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Threats and opportunities related to payments abound. Innovations pop up once a week or more. Banks need to decide where to focus discretionary resources.

Pressure on revenues has increased the priority of expense reduction. FMCG analysis shows that while well-planned and executed consolidations can increase income, many such efforts have destroyed value. Using a consolidation planning model and deploying best practices for retention can make a material difference to net present value.

Bankers ask, “What analytics can deliver material and quick profit impact?” At the top of our list is understanding customers’ price elasticity related to rates paid on MMDAs and CDs. The potential: In many banks, CFOs, treasurers, and business executives can make better decisions that will potentially improve ROE by 50 to 100 bp. And that impact will increase as rates rise.

In our experience, banks that make the right choices will be rewarded by greater profitability and growth. This whitepaper outlines our latest list of key strategic questions.

Part I of this series explained that our new metric, “Branch Fair Share,” is a powerful tool for identifying revenue growth and profitability opportunities. In Part II, we provide answers to questions asked by executives. The results of our analysis run counter to conventional wisdom.

Challenges and varying opinions abound, but some top bank executives are optimistic.

New models improve the ability to target households with the highest deposit potential, providing a dramatic increase in return on marketing investment.

Banks that succeed in capturing these underexploited opportunities can increase ROE by 2 to 4 percentage points.

Banks deploying new targeting and measurement approaches in deposit and lending campaigns are enjoying 60% to 100% increases in new-to-bank customers, positive year one cash flow, and 300% to 1,000% returns on marketing spend (ROMI1). Rigorous analysis supports the decision to allocate significant budget to this transformed marketing channel.

We have been writing about disadvantageous aspects of aggressive OD/NSF fees. Now, regulatory and consumer forces are requiring banks to revamp the pricing and features of their checking product line. Based on our work, we see potential for thoughtful banks to achieve a triple win. That is, improving customer loyalty, profitability, and market share.

Previously we noted that at a handful of financial institutions, IT support is carefully aligned to a business strategy that results in compelling answers to a prospect's question: "Why should I do my banking with you?"

We see banks of varying sizes achieving 300+% return on their marketing by making use of predictive segmentation and alerts.

The answer is: "It all depends."   Although less than 50% of new branches provide attractive return on investment, the best achieve IRRs of 30+%.

The value of FDIC-assisted deals depends on deposit retention and  spreads.  Quickly-formulated "rule of thumb" assumptions can end up  being optimistic and overstate the economics of a deal.  Instead buyers  need price elasticity models to gauge the impact of repricing on "hot  money" and predict the size and margin of the post-acquisition deposit  base.

Market leaders recognize that profitable organic growth results from focused strategy and a performance management system that has front-line buy-in.  Streamlined reporting, bottom-up goal setting, and governance that address weaknesses through leadership rather than the incentive manual are required.

Many banks employ direct marketing campaigns that only focus on cross-selling to existing customers and avoid prospecting even when profitable.  This is short-sighted, as the capture of new, profitable households will add more profit to a bank than repetitive cross-sell to a stagnant customer population.

Suboptimal pricing of CDs and MMDAs presents a profit opportunity at the majority of banks.  For a surprising subset of these banks, decisions are being made that result in intermediating at negative spreads.  CFOs, treasurers, and retail executives should take steps to mitigate this.

Is it possible to operate a lower-risk bank and still produce attractive results?

IT units that add the most value know how to allocate their spending to initiatives that will deliver points of differentiation with customers.  This is harder than it would seem.

Observations from client work demonstrate that a well structured test using bank-specific data can result in loss estimates that are 15%-30% different than the application of Treasury's SCAP benchmarks and other, less tailored approaches.

In Good to Great, Jim Collins points out that the great businesses that have emerged from the ranks of good competitors share a key trait: they have agreed on the thing they will be best at in the eyes of their customers and then they relentlessly execute with focus.

Our latest research and project work confirms that a growing number of consumers are migrating to online banking.  But for consumers with significant deposits, face-to-face branch interactions still seal the deal-even among those who will manage their accounts online.

Following the credit-driven downturn of the early '90s, some banks had a stronger recovery than others, with commensurate stock price advances. A key driver was widening net interest margin (NIM). There are similar opportunities today.

Analysis of past market downturns suggests that outsized returns from investments in banks can be achieved in a recovery. However, because banks vary widely in business mix, customer profile, and underpinning competencies, investors need to screen candidates with a knowledge of factors that will drive the greatest returns.

In our second white paper focusing on stress testing, we present findings from our bank-level analyses and provide perspectives on how results can impact risk management, business strategy, and communications efforts.

Managers who have a granular "stress test" will be better positioned for these turbulent times. Here we address issues that should be considered in developing credible tests, then provide perspectives on possible outcomes.

This paper deals with the wide degree of difference among seemingly similar retail franchises.

