So, I took a stab at defining what might be considered a FinTech, company. There is plenty of fleshing out of this model that still needs to be done but I’d like to share version 0.1 (beta!) with the world.

A Model for Defining FinTech

Starting in the middle of the diagram, Financial Products include not only the financial instruments themselves, but also delivery, payments, and safekeeping products associated with those instruments.

Moving to the top of the diagram, customers (consumers or businesses/organizations) generally acquire Financial Products through one of three types of financial product providers (“Providers”):

1. Financial institutions offering traditional products such as deposits, loans, investments/insurance, etc.
2. Non-financial institutions offering products such as payday lending and commercial finance
3. Non-financial institutions offering products using differentiated technology such as P2P loan exchanges or mobile payments

I initially only had (1) and (2) above but quickly realized I needed to distinguish between historic non-bank lenders and recent entrants such as Lending Club, for example, so (3) was created. Conveniently, (3) also provides a home for Providers that go straight to the customer for Financial Products that aren’t bundled with a financial instrument (Square, for example).

At the bottom of the stack (but critical), Foundational Technology Providers offer the underlying hardware, software, network, services, etc. that enable the delivery of Financial Products by any of the three types of Providers.

So we’ve arrived at the definition of a FinTech company. I consider companies offering Financial Products using differentiated technology (Provider type 3 above) along with the Foundational Technology Providers to be companies in the FinTech space.

Feedback is welcome and appreciated—hit me in the comments below or on Twitter. I know there is some smoother verbiage I can apply here and the graphic can be better. The topic’s been eating at me for a couple of weeks so I wanted to get my thoughts out there. I’m also doing some research over the next few weeks that will allow me to drill down on each of the components of the model to see if it holds up and will share more soon.

And that is where I see the future: not a branch-based one, but one where there is humanity.

• human contact in the bank’s offices;
• human contact in my office;
• human contact through my devices; or
• human contact embedded in my net-based life.

That is where the battleground lies: connecting humans to the net and humanizing the digital relationship.

Most legacy institutions don’t have the answer yet, but it’s heartening to see many of them starting to ask the right questions about branch function, design, and the technology required to support what Chris is talking about.

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• IT leaders have been finding ways to outsource commoditized services for a number of years now, converting their fixed costs to variable
• Some of the branchless bank players that have sprung up the past few years have decided they didn’t want to build out a back office, leaving those functions to their technology partners.
• The move to branch/teller capture has prompted some institutions to outsource their entire item processing function along with some of the traditional “Day 2” functions

Rick Seaberg has a piece up on BTN this week talking about the financial pressures banks are facing and how looking at sourcing may be an answer:

Flat revenues and the de-leveraging of customer debt has created immense margin pressure, fueling cost reduction initiatives and inhibiting the ability to invest in a business model that builds deeper relationships with the customer.

I think the nomenclature in the article is icky big-bank-speak and some of his examples are higher-value functions that ought to remain in-house (“Banks can transfer the responsibility for designing sales tools and campaigns, managing customer relationships and other branch tasks to a more efficient shared, industrialized model” doesn’t sound very appetizing to me, for example). But I believe the premise of looking at sourcing does make sense and we’ll be seeing more vendors focus on this space, and not just for global banks.

Simply put, it’s just a matter of time before the quest to maintain/improve earnings extends to taking a look at the sourcing of additional deposit servicing, loan servicing, and electronic banking functions.

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Script is not limited, however, to these conventional transactions that merely transfer coins from one person’s control to another’s. It can evaluate statements, execute conditionally, do math, and move bits around.

So what, you say? Some of the applications that Script is capable of include:

• Arbitration, to handle disputes
• Assurance contracts (think of a Kickstarter-type scenario)
• Continuous micropayments
• Notary services (!)
• Secure, reputable, pseudonymous identities

Durado argues that the status quo of SWIFT, ACH, Fedwire, etc. is hobbled because they are prohibitively permissioned and because of that you can’t do much else with them. Because of its openness, he argues Bitcoin can transform Finance like the Internet transformed communication:

Permissionless innovation means more innovation.

Indeed.

