

Remember - today’s kids are tomorrow’s customers and members. As baby boomers retire, the millennials will move into their roles. With increases in job responsibility will come increased purchasing power. As this large group ages, they will begin hitting their big earning years and focus more on retirement and investing. 

It’s Spring: Time to Grow Your Online Bill Pay


Author: Lauren Gleim,

Tomorrow is the first day of spring, warmer days are coming, and I can hear The Beatles “Here Comes the Sun” playing in my head. Spring is the time of year where the world is a little brighter, and what better way to celebrate than to do a little sprucing.

Grow Online Bill PayTime to go through your closets, clean up the garden, and grow your online bill pay.  That’s right!

You may be asking, “How can I grow our online bill pay?”  Here are three helpful ways to spring your online bill pay adoption:You can do it all.  It’s spring!  Brighten up your financial institution by planting those online bill pay seeds for your customers.   

  1. Employee Engagement – You want to increase your online bill pay adoption? Start with your financial institutions’ best asset: your staff. Because you can’t sell what you don’t know, why not train and encourage team members to use your online bill pay?  Employee engagement will lead to customer engagement. It’s a win-win. 
  2. Social Media Platforms – Your institution may be leery of sharing on social media sites. However, the best forum to have a conversation with your customers is through these platforms. Engage with your customers, educate them, and share the benefits of using your online bill pay.

    Spring into action by utilizing these popular social media sites:
    • Facebook – World’s largest social networking site connecting people with “friends.” Every business should start with this one. You can even track how many people saw your post with Facebook’s Insights Data.
    • Twitter – This online social networking and microblogging site allows you to communicate the latest and greatest news with your followers. Announce your online bill pay, ask questions/opinions, and receive instant feedback.
    • LinkedIn – Looking to build relationships and do some business networking? Share with other businesses about how they can utilize business bill pay. Your institution’s staff can connect, and share your information too!
    • Google+ – This is a relatively new, Google-owned platform, but it is growing fast! It’s an excellent means to strategically interact with customers/businesses by targeting your audience through circles. Get people to +1 your post and drive traffic to your website.
  3. Email Marketing– Email is still one of the best vehicles to use when communicating with customers. However, keep a few things in mind before you press send:
    • Timeliness –Send out your communications at optimal times/dates.  Take advantage of sending timely emails when you know your customers are most engaged.  For example, when a customer enrolls in your product, send them a welcome email that day.  This email will not only confirm their enrollment, but it provides an opportunity to help them get started using your product. 
    • Relevancy – If your customers are online banking users, then they are also likely to be interested in your online bill pay. Once a customer signs up for online banking, send them an email that explains the benefits and features of bill pay with a call to action to enroll.
    • Frequency – Try to avoid sending too many emails. However, don’t send too little either. Test and determine the perfect email balance based on open rates.

This spring, do your institution and your customers a favor by sprucing up your online bill pay promotion. Don’t know where to begin? Check out iPay’s Resource Center. It’s a free service and contains materials focused on educating customers about online bill pay to help your institution grow.

Mobile Remote Disruption: Preempting Defection


Lee Wetherington Author: Lee Wetherington,

It’s a new year, and the analysts have all weighed in with their predictions and projections for 2014. While some are bullish and others bearish with respect to various trends and technologies, there is consensus in key areas:

  • The absolute number of branches will shrink.
  • Mobile payments are still a few years off.
  • And mobile remote deposit capture will be the most widely adopted new technology among financial institutions this year.

Though many experts champion the advantages of mobile remote deposit (mRDC), few point out the threat it poses in the hands of competitors. Fewer still recognize how mRDC, in combination with prepaid cards and mobile PFM, is being used to challenge the value proposition of traditional banking and to poach segments (Gen Y.2 and high-income households) that are demographically and fiscally important to the ongoing viability of all financial institutions. You must be prepared to fight fire with fire.

The “DeBanked”

According to estimates by Ron Shevlin at Aite Group, 7% of U.S. households have already voluntarily left their traditional banks and credit unions for other options. Why? The checking account ain’t what it used to be: fewer checks, abundant overdrafts, higher fees, and no/low interest. Not exactly a captivating combination.

