'Net News Newsletter

Overdraft Regulation Could Lower CU Fee Income 11%
In the worst-case scenario, if no members opt-in for overdraft services, total credit union fee income could sink as much as 11%, according to a survey of 185 credit unions by the Filene Research Institute. The loss of all overdraft revenue from ATM and debit transactions would have lowered credit union industry Return on Assets (ROA) by nine basis points. This decrease in fee income and ROA is a result of the Federal Reserve Board's November announcement that prohibits financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer opts in to the overdraft service in advance. This rule goes into effect on July 1, 2010. If the Federal Reserve had passed this rule 10 years ago, it would have been very expensive and time consuming for credit unions and banks to ask their consumers to opt-in. Now that consumers interact more with their financial institution over the Internet than at the branch or the phone, financial institutions have a low-cost automated channel for collecting consumer opt-ins.
Source: Filene Research Institute, April 13, 2010

Improving Bill Pay Can Increase Consumer Profitability
When a consumer pays their bills through their bank or credit union website their profitability increases due to higher account balances, product penetration and retention. Research study after research study has proven this profitability increase from online bill pay. There are many tactics financial institutions can deploy to grow their online bill payers and thus their profits: simplifying the user experience to provide easier navigation, remembering consumer preferences from one session to the next and launching promotional campaigns in the branch, call center, mail and on the website. Tailoring promotional campaigns that run inside of online banking to specific segments of consumers can make them even more effective.
Source: E-Commerce Times, March 22, 2010

Institutions Making Online Banking Their Own
Just like a young couple that is anxious to move out of their one-size-fits-all apartment building into a house they can make their own, many financial institutions are anxious to move from an online banking system they have no control over to a system where they take command of the user experience. Many, though certainly not all, banks and credit unions would like to control the layout and flow of their online banking user experience. Advances in technology now allow credit unions and banks to make their online banking the way they want it without extensive software development. Admin modules with drag and drop capabilities combined with check-box configuration can be used by financial institutions to make their online banking system their own.
Source: CU Times, February 17, 2010

Tech Gap Could Become Too Wide to Close
Banks and credit unions that are overly conservative in their technology investments could face a technology gap too wide to close within the next five years. An increase in data volume, open standards being adopted, greater instability in legacy technology systems and enhancements in analytics will fuel the technology gap. Increasing consumer expectations will also drive the requirement for new technology investments. Consumers' expectations are rising in how they want to interact with their financial institution and also the capabilities offered by their institution. For example, consumers are increasingly expecting things "right now". Financial institutions can respond to consumer secure messages faster by automatically routing questions to the appropriate staff. Secure messages about car loans can be automatically routed to the lending department.
Source: TowerGroup, April 9, 2010

Guidelines for the Outsourcing Decision
Consulting firm Cornerstone Advisors has put together a list of basic questions to consider when evaluating whether to use outsourced technology: 1.) Do we need to be leading-edge in this particular area of our operations? 2.) Can professionals who do this time and again do it better? 3.) Do we want to dedicate scarce personnel resources to this function? 4.) Can we do it internally at less cost than if we turn it over to an outside organization? 5.) Will our volumes change rapidly, up or down, in the near future? 6.) Is this function burdensome from a regulatory perspective? 7.) What will happen if we outsource this function and it doesn’t work? 8.) Would we lose technical skills that are required for our future success? 9.) Does doing it in house maximize shareholder wealth over the long term? 10.) Does outsourcing mean management loses control?
Source: Cornerstone Advisors, April 9, 2010