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Appointment scheduling has come up on wish lists as I’ve spoken with bankers in the past, particularly in Wealth Management groups (financial advisors, for example). There’s certainly a convenience angle for prospects and customers to be able to schedule a meeting without having to make a call or send emails back-and-forth. I like the sales angle that Vince Ammendolia from BMO Bank hits in the article, too:

Indeed, he recalls BMO bankers fearing they could be losing sales leads to competitors. Getting an appointment booked while a person is researching products lets the bank better retain the prospect or cross-sell to him, he says. Plus it improved the then-existing BMO experience that required a banker to call a person back to set up an appointment

Ammendolia also goes on to note the bank is looking into enabling customers to enable video appointments as well in addition to in-branch appointments (another confirmation of interest in video delivery).

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Similar to a virtual version of Apple’s store-based Genius Bar, without needing to wait in line or leave your house, a banking version of Mayday could provide both basic customer support as well as specialized or advisory services that could revolutionize both mobile and online banking.

He’s on to something. I wondered about this last year when NCR bought uGenius.

With the proliferation of Skype, Facetime, and other video services, isn’t the endgame going to be decoupling the physical point of presence from video capability? In other words, why should a customer need to drive to the branch to video chat with a representative? That of course begs the question about what kinds of issues are better resolved with video or in-person contact vs. the traditional call center.

I talked about sales of complex products being a potential use case but Jim hits a boatload of others in his excellent article. It’s not a matter of if, but when video becomes a standard method of delivery.

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There’s plenty to chew on from pop-up branches to promotional pricing to talent retention in the branch. One of the topics is implementation of an iPad application for commercial customers at State Bank & Trust in Georgia. Given they are $2.5 billion in asset size I’m interested in whether this was actually developed internally vs. an integration of a packaged solution. As interesting to me is the way in which the project was approved in 2013.

The bank discovered during the year substantial demand for an iPad application for it’s commercial customers but there was no spot for this in the annual budget. The article quotes Mike Fitzgerald, the bank’s Chief Revenue and Deposit Officer, on planning:

“In this industry, we have written business plans forever,” he says, “and we’ve said, ‘Gosh darn it, we’re going to do those things because we said we’re going to do them; we worked really hard on those plans.’”

Unlike the legacy approach Mike describes, the bank’s governance processes were flexible enough to deal with this change in priorities instead of putting it off until 2014. My guess is the bank and IT strategic plans already outlined strategies to improve delivery to commercial customers. Further (again I’m speculating), there was a cross-bank governance process in place that provided the opportunity to add this initiative and re-prioritize others so that the bank could exploit this perceived opportunity consistent with its strategy.

Regularly revisiting the initiative roadmap during the year is a necessary and beneficial activity that ensures assumptions made in the planning process are still good and IT resources are devoted to the efforts most beneficial to executing strategy. A transparent governance process with cross-bank representation is key to this.

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Unsurprisingly, most respondents projected a modest (< 5%) increase in overall IT spending or an outright decline over the next year. Mobile banking/payments and leveraging data were cited by 2/3 of the participants as the most important customer growth-focused projects.

The ability to leverage data more effectively to comply with regulatory requirements is identified as the most important IT-related project pertaining to infrastructure and compliance over the next year by 35 percent of the executives surveyed.

So, leveraging data was also cited in 1/3 of the responses for the most important regulatory/compliance projects yet only 13% of bankers felt like their organizations have a high analytics literacy.

What do you think the program is that comes up most frequently in technology roadmaps I’ve built for clients over the past few years? Analytics. In the lower end of the mid-sized space, banks tend to be dependent on what their core vendor provides in this area. This approach historically exposes a couple of issues:

• Core vendor solutions aren’t adequate because their scope is limited (core account servicing-centricity, lack of behavioral/channel data, etc.)
• Technology alone does nothing to address the organizational and governance issues around analytics (skill sets, data integrity, etc.)

It’s a tall order to build a foundation for analytics but indeed it has benefits in both customer growth/retention as well as compliance. Banks have to remember the organization side of the equation, though—the best technology is worthless without the right organization to provide support, ensure data quality, understand the data model and solution capabilities, and make it sing.

There are additional questions on mobile banking, social media utilization, and information security as well. The KPMG report is worth a look if you haven’t seen it already.

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UPDATE 31 December 2013: I’ll be posting here again in 2014 with a combination of short-form commentary on the latest news as well as some regular long-form pieces that don’t necessarily fit on the crescentmetrics.com website.

Video technology presents institutions with the opportunity to extend hours of service in existing locations and extend institutions physical footprint to locations that can’t support a traditional branch. Banks and credit unions have also used the technology to increase efficiency during traditional banking hours by shifting volume away from on-premise tellers to agents in a centralized location, maximizing resource utilization.

