One cannot deny that banks are facing challenging economic conditions. Declining interest rate margins and stiff competition from alternative banking sources have put a strain on profitability. Internet banking has become more and more a part of today's banking culture - enticing consumers with low interest loan rates that contribute to a compressed yield curve.
Survival
Survival is a strong word, but perhaps not too strong given today's banking environment. For many banks, core deposits are down, resulting in a net interest income revenue stream that is often insufficient to support the health and growth of the financial institution. Survival dictates change. To change, financial institutions must adapt.
Failure to change or adapt in a changing business world, is a recipe for failure. What about expansion? It's true, an expansion strategy in theory will increase the customer base and corresponding core deposits, but expansion usually involves large capital investment. And the return on that investment can take years. Yet another strategy is acquisition. But the trend in acquisitions and mega mergers has slowed dramatically. Most institutions now favor building from within.
Non-interest income
One strategy has consistently worked - the adoption of strategies that involve the concept of balancing net interest income products with fee-based, non-interest income programs and products. Adoption of non-interest income products within the bank's portfolio of customer services has emerged as an attractive means for financial institutions to adapt to adapt to today's economic conditions. Statistics bear out: in the 17 years from 1984 to 2001, non-interest income went from 25 percent to 43 percent of the average bank's operating income.
At Strunk & Associates, we're proud that banks across the country have successfully energized their non-interest revenue stream with our discretionary overdraft privilege service program. It's been a win-win product for banks and their customers. If you haven't adopted a discretionary overdraft payment service yet, or just wish to explore how to improve your present overdraft payment service, visit our website at www.strunklp.com or call us at 800.728.3116.
Source: Northwestern Financial Review
