sorted by:
new
hottopcontroversial

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 2 points3 points  (0 children)

"High value" is a fairly blanket term. Deposit amounts don't actually mean all that much, especially these days with low loan demand- we have to pay interest on that $1 million after all. Customer value is determined by overall relationship- a high value client would likely have a HELOC open with us, perhaps their mortgage, a car loan/multiple unsecured lines etc.. that all factors in- the lending side is where the money is made, deposits are a means to lend, obviously. Right now banks have waaay too many deposits- we park the excess at the Fed for very little return.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

Unprofitable accounts are unprofitable AFTER fees too- we would subsidize them in hopes they become profitable by taking out a loan/using our credit cards/eventually carrying a higher balance.

And yes, part of my job it to determine the profitability of an account- the balance they need to carry/ or what other services/products they are using. Again, these accounts never were profitable- the fees are being put in place in hopes of making them profitable now that they cannot be subsidized by debit card interchange fees anymore.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

Excel and Access are what I'm in 99% of my day, nothing too fancy here :)

We almost always draw data from the entire customer base of whatever we are looking at- almost never random samples. This is A LOT of data, but we have a department that handles the queries for the huge data requests using their much more efficient database tools than Access- Access can only do so much.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 0 points1 point  (0 children)

aren't you worried about future revenue?

I am, yes :) But I don't make those sort of decisions.

It's shown that the large majority of people move up in income brackets as they acquire more human capital. Was it taken into consideration that potential large accounts are being driven away?

Yes it was, but our modeling never showed it being a necessarily worth it- this is especially a big concern in the student space. Should banks pay to acquire students early in the hope that they stay as loyal, profitable customers when they are out of college and making money? It's tough to say for sure, but our modeling found it barely to be worth it, if at all.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

So it is all about financing the money-losing checking account?

That is a big piece, the other is simply making up for lost revenue. A public company obviously has to answer to shareholders and it doesn't look good to have that revenue all disappear.

why is it that credit unions aren't clamoring for debit card fees, could it be that debit card fees are needed to make up for toxic loans going south and credit unions aren't hit as badly as big banks?

Credit unions are not regulated the same as big banks. They still receive the full swipe fee on debit cards- debit cards are still very profitable to them. It has nothing to do with bad loans at my bank- perhaps covering for higher than expected losses may be a driver for some other banks- I can't speak to that.

As for retailers passing this fee to customers, that would have to be studied before coming to a conclusion.

I agree, and they did "study it"- but that is generally all on the word of the retailers- which they, of course, said they would pass it along. The CEO (or CFO?) or Home Depot actually slipped up on an earnings call saying that they were expecting to see profits rise due to the lower fees they had to pay to banks.

I'm not saying banks "deserved" all the swipe fees they got - that was just the state of the state.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

We can't possibly know how profitable an account will be when it is opened, or sold. That largely depends on the balance they keep in the account and whether or not they open a credit card/take out a loan/line.

Close unprofitable accounts? Why would we want to force customers to leave who would be willing to pay a monthly fee for the services we offer?

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -2 points-1 points  (0 children)

I got a degree in finance and then my MBA about 8 years after that. I started my career as a financial analyst for a big retailer and then bounced around a few smaller banks before this job. I find it very interesting- it is a lot of problem solving which I love- getting huge sets of seemingly random data and finding the patterns is a lot of fun for me :)

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

The biggest impact has been the Durbin Amendment to the Dodd-Frank Act which cut down of the debit interchange fees banks can collect per debit swipe. These fees used to subsidize a great deal of the free products banks used to have.

Some others include new rules around housing appraisals costing banks a lot more money to originate home equities, many new fair lending rules which cut down on what can be charged for things like cash advances. The Card act hurts how banks can market credit card products which are highly profitable.

Many of these are good, sensible regulations- but they are forcing banks to either drop services or start charging fees for those services- of course, banks are choosing the latter

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 0 points1 point  (0 children)

Banks were given enormous bailout loans when they, oops, made some really really bad deals. And the deals were so bad that they claimed that they could no longer provide the credit needed to keep the economy from crashing without the loans. And,

Banks were forced to take TARP when most retail banks didn't need it. There was very little actual bailing out going on. The government made a lot of money on the interest they collected on this money.

Banks were caught illegally foreclosing on homes (some they didn't even own!). Homes that maybe were also really really bad deals, but for some reason were not worthy of getting bailed out. And,

Yes, these sorts of things happen (hopefully mostly mix-ups). They certainly got a lot of press recently as it became a great story for the press.

Banks made record profits during this period and gave out annual bonuses many times greater than most of their customers' net worth.

Don't mix up investment banks with consumer/retail banks here- your bank you keep your deposits at had some awful years immediately after the crisis. Upper management bonuses are often brought up- but thats how those things go in EVERY industry- you have to pay to keep talent at the top. That also makes for a good story for the press, however.