With the proliferation of Skype, Facetime, and other video services, isn’t the endgame going to be decoupling the physical point of presence from video capability? In other words, why should a customer need to drive to the branch to video chat with a representative? That of course begs the question about what kinds of issues are better resolved with video or in-person contact vs. the traditional call center.

The answer lies in sales of more complex products. Maybe it’s a video session with a financial planner or working through various loan options with a mortgage originator or business banker. The face-to-face communication aspect is nice but video technology also offers sharing of on-screen information with customers and prospects. Product specialists such as financial advisors are more scarce within a financial institution—enabling video delivery is a win for everyone because it makes those resources more available to customers, enabling more sales.

I believe video has a place in financial services and the uGenius deal is consistent with that. The next step is to take video outside of a branch/kiosk context.

There’s more cosmetic change to come but the bones are there. If you’re kicking the tires and you see anything strange let me know!

Taking advantage of these trends is as much about the passion and the attitude of IT leadership as it is about the technologies themselves. An IT leader that’s interested in protecting the status quo and running the factory isn’t going to have much of an interest in understanding the impact of consumer technology, for example.

The importance of a leader’s ability to maintain an organization that can execute day-to-day can’t be discounted, but I’d argue that a passion for learning and tinkering is a critical trait necessary for a CIO to successfully take advantage of some of these trends.

Run-the-Factory Guy will execute on those things that will save money and keep the auditors off IT’s back. So, Run-the-Factory Guy will work on:

• Converge and Consolidate (because a converged network saves money)
• Rethink Security (because auditors made him do it)
• Embrace Project/Portfolio Management (because it’s a filter for the project pipeline)

Forward Gal’s looking ahead, building a team that’s passionate about what’s next. Budget’s tight, but she’s looking for cost saves to fund proof-of-concepts (help me with the plural here!).

• Consumer Technology (customers are using a variety of new devices and communications media, better be ready to deal with it)
• Modular not Monolithic (good sourcing strategy will allow IT to focus on the strategic)
• Move Beyond Alignment (don’t just communicate with the business, improve their speed-to-market and support the mobile workforce)
• Build Analytics into Everything (business units are going to demand self-service analytic capabilities from traditional and non-traditional data sources)

Forward Gal’s looking at what Run-the-Factory Guy is looking at, too, but from the perspective of how those trends benefit internal and external customers in addition to the “what’s in it for me”. Forward Gal’s staff is also more energized, spending more time looking ahead than backward. Leadership’s attitude toward embracing the future matters and that attitude finds its way down to the team. I know who’s team I’d rather be on.

One of the options I suggested in the follow-up article was a freemium model for delivery channels.

There’s something to be said for the freemium model when it comes to web and mobile applications. You can pay up for premium features and avoid advertising, or you can get many of the benefits of the premium version with a free, ad-supported version. Maybe it’s time for sponsored Internet and Mobile banking for customers that might otherwise be subject to fees. If a bank’s determined a customer is unlikely to buy an additional product, why not use the screen real estate to promote a third party product that’s of likely interest to the customer and take in some advertising revenue?

Think about it. You might not want to pay full price for Angry Birds, but you value the product so you don’t find the ad in the upper right corner to be too offensive (now the popup videos are a different story, but you get the idea…)

Banks and credit unions are running propensity-to-buy models that are good enough to understand whether or not customers are likely to buy another product. If there’s not another bank product on the horizon in the near future for the customer, why not promote another non-bank product that’s relevant instead? For non-premium (think unprofitable or marginally profitable) customer segments, this additional revenue could offset the potential need for fees to make the customer relationship profitable. Premium customers wouldn’t see the non-bank offers, instead seeing the bank cross-sell or informational banners as they do today.

I see several benefits to this kind of approach:

• Customers understand why free websites and apps are ad-supported today, so this model is familar to them already (unlike, say, a $X/month debit card fee)
• Merchant reward offers are presented by some institutions today and experience indicates customers will respond to relevant offers
• Customers that would otherwise be subject to additional fees get the benefit of lower-cost banking services
• Customers may benefit from an offer of a relevant product or service (I said relevant and presented relatively unobtrusively)
• Banks get the benefit of additional income from advertisers

Am I off base in thinking this kind of model could be part of the answer?

