The following page is intended to provide some insight into how retail banks generate revenue, manage costs and most importantly how the internet has affected these essential factors.
Who is profitable? How much are they making?
- As Q1 results for 2009 are being released we are starting to see which banks have been most profitable.
- Wells Fargo/Wachovia recorded a profit of $3 Billion. This is the related article to there record earnings.
Costs and Cost "Drivers":
- Teller operations (Salaries, Benefits, Training)
- Workforce management (Utilizing your workforce to get the most with the least)
- Reduced profit, increased costs due to competitors
- IT upgrades (Constant Updates of security and enhancement of online features)
- Interest Rates
Revenue and Revenue "Drivers":
- Locate branches where they will attract the most deposits (Easily accessible locations, more recognition)
- Larger deposits will provide lower unit costs
- Various deposit products (Checking, Savings, CD's, Fees from overdrawn accounts) (Less volatile)
- Asset based products (Mortgages, Credit Cards, Home Equity Lines, Car Loans) (More Volatile)
- Exceptional customer service results in customers being 4 times more likely to recommend this bank and 3 times more likely to expand their portfolio
- This article explains how banks make revenue. Retail Banking 101.
Impact of the internet:
- The impact of the internet has been significant but has not replaced physical retail bank locations as was once thought. Below are some of the positive aspects of online banking.
- How has the internet affected bank performance and strategy?
- Overhead expenses have been reduced by the need to not expand branch offices.
- Internet makes it feasible for banks without branches to attract deposits. Should be a lower-cost way to grow deposits.
- These savings could provide lower loan rates, higher deposit rates or lower fees.
- Lower customer prices lead to faster growth which leads to economies of scale.
- Ease of transferring funds between deposit and investment accounts increases profits.
- Banks save 45 cents for each electronic statement versus paper statement.
- For a bank with 5 million customers that would equal a savings of $27 million per month.
- Internet banking offers a minimum of 60% cost savings over conventional banking.
- Leading global bank states that online transactions are 37% of their business.
- A reversal of this trend would negatively affect their cost and revenue.
- This is a really good article which is mostly about this section. Online Costs.
- Below are some points that highlight why the impact of online banking has not resulted in the elimination of physical branches
- As retail branches continued to expand their own online services, internet only banks started to lose some of their uniqueness.
- While online "branches" were assumed to be less expensive to operate, the costs of advertising to acquire customers significantly reduced this impact.
- NetBank was an internet bank that failed because of competition from traditional banks. This article explains the companies failure. NetBank Joins Dead Pool Article.