Perhaps a bigger concern than the “DeBanked” are those Shevlin calls the “PreBanked”, i.e, consumers who own both a prepaid card and a traditional checking account. The “PreBanked” earn more (US$100k) and enjoy more full-time employment than the average banked consumer; the supermajority are also Gen X or Gen Y. But why would these consumers need a prepaid card from a third party?

Enter, “Disruptors”

What do Moven, Simple, and Google Wallet all have in common? First, before Simple’s recent acquisition by BBVA, none were financial institutions. Second, each offers mobile remote deposit capture as a way to divert funds from your customers to the disruptor’s decoupled debit/prepaid cards. Third, with funds in place, each disruptor then offers mobile apps with robust Personal Financial Management (PFM) features that give consumers better and more meaningful ways to spend, shop, save, and manage finances.

Now, you may think these disruptors present a negligible challenge. “DeBanked” defections only present a $1.2B revenue threat, according to Aite—small relative to industry totals. More worrisome, however, is that you may not recognize the “PreBanked” defections at all because these customers’ won’t close their checking accounts with you. None of the disruptors above require consumers to leave their banks or credit unions. In fact, 90% of consumers who own prepaid cards also have checking accounts. But this just makes the threat more pernicious.

In effect, the mobile remote deposit disruption described above slowly reduces your financial institution to a passive funding source that feeds another provider’s more robust service for the customer you now share. When that “disruptor” is acquired by a big bank, as Simple has now been acquired by BBVA, that shared customer must now consider whether to remain with your financial institution or simply move everything over to the new big-bank owner of their beloved mobile PFM provider.

Three-Party Networks

And the party doesn’t end there. Keep an eye on the “three-party networks” that the Fed’s Reg II exempts from Durbin limits. Like the disruptors above, PayPal, American Express, and Discover all offer mRDC as a funding mechanism for the card-based mobile-PFM services they provide.

Discover’s “Cash Back Checking” account not only offers mRDC, a debit card, and online bill payment, it also pays the consumer 10 cents for each check written, each debit card swiped, and each bill payment made. Free from the Durbin rate caps, Discover, American Express, and PayPal enjoy transaction economics that give them the flexibility to aggressively price their “neo-checking” offerings.

So, remember, mRDC isn’t just about doing right by your smartphone-equipped customers and members. It’s just as much about giving them one less excuse to take that first step away and about levelling the playing field against competitors who aren’t afraid to exploit their regulatory exemptions.

If you’re under $10B in assets, you enjoy your own exemptions from Durbin. Fight fire with fire.

Discover card bank

NIST Cybersecurity Framework Standards


Karen Crumbley Author: Karen Crumbley,

The Latin phrase E Pluribus Unum or “Out of many, one” printed on coins could summarize the National Institute of Standards and Technology (NIST) document released last month titled, Cybersecurity Framework Standards.  The message is easy to understand; businesses must take an active role in protecting their assets through cybersecurity awareness thereby “increasing the cybersecurity posture of the Nation’s critical infrastructure as a whole.”  The document further explains, “This approach is necessary regardless of an organization’s size, threat exposure, or cybersecurity sophistication today.”

There is little guessing as to why NIST was compelled to publish these standards.  Major retail store breaches involving card security fraud have brought this topic to the forefront.  Financial Institutions (FIs) want federal legislation in place to protect them from costly incidents due to retailer insufficient security standards.  Card brands are also under heavy scrutiny regarding their security controls and technology.  Retail customers have had their financial informationcybersecurity compromised.  There are clearly multiple stakeholders when it comes to cybersecurity breaches.  The FI cannot mitigate all of the risks on their own.  Everybody must get involved to defend against cybersecurity.

Another positive aspect for FIs is that the NIST Standards genuinely complement business customer educational efforts FIs are providing to raise awareness regarding cybersecurity and online banking transactions.  For example, the framework enables organizations of all “size, degree of cybersecurity risk, or cybersecurity sophistication- to apply the principles and best practices of risk management to improving the security and resilience of critical infrastructure.” 