• At a minimum, it’s a big data problem when the size of the data itself is part of the problem (Mike Loukides’ definition), with potentially petabytes or exabytes of data to process. Raw transaction data over a long enough period of time can scale to this size.
• Frequently, the structure of the data is part of the problem as well. Unstructured data processes require technologies different from the relational database technologies we’ve been accustomed to working with in the past. The number of data sources and potential need to infer relationships among them also can come into play. Sentiment analysis leverages unstructured social media commentary, for example.

Big data technology has the potential to help on the revenue and risk management fronts in two ways:

• Decreasing the time it takes to perform disk and compute-intensive processes handled by traditional database and analytic technologies, such as customer profitability calculations. In-memory processing is an example of big data technology that greatly reduces processing time, with speed improvements of up to 1,000x (yes, 1,000).
• Increasing the amount and variety of information that can be used in these processes. New big data technologies can leverage real-time data as well as unstructured data to improve processes such as fraud detection (combining real-time transaction and geolocation data to score transactions, for example) as well as cross-sell (combining transaction history, propensity-to-buy models, and geolocation data to present mobile offers, for example)

Big data can also help answer unstructured questions, such as exploring at patterns of customer behavior to determine why customers buy additional products or leave the institution. Account history coupled with raw delivery channel data (teller/FSR visits, call center calls, ATM calls) and customer contact data (email) can be analyzed for patterns to determine if sales behaviors or offers are working and can identify potential sources of dissatisfaction as well.

My article last week explored the use of transaction data to target web advertising and merchant rewards. Traditional relational database and analytic technologies can do this, but big data improves the targeting by increasing the sources of potential inputs to these models and decreasing the amount of time it takes to run them (think real-time vs. overnight batch). I will be digging deeper into the underlying technologies as well as real-world applications of big data in coming posts and look forward to sharing some success stories.

• COBOL: Plenty of software used in financial services is still written in COBOL (and running on mainframes for that matter). The cool kids don’t want to learn COBOL these days, so it’s getting tougher to find talent to support these legacy applications.

• Internet Explorer 6 : Until recently, it seemed like there was always one vendor that’s holding financial services CIOs back from upgrading desktops to a later version of IE (and from Windows XP to Windows 7, for that matter)? Even my financial services blog with 8 readers still gets hits from IE6. What’s it going to take to kill this abomination?

• Voice Response Unit: Even in the age of Internet and mobile banking, it’s a rare financial institution that’s currently thinking about the day they can shut down the voice response unit. Nobody’s VRU call volumes are increasing, but volume isn’t dropping quickly enough in many places to make a case for retirement.

• DOS: You don’t see DOS a whole lot these days, but when you do it’s typically on the teller line where DOS-based teller applications are still alive and well (depending on your definition of “well”). With teller volume dropping, the upgrade to a web front-end isn’t easy for some to make a business case for, so DOS survives another year ¹…

• PBX: Here’s another telephony technology that’s tough to kill. Mass-conversion to voice-over-IP (VoIP) telephony for the sake of standardization is tough to justify when the PBX is still depreciating, working fine, and interoperating with other VoIP systems at the Bank. Once these things roll off of the books, all bets are off.

And don’t get me started on zombie payment technologies…

For fun, I checked to see if anyone else was posting about zombie technologies, and sure enough IT World had a piece last week. I definitely would have put fax machines on my list if I’d thought of it first. So what zombie technologies are surviving in your shop?

Banks used to have a variety of reasons for offering separate savings products (I’ll include money market accounts in this bucket) including:

• Ability to offer higher rates in exchange for restrictions on withdrawals
• Lower deposit reserve requirements at the Fed
• No PFM or other equivalent functionality for customers to set aside money for savings goals
• Source of overdraft protection for customers

From the customer perspective, the separate savings account provided benefits including:

• Higher rates
• Ability to have money set aside to meet savings goals or cover emergencies and see that balance separately
• Source of funds for overdraft protection
• Ability to set aside money for the benefit of someone else (child’s savings account, for example)

The reserve requirements problem has largely been solved with automated deposit reclass functionality available in every core banking system I can think of. PFM tools are widely available. Having checking and savings combined in a single account would mitigate the need for overdraft protection.

So, unless there’s a legal reason customers would want money in a separate account (because the funds are actually a child’s, for example), why not just adjust the interest rate structure of checking accounts and put customers in a single transaction account? Customers can use the PFM tool to adjust money set aside for savings and see what’s left (which is the concept behind Bank Simple’s “safe to spend”). Some PFM tools allow multiple amounts to be set aside for different savings goals. Interest rate structures can be tiered with typical interest checking rates for lower balances and typical savings/money market rates in upper tiers.

