How To Grow Service Charge Revenue Customers Willingly Pay

Banks over $1 Billion had to report overdraft and other service charge fee income in detail for the first time for the first quarter of 2015.  Two insights from the data are clear:  1) Service charge revenue is not growing, and   2) overdraft fees came in at nearly half of all service charge revenue after adjusting interchange fees to net revenue from gross.  Why are revenues not growing despite bank re-pricing accounts, and why are overdraft fees, a form of loan and liquidity, such a large component of total deposit account “service charges”?

The answer is that the key need of consumers and revenue generator of transaction services are loan and liquidity services, whether you are a bank, a retailer, a company serving small businesses, or PayPal who says PayPal credit is the centerpiece of their service.  If you do not make money providing liquidity services to support payment and transaction services, you are like a restaurant providing food services and trying to make money without a liquor license and revenues.

Two independent studies have found the key need for households is loan and liquidity services to handle as little as a $400 monthly shortfall or variation in income.  While many in the financial services industry seek to grow service charge revenue by adding fees to accounts, that revenue source is the smallest and the least accepted by consumers.  Yet, they are not offering alternatives for liquidity, the key revenue source, matched to today's payment system and technology.

The Key Need of Up to 60% of Households Is Monthly Liquidity

Wise bankers will see that liquidity services are what many customers want and for which they are very willing to pay.  Overdrafts, however, are today an old “analog” service delivery related to checks in a payments system that has shifted to debit and electronic payments. ODs are like music CDs in the music business, which are falling in volume, while total music sales are growing through digitally delivered song downloads.

Digital Sales of Music Are Booming While Analog Sales Fall

Financial institutions would be well-served to provide their liquidity services with digital services to capture the growing market segment that is twice the size of overdraft services.  Non bank digital competitors are booming.

Digital Small Loan Non Bank Competitors

Such digital liquidity services do not cannibalize existing overdraft revenues but open a new channel and delivery revenue source that financial institutions are losing today.  Just ask our customers who provide digital liquidity services like PaySound and Cashflow Checking.