Changed market conditions suggest you need a fact-based process to dial back or cancel projects that are too risky, too costly or out of alignment with changed priorities.

Most banks perceive the small and medium-sized business segment as quite stable, offering exceptional profitability and low cost deposits. However this is not the case, as a few banks have broken out from the pack, achieved high levels of organic growth, and gained share of low cost business deposits.

Yes and no. Marketing the benefits effectively matters: communicating to customers is key.

Breakthroughs in direct marketing to small businesses are generating outstanding returns on investment. Should your bank join the party?

Checking accounts are quintessential core services and the basis of relationship development for most banks. The "free checking" approach with the emphasis on overdraft fees to make accounts economic is running out of gas and is under regulatory attack. Leaders can seize opportunities to meet segment needs, reinvigorate checking, gain share, and increase profits.

FMCG analysis shows that the majority of branch consolidations result in a negative NPV due to attrition beyond levels typically assumed. Accordingly, banks need to implement next generation approaches for selecting branches to close and adopt techniques that will minimize attrition.

It is tempting to believe that a business does not need to go through the effort of strategic planning, and instead should focus on "execution." Is this an appropriate belief?

Market volatility can create a "rollercoaster" effect in internal MIS, adding difficulty to decision making. What are the options to address this?

JD Power recently published its annual study of U.S. retail banks. Their report notes the positive correlation between customer satisfaction scores and our measures of organic deposit growth.

In many financial institutions, the planning process gets mixed reviews at best. In some firms, prior attempts were so poorly received that the notion of trying again is a non-starter. However, when we examine powerhouse financial business units that are gaining share, we inevitably find that strategic clarity and executional alignment are key underpinnings of their success.

Many nonbank financial services companies are searching for funding sources with more reliable liquidity characteristics. Some are considering entry into or expansion of direct bank deposit gathering activities as an option. What will it take to be successful?

As OD fees have become a material source of revenue growth for many banks, some worry they have gone too far with fee increases and policies that maximize OD events. Concern is warranted, as is thinking through what new approaches and decisions are called for.

Core deposits have never been more important to the banking industry. However, the value added of deposit product management units varies considerably. Having a Level 4 unit will be increasingly important.

Many banks have chosen a customer value proposition of "superior service." However, many have had disappointing results due to a lack of focus.

Disaster will inevitably spawn rebirth and provide high return opportunities for savvy players.

Banks have made various "bets" in retail distribution. Variations in strategic choices and the quality of execution have resulted in surprisingly material differences in stock price performance.

Most regional banks should focus on adding value to the core checking account and thereby enhancing relationship profitability and longevity.

In the aftermath of 2007's Perfect Storm for Mortgage, banks will be struggling to survive. Many "giants" have curtailed sub-prime, non-GSE products, third-party lending, and warehouse financing. For the vast majority of companies, "How do we survive?" is the question.

Many senior executives feel that their IT team "doesn't get it." Such feelings are not one-sided: IT executives have frustrations in supporting business units that "don't have a clue" about being effective users. How can this be fixed? The key: identify and deliver on business outcomes.

Is retail brokerage worth the effort? Or worse yet, a distraction from opportunities in core banking and a source of compliance and reputation risks? Retail investment services meet the financial needs for valuable customers, yet brokerage firms now compete for more of the bank's business.

Our Street Corner Excellence award winners include some familiar names and some new ones. They share common characteristics that drive their superior growth performance and value creation for shareholders.

Banks are increasingly using direct mail for deposit account origination. In some cases the return on this marketing investment is very attractive, in others, negative. What accounts for the difference?

Debt collections have historically been driven by lenders exercising their right to demand payment.  However, delinquent debtors are still consumers; they need to be wooed.

New analysis shows that the majority of branch consolidations result in a negative NPV due to customer attrition well beyond levels typically assumed.

Could this "disruptive" business model put 30% of banks' stock price at risk? What should your strategy be as more competitors offer high rates via this approach? The answer depends on your bank's situation.

New techniques are needed to enable continued productivity improvement while driving revenue growth simultaneously.

In our work, we often uncover potentially serious flaws in A/L risk assessments. In this white paper, we show that using interest rate shocks-instead of ramps-creates more accurate information for A/L risk measurement and hedging purposes.

Front-line incentive plans aim to drive value-creating behavior. However, not withstanding good intentions, many cause unintended and undesirable behaviors. Where do the problems lie and how can they be fixed?

Our discussions with senior executives involved in risk committees often uncover their frustrations as to the time and effort spent versus value added. In this white paper, we provide FMCG's perspectives from numerous assignments where we have helped to create more effective risk committee meetings.

Proper measurement and use of advanced segmentation leads to competitive advantage. We have observed that many FIs using direct marketing fail to measure response of a properly structured control cell, and often undervalue campaigns.

How a relationship approach combined with customer-level and industry segment insights can win.