Dealing with a single account where possible seems like a win for both the bank and the customer. I suppose the remaining hurdle is the historic differences in interest checking, savings, and money market rate tier structures and the fact that banks have enjoyed the spread on customers that don’t optimize their interest earned. Non-PFM users may have a hard time with the concept, too, but maybe there’s a way to get them to set aside the balance in online banking without them knowing they’re “using PFM” if they’re hesitant to do so.

The trove of details about people’s credit-card activity would be a gold mine, ad executives say, because it illuminates a person’s budget, where they shop, what they buy and how they spend their time. “The combination of actual purchase behavior with attitudinal and demographic information provides an unparalleled understanding of the consumer,” MasterCard’s document says.

The article discusses potential use cases for leveraging purchase data as well as the privacy implications of linking cardholder purchasing data to that same customer’s web profile for targeting web advertising. Because of privacy concerns, the card associations’ plans are either “scaled back” or in “preliminary” stages for now and they are moving down the road of selling aggregated purchasing and segmentation data.

Just because Visa and MasterCard can’t work with data at the individual customer level doesn’t mean banks can’t. I’ve written before about how banks can use this data to offer merchant-funded rewards, but I also agree with the take in American Banker earlier this week about how the daily deal business is ripe for disruption, too. From the article:

Banks are ideally positioned to do this targeting. They have access to customers’ transaction data, which they can use on an anonymized basis to target deals. Every purchase on your card is a preference you have expressed. Amazon.com is trying to use its knowledge of your preferences to send you targeted deals via email and Kindle, and some have called Amazon the most fearsome Groupon competitor for that reason. But it pays to keep in mind that 80% of the average person’s disposable income is spent within 20 miles of home.

Banks and credit unions already have the attitudinal and demographic information along with purchasing behavior that Visa and MasterCard can’t directly use. So, rather than get a random Groupon offer for a colon cleanse or botox injection, I’d love to see my bank use what they know about my purchase behavior to give me a deal at a restaurant or store I might like. These recommendations can be based on customers with similar transaction history just like last.fm recommends music based on my listening history or Netflix recommends movies based on my viewing history.

Advances in business intelligence technology and continued declines in the cost of processing power and storage make the retention and analysis of this data feasible at a fraction of what it would have cost just a couple of years ago. This type of analysis can be leveraged in other flavors of offer programs, such as Foursquare.

If the data is only used within the financial institution (or sent to a trusted provider that administers the program) why wouldn’t a customer sign up for this, particularly existing users of daily-deal services like Groupon? It’s good for the customer, banks can use it to deepen relationships with merchants, and, yes, they can use it to improve checking account profitability and avoid levying new fees on customers.

As strategic plans and technology plans are updated, now would be a good time to think about your IT governance process and how it might evolve in the coming year. Time and time again I have conducted reviews of technology organizations where the primary source of business unit dissatisfaction was a lack of communication with IT and a lack of transparency in the IT project approval and prioritization process.

Whether you’re leading IT for the entire company or just a business unit, if you and your team aren’t out communicating with the business on a regular basis, how do you have a clue about how well your people, process, and technology are serving the business unless they complain? I couldn’t be everywhere at once, but I did make sure to have people called Technology Relationship Managers (TRMs) that were aligned with each business unit. Between me and the TRMs, we had a proactive outreach program throughout the year to communicate, understand how we were performing, anticipate needs, and assist business leaders with getting their projects through the business case approval process.

Approval and prioritization processes should be transparent. Dissatisfaction is rampant in organizations where it’s normal for business leaders to go to the CEO or CFO, get a project approved, have the project show up in the IT queue, and have the CIO prioritize. In these cases, business leaders don’t know what projects are going on elsewhere in the company and much of the time don’t know where their own projects are in the queue. With an open governance processes, leadership throughout the company participates in a rigorous project vetting and prioritization process. I’ve said before that this kind of process won’t prevent managers from being unhappy about where their project is in the queue (or unhappy their project wasn’t approved in the first place), but they can’t blame the CIO for these things.

These are just a couple of elements of an IT governance program that attempts to anticipate technology needs and shed light on the portfolio of projects that IT is being asked to execute on. A transparent prioritization process also makes it more likely that the “right” things are being worked on, assuming management has a reasonably coherent strategy and committee members are looking beyond their narrow interests. These elements would have helped in the case study I referenced earlier and they can help your financial institution, too. CIO’s can’t go it alone.