The document breaks down five Framework Core Functions

  1. Identify cybersecurity risks to systems, data, and capabilities. 
  2. Protect by developing the appropriate safeguards to ensure delivery of critical infrastructure services. 
  3. Detect by implementing appropriate activities to identify the occurrence of a cybersecurity event. 
  4. Respond by taking action regarding a cybersecurity event. 
  5. Recover by maintaining plans for resilience and moving back to normal operations as promptly as possible. 

In line with the previous list of five core functions, there have been continual efforts by Congress and the Senate regarding federal breach notification laws in recent years.  If passed, the federal legislation would provide uniform procedures for all businesses that experience significant data breaches.  However, the question that continues to resurface for this initiative is, “Do we need security regulation as well?”  Interestingly, FIs are no stranger to standards in security when it comes to their own network environment.  They have had regulatory requirements and guidance in place to advance this initiative for eons.  Now, FI business customers may begin to experience some of those same regulatory realizations.  Although the NIST document provides a “framework for improving critical infrastructure cybersecurity”, ultimately there is no push to require businesses to implement any of these standards.  However, the publication signifies something important - cybersecurity as a standard business function.  Regardless of the outcome of this voluntary NIST framework, FIs, government, consumers, and businesses all need to put forth the effort to improve the existing security gaps and work as one, not in opposition.

E pluribus Unum…

Learn More About ProfitStarsInformation Security \u0026amp\u003B Risk Mgmt Solutions


The “Art” of the Partnership


Danny Payne Author: Danny Payne,

I thought I would keep this post simple and stick to something closely related to my world.  Webster’s dictionary defines a partnership as “a legal relationship existing between two or more persons contractually associated as joint principals in a business.”  That’s surely a clear cut way to define a partnership, but it might not define the kind of partner your business is looking for.  A true partnership finds a balance in all the ups and downs that each day bringsPartnership us and works for the betterment for both sides.  Like a personal partnership, a corporate partnership also seeks out the right partner to create a mutually beneficial arrangement that addresses the needs of both parties while avoiding setbacks or obstacles to the other.

So, how do you define a “good partner”?  What makes a good partnership work between two companies with two products?  Here are some principles to follow:

  • Role Definition – What does the company bring to the partnership, and how does your company benefit from partnering?  How involved do you want this partner to be with your customers/prospects?  Does this fit the mold of the type of organization you want involved with your customers/prospects?  Who is the face of your organization engaging with those people buying?
  • Goals - The goals of both companies need to align and the results must be beneficial for both groups.  Without a cooperative plan, one side will always be looking for something more from the partnership.  Collaboration, communication, compromise are all critical to establish the best objectives.
  • Synergy - The product, sales, and operational teams must work in cooperation to create as much synergy as possible between both companies to create a solution that shows the partnership to the prospect/customer.  Ineffective sales and delivery partnerships are doomed for failure
  •  Flexibility - A true partnership is flexible and the services delivery channel partner in the same way is serves the partner’s product being sold.  If there is a unique opportunity to service a current VIP customer of the channel partner, the product partner may have to commit to specific pricing or delivery dates to better serve the overall relationship.
  • Longevity - The toughest part of any good partnership is the relationship that happens after the execution of the sales plan.  Being the same strong, loyal, and dedicated partner is the true test of time.  Especially when there aren’t as many sales, but now there is ongoing revenue.  This, in my opinion, is the partnerships you are looking for.

The list could go on and on, but there are a few core values when opening up your company, your bank, your credit union, and even your team to a solutions partner that has their own list of ideas and agendas coming into the partnership.  Every partner is unique and provides another exciting opportunity to another set of customers or another set of products, but it’s complicated and you need to know with whom you are sharing and exposing your customers.

There are partners “born” every day, and press releases to follow.  The very best partnerships do not involve a lot of pomp and circumstance, they involve results.  The partners worth the time, energy and resources involved to make it successful are those that follow some or all of the guidelines above, and at the heart of it have as much invested in your success as their own.  While some partnerships just “happen”, the truly powerful partnership is researched, analyzed, assembled, cultivated and nurtured.