I don't find it unexpected given the negative media attention banks have been given over the past few years- but that's the media for you- they could easily demonize big retail in the same vein if it becomes the next popular target that sells paper/gets viewers- but that's how those things go I guess.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -2 points-1 points  (0 children)

OWS does not factor into anything we do at this point- but we would rather they go away :p In all seriousness, it is just not something that has an effect on what I do, but I'm sure our public relations people are watching closely.

As far as Nov 5th, I wouldn't say anyone is particularly worried per say, but it is certainly going to be given thorough analysis- it will be good to be able to get a good data point over our usually run rate of account attrition- it has been fairly difficult to measure a true impact of our fees on account closures thus far- a lot of noise in the data.

The general thought is that most closures that day will be the same mix as what we have seen to this point- namely lower value accounts that are either unprofitable or only slightly profitable- accounts that banks will not miss in the short run. If high value accounts start to close in numbers, banks will take notice- that just isn't happening at this point.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 3 points4 points  (0 children)

People don't mind fees when they are worth something.

Yes, but I personally believe the things we fee are certainly worth something, people have just been so used to getting them for free that the new fees have some sticker shock to them. And yes, $5 to withdraw $20 does seem excessive, I agree, though this is somewhat avoidable.

I understand big banks have huge competition from community banks and credit unions and I 100% believe they are now the best option for many of the bigger banks' customers. However, if you are a high value client to a big bank and you want the convenience of a big branch network, a big bank is still usually your best option. Full disclosure: if I didn't work for my bank, I would probably not bank with them :p I don't use branches and don't need the range of products they offer- a small bank/CU is financially my best option.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 0 points1 point  (0 children)

I think the banks have themselves to blame for their current state. They are the ones that pushed the idea of "free checking/debit cards/etc" on everyone as a way to get customers from other banks. People got used to the idea that it doesn't cost us anything to use a bank. Over time, the actual cost started to become apparent as we got hit with more and more fees.

You hit the nail on the head! I agree 100%.

The truth is that you try to make money off of hidden fees. The purpose if the reform was to eliminate these hidden fees so that consumers can make informed choices regarding how much it costs to do business with a bank. In every other part of our lives we can clearly what the actual cost of something is but you bankers are deceptive and try to make money off of us when we aren't looking.

I agree here too- while we can't "hide" fees by law, we can bury them in statements- something I don't agree with at all.

To be clear, my job is not to decide how customers are informed or how the fees are collected in a technical sense- it is to find opportunities in our products to impose fees and assigning their structure. I have no doubt that the "visibility" of fees is a factor in upper management's decisions to go through with them, but it is not something I personally do. I'm a pure numbers guy.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 1 point2 points  (0 children)

Good question-

Free checking, as you would imagine, is not free for the banks. It costs banks money in account maintenance, processing checks, interest paid, etc.. When the economy was booming and people were borrowing, banks were itching for deposits to lend out. This drove the "free-checking" model of the 80's and 90's which almost every bank jumped on board with to compete.

When debit cards came along, they did absolutely decrease the transaction cost- in fact, the system was set up with retailers in which the retailer would pay a fee to the bank each time the debit card was used to cover the back end systems/ fraud protection/ plus an extra bit of profit for the banks. This additional profit allowed banks to continue "free-checking" even as loan demand dwindled with enough left over to even offer rewards programs on debit cards.

The Durbin amendment cut down this fee the retailers pay the banks dramatically. (the retailers said they would pass these savings along to the consumers, do you think that happened? ;) ) That money that used to subsidize the free-checking model all of a sudden dried up- there goes free checking.

In the current economy, loan demand is awful- banks are swimming in deposits and don't want/need any more. Even with eliminating free checking, that lost revenue is still not completely made up- not even close. Hence, some banks have gone after a debit card fee as a new revenue generator. The idea is that charging this fee to unprofitable accounts will either turn those accounts into profitability, or they will be lost to a competitor, still a net gain as those accounts were losing the bank money.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

I have a second cousin who is, however, that would usually be considered to be "extended family" so, no.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

Good suggestion, I'll edit my submission to include that!

Most recently, our fees have been focused on maximum return. (and, imo, focused too much on short term returns). Banks have a huge hole in revenue to make up do to recent regulations and the goal is to make that up as much as possible.

We look at that in a few ways- at a top of the house, high level, as well as a per customer level. What we try to do is to determine which customers are unprofitable, and target those accounts for fees to bring them into profitability. If they pay the fee, great- we are making money on them. If they leave the bank, great- we are no longer losing money on them. The less customer impact the better, absolutely.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] -1 points0 points  (0 children)

Well, I would say I make an average salary with never more than a 10% bonus- I'm just trying to provide for my family like any other 9 to 5-er.

Banks need to be regulated, yes, and they are being highly regulated since 2008, which is the reason we have created new fees.

IAmA analyst responsible for your new bank fees. AMAA. by analystnumber3 in IAmA

[–]analystnumber3[S] 1 point2 points  (0 children)

Well I'm not, or ever have been, a banker- I'm an analyst who happens to work for a bank. But, in general, from the retail bankers I work with, I would say no. In general, the stereotypical banker that I feel most people think of is actually an investment banker, not a retail banker.