Will the new Republican Government Impact Financial Institutions?

 

Will the new Republican Government Impact Financial Institutions?

 

Republican Government may loosen the grip from regulators

Optimism is running high amongst Financial Services executives as was reported in American Banker on Dec 4th.  Bankers across America are looking forward with glee to the prospect of a bright future with a new government that will most likely loosen the grip from regulators and lessen the corporate tax burden.

 

The New York Times agrees. In an article dated Nov 21st they too surmise that there will be a repeal or significant reform of Dodd-Frank and a friendlier Securities and Exchange commissioner.  Higher interest rates are finally on the horizon too, and a one percentage-point increase could add millions to the smaller community bank lender and billions to the larger American lenders.

  Less spend on regulation leaves more money for growth

In the November14th issue Bankrate reports stronger support for community banks and credit unions is on the way under the new Republican government set to take control of the Presidency, Senate and House in January 2017.  Financial institutions that struggled with the cost of complying with regulation will soon see some relief.  Funds will now be freed up to focus efforts of further growth: the war for retail deposits is poised to begin in earnest. 

 

As the republican government takes office and makes these forecasted changes many wonder how Financial Institutions will respond, and how many will be prepared to take full advantage of the changes about to befall Americans.

 
 

Do Financial Institutions have the tools to accurately measure product performance and enable you to nimbly adapt to trends that the changes will bring?

FlowTracker Analytics is an enabler

Most Banks and Credit Unions think that by measuring new customer acquisition in a product that is enough to understand product growth.  But,when we look at this more closely in a retail banking context, the picture becomes cloudier.

· Are we talking only about new customers and their balances?

· Or new products sold and their associated balances?

· Or growth in account balances overall, which includes growth from existing customers?

Remove the confusion and measure accurately

 

 

This lack of precision causes confusion. Today, to measure deposit growth and identify the true sources of growth, most banks and credit unions simply focus on new accounts and related balances. Consequently, the lion’s share of their growth opportunity goes un-measured because 80% of account balance growth in a quarter typically comes from existing customers. Institutions that fail to focus on that 80% will continue missing multiple potential growth opportunities.

Measure true deposit sales, not product substitution

Let’s illustrate this by looking at Sales of New Products as the basis for measuring deposit acquisition. Financial Institutions overcome the inability of being specific by including both new and ongoing customers in the basis of measurement. However, this introduces a new problem: product cannibalization.

 

When a new customer (typically approximately 20% of growth) opens any account, it can be counted correctly as a new product sale because it brings in new money.  However, when an existing customer (typically approximately 80% of growth) does the same thing, banks and credit unions cannot always pin point the nature ofthe underlying transaction. The new product sale may come from actual new money coming into the bank, a product substitution or both.

 

Product acquisition, in fact, often does have different funding components associated with it. These include:

    ·  Funds from outside the bank.

    ·   Product substitution.

    ·   Loan proceeds.  This is a form of product substitution in that the customer’s portfolio balances will grow because of increases in both loans and deposits. This kind of growth should be included in the definition of product substitution and monitored as it may add a degree of volatility to the deposits portfolio.

 

Based on our analysis, we concluded that the most widely used product acquisition metrics are not sufficient for managing deposit acquisition because they include elements they shouldn’t (product substitution) and omit elements they must for completeness (growth in ongoing product holdings).

 

So, what options are available?  We at FlowTracker Analytics conclude that better metrics are the answer.  Using the databanks already have on hand and the evolved metrics measurements within FlowTracker Analytics, increases the accuracy of product performance, sales, cross sales and the Marketing ROI.  All key to nimbly react to the expected republican government changes. 

 

Differentiate lost money from cross-sale

When managing deposit acquisition, bankers are focused on customers - whether new, ongoing or lost - so that they Flowtracker Analytics can measure the effectiveness of their marketing effort and relationship-management strategies.They also care about products and accounts - whether new, ongoing or lost - to measure their product management activities. And they also care, but historically have not been able to measure the flows of funds that contribute to all balance movements.

 

This is a fundamental need to be able to nimbly react to changes in the future.

Benefit from the analytics of account balance changes

Bankers and Credit Unions also have benefited from our analytics of the balance changes in terms of the status of accounts and products. Introducing the account and product status dimension into the measurement framework, has enabled bankers to get granular on the impact of cross-sales and account acquisition as separate types of activities that subsequently can be explicitly managed.

 Instantly know the source of funds

FlowTracker’s acquisition measurement framework was completed by adding a third perspective to the analysis: the source of funds flowing into accounts.  These three components enable us to distinguish new money growth from internally-funded growth.

           

All these classifications have been compiled under the analytical framework umbrella we call Flowtracker Analytics.

 

These measurements enable Marketing ROI.