Technology Buzzwords


Author: Eric Wilson,

There’s no debate that technology is drastically impacting the financial services industry and our daily lives.  As new products and technologies emerge, along with them comes new terminology.  Here are a few buzzwords you are likely to hear a lot more of in the future and why they matter.

Responsive Web Design

Applications that become heavily adopted are usually the ones that have a great user interface design.  When everything is the right size and in the right place, using a well-designed application can be a pleasant and seamless experience.  Really good software designers and engineers know this and tend to be highly skilled at making the most logical use of available space. 

Interior designers use a similar approach with a technique called “space planning”.  If you have a floor plan with dimensions, you can design a room before ever actually seeing the place. 

A fine strategy…until the dimensions change!  When you move to a house with a new layout, your design will be different.  

The same problem can occur when trying to use a software application across devices ofResponsive Web Design various screen sizes.  What may work great on a 17” desktop monitor with a keyboard and mouse can be ineffective to use on a 4” smartphone with a touch screen.   

Responsive web design will help move web based products toward a device agnostic culture.  The concept is for the application to “respond” based on the user’s equipment in order to provide a high quality experience on all devices.

It accomplishes this through flexible layouts, images, and grids that intelligently adapt to a user’s environment.  As you view the product on different devices (or flip them on their side!), the screen layout may change in ways that are more appropriate for the device you are using. 

In the future, many web applications are likely to shift towards a responsive design approach.  Since web design is as much of an art as it is science, how well it responds to different devices will be a huge part of a product’s adoption rate.  Consider this when looking at cross-device compatible products for you and your customers.

Internet of Things (IOT)

The number of physical objects connecting to the internet is expanding at an extremely rapid rate.  It is estimated that there will be 26 billion “things” connected to the internet in 2020.  We are talking about much more than PC’s, tablets, and smartphones.  These devices can be anything from thermostats, appliances, health monitors, or anything else that has an on/off switch. 

When you add the internet into the equation, the physical objects around us can transmit data related to their function and even work collaboratively with other devices.  Here are some examples of how internet connected objects are already being put into action in an attempt to improve the overall quality of life. 

  • Sensors are being used to provide information on the source and freshness of food. 
  • Advanced detection systems have been created to alert or notify potential natural disasters of emergencies. 
  • Thermostats and other household devices can be controlled and monitored remotely.

Coordinated devices working together (often without human input) can impact everything we do. The opportunities for innovation are endless. 

Regardless of how you feel about it, the Internet of Things seems headed to our front door, and it’s likely to have a big impact on everything.

Data Science (especially with Big Data)

The amount of data being stored in the world today is so large we will need more words added to the English language just to quantify it!  Stored data is now into the zettabytes. (In case you are interested, the order goes gigabyte, terabyte, petabyte, exabyte and zettabyte.)  There’s only one numbering value left (yottabyte) before we will need new words to describe the size of all that information.

Almost all industries are realizing that there is huge potential in data.  According to the McKinsey & Company:

“Big Data is the biggest game changing opportunity for marketing and sales since the internet was invented almost 20 years ago”. 

If you work in the financial services industry, you probably already see data analytics in action assisting executives and risk management professionals with risk mitigation and regulatory compliance. 

Data science incorporates mathematics, models, and other techniques to extract knowledge from data (especially “Big Data”).  As data pools continue to grow and sources of data are combined, good tools to help people analyze all that data will become increasingly essential.

Maybe you’re already using one or all of the technologies I described, or these buzzwords were common knowledge to you.  If so, please share your experience – we’d love to hear from you. 

Data, Data, Everywhere


Author: Paul Miniutti,

The new National Security Agency’s Data Warehouse Center outside of Salt Lake City, Utah spans 1.5 million square feet.  That’s enough space to fit over ten average sized Costco’s.  Some unconfirmed estimates put the data storage capacity at 500 million terabytes.  And that’s, well, a lot.

According to IBM, every day we create 2.5 quintillion bytes of data.  When you consider that this blog post accounts for about one thousand bytes, do the math on that daily number, I dare you.