Dear Bank Stanky Customer With a Balance Under $10,000,

We appreciate your continued business with Bank Stanky. Like you, we have been impacted by these turbulent times. So that we can maintain our bonuses in the wake of reduced overdraft and debit card fee income and continue to provide you with our signature “Step-Into-Stanky” Service, we have instituted new fees effective November 1, 2011:

Fire Suppression Charge: $1/month. Building codes and fire marhals require our institution to maintain sprinkler systems in our facilities. This intrusive government regulation does not come without cost to the Bank, so we must pass this charge on to the users of our facilities.

Stadium Signage Surcharge: $.50/home game. Bank Stanky is proud to support our local sports teams at Stanky Field. Your local taxes already paid for the construction of the stadium, so we’re sure you won’t mind chipping in for our naming rights. Send us a self-addressed stamped envelope and we’ll send you a coupon for a free small Pepsi next time you’re at the ballpark.

We’ll Keep The Change Program: $.01-$.99/transaction. We know it’s a pain to keep track of spending to the penny. And a bunch of tiny deposits into your savings account are a pain to keep up with. For your convenience, we will be rounding up all of your transactions to the next dollar and keeping it for ourselves. You can thank us next time you’re balancing your checkbook.

Premium Facilities Fee: $1/month. We could have put our branch in next to the Papa John’s in the Shady Acres strip mall but chose instead to establish a more substantial presence in your community. Because we have invested in a regional headquarters complete with private bankers, mahogany, rich corinthian leather, and a marble staircase it’s important we recover these costs from the beneficiaries.

By increasing your checking balance to at least $10,000, you will qualify for Gold status which is exempt from the above fees. Until then, you will remain in Brown status and will incur these new fees beginning next month. We look forward to restoring our prior levels of fee income. If you have any questions, do not hesitate to contact your Stanky Banker.

Sincerely,

Bank Stanky Management

In all seriousness, the recent spate of fee announcements has been pretty ugly but it hasn’t come to this (yet). I asked the question yesterday about whether we as an industry have just given up on the little guy rather than find ways to charge for services customers value or operate more efficiently. I try not to raise a question like that without having some potential answers. Here are a few things I’ve thought of:

There’s something to be said for the freemium model when it comes to web and mobile applications. You can pay up for premium features and avoid advertising, or you can get many of the benefits of the premium version with a free, ad-supported version. Maybe it’s time for sponsored Internet and Mobile banking for customers that might otherwise be subject to fees. If a bank’s determined a customer is unlikely to buy an additional product, why not use the screen real estate to promote a third party product that’s of likely interest to the customer and take in some advertising revenue?

Byproducts of checking accounts such as transaction data can be used by banks to improve service and potentially generate income. Merchant-funded rewards are a recent example of a service banks can provide that gives the customer something of value and doesn’t impact the bank’s bottom line. I haven’t seen all the fee-sharing/pricing models on these programs, but why couldn’t banks make a bit from this?

Consumer insight can be gleaned from the ton of historical data that payments produce, too. With the recent advances in Big Data are banks getting value from analyzing spending behavior. Or, is there a market for aggregated, sanitized transaction data—are there audiences that would pay for access to purchasing trends? Can banks find value in their payment data to cross-sell merchant services more effectively? Seems to me there’s gold in there somewhere—is the value of this transaction information figured in anywhere in profitability models?

Finally, customers will pay for things they value. Maybe it’s a dumb example example, but has anybody piloted or looked at the P&L for some sort of overdraft notification service, where a bank could send a message to subscribers when they will overdraw unless they make a deposit by the close of business? If the fee income from a monthly/annual service fee exceeds the lost overdraft income, the customer gets something they value (the ability to avoid overdrafts by being warned in time) and the bank wins, too. Probably small potatoes on this one, but you get the idea.

Those are just a few examples. As I said yesterday, banks have probably put some thought into these recent fee increases. I’m just not completely confident that we as an industry have looked at other options besides increasing fees on basic checking and payment services that have historically been free. The answer could be premium-priced services, it could be other parties footing part of the bill, or it could be efficiency improvements. There’s more than one way to change the checking profitability equation. This guidance might also serve those institutions that are the beneficiaries of runoff from large banks so that they can take on these new relationships profitability.