Many banks have added resources aimed at small businesses. However, most fail to deploy the right approaches to winning.

Direct mail has been used for attracting low balance customers to free checking offers. Can it be used for gaining share of higher balance customers?

You have taken steps to grow deposits, yet your branch network keeps missing its targets. Meanwhile, everyone is complaining about their goals. What went wrong and what can be done?

This white paper describes an approach to tuning your performance dashboard to measures valued by shareholders and to report leading indicators of your strategy's effectiveness.

Making key strategy-to-execution choices correctly is the difference between strong organic growth and organizational frustration.

New analysis of bank stocks highlights Revenue per Share and Same-Store Deposit Growth as key measures that drive shareholder returns and reveals wide variation in banks' organic growth performance.

Too much "best practices," although designed to implement top-notch functionality, processes, and procedures, can get in the way of effective frontline execution, resulting instead in subpar revenue growth, excessive cost, confused customers, and poor frontline morale.

Notwithstanding the emphasis of sell-side analysts, FMCG finds the efficiency ratio to be a problematic performance measure. Over-emphasis can be counter to shareholder value.

Should increasing the percent of revenues from fees be one of top management's agenda items?

Over half of the market capitalization of many banks is retail deposits. This is how one bank diagnosed and fixed their momentum problem.

New analysis shows how seemingly benign securitizations can deliver nasty and unanticipated write downs if not dynamically reassessed.

Acquisition premiums are typically justified by analysis prepared by investment bankers. However, many major deals end up destroying value. What's the problem?

Many banks perceive they are being outgunned in technology spending. We find little evidence of this being the case in most core lines of business. The key is to have a focused business strategy that guides IT investments.

There is a perception that banks with strong retail market share will enjoy superior stock price performance. Do the facts support such assertions?

Based on our extensive field research, the in-branch customer experience varies widely and influences market share.

Other retail industries obsess about same-store sales growth. Should bankers adopt this point of view? The answer is "yes."

What is more essential... technology sophistication or understanding customer needs? This paper examines the underpinnings that have enabled the best positioned solutions vendors to win. Understanding market segments and getting in early are consistently key.

We have found that "execution alignment" is a critical determinant of achieving powerful revenue and profit momentum. This article describes why execution alignment is so critical, yet elusive, and offers ways to find and fix its weaknesses.

Moving beyond responder models can generate breakthrough improvements in campaign ROI.

Most retail banking call centers seek to minimize cost-per call and maximize cross-sales. This paper suggests modifying this mindset to reduce costs and increase revenues.

Bank CEO presentations reveal that revenue growth in retail is a top priority, and that cross-sales are a critical pathway to hoped-for gains. Will success be achieved this time?

Staffing the direct requirements of risk committees can often add 10-15 FTEs, which, given the remuneration of skilled risk staff, can be quite a cost. Using only these five observations, financial institutions can often turn their ineffective risk committee processes around.

Prior to the Wal-Mart settlement many banks had free rewards programs for signature-based debit cards. FMCG's recent revenue modeling suggests there is still a case for the selective use of "free" rewards to stimulate checking account growth.

"Smaller banks" as the story goes, have been suffering due to: (i) lack of scale to invest in technology and infrastructure, and (ii) less branch convenience. The reality differs from the theory.

This study uses acquisition-adjusted growth to identify those who are capturing profitable market share. We then examine the underlying strategies used by these high-growth banks.

The need in retail banking to move beyond current pricing approaches is amplified by several findings from FMCG's recent analyses and other client work. While some banks are better at pricing than others, very few would claim that they have yet amassed a sophisticated understanding of demand elasticity. 

Survivors of the economic decline will be those firms with both the good fortune to have avoided significant losses and the skills to capture profitable market share from weakened competitors.

If the next three to five years in retail franchise banking play out with the momentum identified during the recent BAI/FMCG study, the competitive landscape will change materially.

Should marketing be cut back, or expanded to drive revenue growth? In most banks, top management is forced to address this question on a judgment call basis.

Retail franchise banking is suffering from the Rodney Dangerfield "I get no respect" problem.

The path to profits in retail financial services will require providers to excel in their customers' minds on some combination of price, convenience, advice, customer recognition, and personalized service. The question is, "What should my bank stand for?"

Our analysis of the products that dominate retail franchise profits shows that on an acquisition-adjusted basis, balance growth has been low. As usual, however, there is considerable variation.

A few organizations are employing preference-based segmentation frameworks and customer tagging techniques to delight their high-value customers. The increase in marketing effectiveness and revenue momentum can be significant.

Progressive institutions are looking for ways to build revenue momentum. Why? Independence is at stake. Having the firepower to acquire is at issue. They realize that the precipitous drops in stock price have been driven by the market's realization that the underpinnings of mid-1990s EPS growth are not sustainable.