We are in a new era of data creation and consumption.  You may have heard of the term, “big data”, which refers to a collection of data from traditional and digital sources inside and outside your company that represents a source for ongoing discovery and analysis.  Or put another way - a “ginormous” amount of data.

There’s obviously a lot of data and a lot of things businesses can do with that data.  But data itself does not equate to intelligence.  The challenging part with big data is being able to produce useful analytics from it that provide real business value.  It is critical to constantly assess the value of the analytics produced.  There have been numerous reports that cite the difficulties businesses are having in producing a healthy ROI for the data warehouses they have built.  Some of the challenges include:

  • Infrastructure costs
  • Data security
  • Finding adequately skilled staff
  • And producing analytics that drift from providing useful information to helping drive the business. 

With big data the trick is to start small.  Understand the growth potential and infrastructure costs to securely support data growth. Prove that the technology you will use can be supported with your staff.  Analyze small subsets of the data to confirm the value it holds for your business.  And, put motivated, inquisitive, dedicated folks on the development team as the technology and analytics needed will surely change.

Compliance, the Missing Piece to a Managed IT Service Puzzle

Author: Jenny Roland-Vlach,

As IT environments are becoming increasingly complex, more community financial institutions are looking to outsource monitoring and management of some of their entire IT infrastructure. As anyone who has ever been part of a new product or service implementation knows, there are times when certain items seem to fall off the radar. Of course, this does not always happen intentionally. Given the complexity of implementing new products and services, especially a managed IT service, it is likely that steps to address risk/compliance will either be overlooked or postponed to be dealt with at a more convenient time.

This is concerning to me because compliance should be considered and addressed during each step of a managed IT service roll out; before, during and after the process. Initially, incorporating a managed IT service into your network will impact your IT Strategic Plan and Vendor Management service level standards. Specifying and clarifying performance expectations for vendor relationships and measuring to these standards are important risk/compliance objectives as well as examiner expectations. Consider, for example, how a managed IT service will impact your infrastructure needs (current and future), IT and business innovation objectives, and risk/regulatory requirements. These items should be documented in your IT Strategic Plan. Appropriate due diligence must also be completed for managed IT services, especially given the criticality of the service to your institution.

Your existing policies and procedures will certainly be impacted when outsourcing any level of IT management. Changes to your governance structure or assignment of responsibilities are a prime example of this. To expand on this idea a bit more:

  • You will need to document which members of your internal personnel will be involved in the development, operation, and supervision of the managed IT service.
  • Will there need to be additional training and which individuals will be responsible for reviewing monthly and on demand reports?
  • In addition to enhancing your existing policies, you may find yourself having to incorporate new policies such as a cloud computing and storage policy or a data classification policy, if your institution does not already have such policies in place.
  • Of course, as with any new product or service implementation, you cannot forget about your GLBA risk assessment. It should be updated accordingly to address how the managed IT service helps you to mitigate risks associated with your network infrastructure.

At the end of the day, your ability to document your institution’s risk and compliance efforts will prove essential. You should be able to demonstrate to examiners that you have addressed the additional compliance elements that come with sharing IT management with an outside service provider and that you can prove that the vendor is doing the job they contracted to perform for your financial institution. Remember, implementing and overseeing a managed IT service doesn’t stop with deployment. Managed IT services are incredibly beneficial partnerships for community financial institutions looking to improve not only their IT environment, but also business innovation and productivity. Including risk/compliance initiatives as pieces of the managed IT Services puzzle will help to ensure your IT environment is operating at its most effective state.


To Learn More About Managed IT Services Visit the ProfitStars Website

Navigating Your Way through the Cloud


Author: Jeremy Taylor,

Navigating your way through today’s cloud computing landscape can be a daunting taskNavigating the cloud for even the most experienced IT engineer. Cloud computing offers many advantages over traditional models, but comes at a cost and presents challenges that need to be considered well in advance of taking the plunge. So how do you determine if cloud computing is right for you? Let’s take a look at some of the more important aspects to consider which should help you make an educated decision.


Perhaps the single most important aspect to consider when selecting a cloud provider is the security they offer. If you are going to consider moving any aspect of your computing environment outside the confines of your own walls you’ll want to be certain that the data you relocate is secure. Make sure the cloud provider you choose has a solid solution for securing and encrypting data, both at rest and in transit. It is also important to certify they are compliant with industry governance standards such as SAS70 and SSAE16. It’s important for your cloud provider to meet the same auditing requirements that you are required to meet in-house for your organization. Research and due diligence up front can save a lot of headaches and audit write-ups down the road.


The second most important feature is insuring that you have a reliable connection to your cloud. This will guarantee that you can provide close to the same level of functionality and performance as you would otherwise be able to maintain in-house. Insure that you have adequate bandwidth from your organization into the cloud. Doing so will make certain there is minimal impact to your users who have come to expect a certain desktop experience. Redundant connections should also be considered to safeguard against Telco outages. There will always be trade-offs when moving to the cloud, but the key is to minimize these trade-offs and prioritize them.


We certainly can’t negate the importance of cost when considering moving to the cloud. While there are many ways that cloud services can save you money, it’s not always a slam dunk. Moving to the cloud may require an increase to current bandwidth allotments or the purchase of additional equipment to provide a successful migration. There is the potential to save a great deal of money when moving to the cloud, but make sure you spend time performing a cost analysis first to determine if the financial aspect of cloud services is worth the cost for your organization.

Cloud computing has become a huge part of the IT landscape today and many individuals and companies alike have embraced at least a small slice of the technology. As is true with any emerging technology, however, it is important to adequately measure the cost and risk associated before determining if, and to what level, you will embrace the cloud.

Already embraced the cloud? Share your experience. 

How Does Customer Profitability Increase Our ROE?


Author: Cheryl Wondrasch,

“Cheryl, how does customer profitability increase our ROE?”  I received this question on one of my first customer profitability installation and training sessions from the CEO at the bank.  At that time, I was shocked by the question.  How could you spend money on a system if you didn’t know what to do with it?  I’m not criticizing him; I’ve received the same question in different context for the last nine years.  I’ve done several presentations on how to get the most from customer profitability.  So many, I wonder if anyone is listening!

So how would I answer that question today, nine years later?

  1. USE the information!  Customer profitability provides you with a stacked rank list of your most profitable to least profitable customers.  Because customer profitability has a financial focus, some institutions think of it as a finance only tool.  Customer profitability information becomes more valuable if it is widely distributed.   Consider segmenting your clients into “gold, silver or bronze status”.  Then provide access to these rankings to your front-line employees through a core or CRM feed and instruct them on how to treat these most valuable clients.
  2. Think outside the box, a loyal customer is not always a profitable customer.  The results are not always popular, but customer profitability is only one factor in customer retention. Is it important to retain all your clients or more essential that you retain your most valuable clients?
  3. In most financial institutions, 70% to 80% of their customers are either breakeven or unprofitable.  Bankers do not like negative numbers – be prepared to defend the assumptions.
    1. Have a retention plan for your most profitable customers.
    2. Find customers in the bottom 10% not related to credit issues.  What would you do with the customer that has twenty high-rate $2,000 CD’s?
    3. You can decrease the number of customers you have and INCREASE profit.
  4. Decide on your financial focus; is it ROE, profit, or contribution?  If equity and funding is an issue, focus on ROE, if net income or profit increase is your objective, use that as measurement.
    1. If you’re looking at a pricing opportunity, you may want to focus on ROE, or incremental profit.
    2. If you’re designing a marketing campaign, use profit tier or rank.
  5. Effectively setting pricing to enhance net interest margin is essential for profitability.  Using customer profitability and pricing tools, you can understand the impact of rate, balance and risk rating changes to ensure you are effectively setting prices.  Additionally, knowing how low you can go for your most valuable customers is only available with profitability data.

Putting this information into action has its rewards!  Financial institutions that actively analyze and use customer profitability information generally drive NIM that is six basis points or more above their competition. For a $500 million institution that is $300,000 annually!


To Learn More Register for Our Upcoming Customer Profitability Webinar
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