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Bubbles Pop!

Leveraging The Economic Downturn

By Tim Clifford


Bubbles pop! It doesn’t matter if they are fueled by hot air, mysterious stocks, or creative mortgage packaging. When they grow too big, they pop. And when bubbles pop, a mess usually follows.
So here we are nearly a decade past the technology stocks debacle, which took its hardest hit outside the banking industry and well into the “mess” following the mortgage bang. This one however, hit closer to home with both direct and trickle-down effects on financial institutions everywhere. Even if you were smart enough or lucky enough to have dodged the bullet on sub-primes, the resulting mess including declining margins, stricter lending criteria and higher loan to deposit ratios will all contribute to reduced interest income and tighter margins for months to come.
You know well the impact inside the bank, but what’s happening on the street? Businesses (your customers) are facing uncharted waters dealing with volatile domestic and international markets for their products and services, reduced stock values and gloomy forecasts for customer spending in those same months to come.
Attend any industry’s trade show and the advice will not vary – improve cash flow, reduce fixed expenses and improve the availability of management information. As a banker, are you listening? What they are saying in a language you should want to hear is: “Utilize your bank’s cash management services and outsource non-essential tasks.”
Still not hearing them? They’re requesting services that you could and should offer; services which just so happen to deliver the fee income that you’re going to need to offset the market- induced reduction in interest income, and the low-cost core deposits necessary to strengthen ratios. The good news is – these cash management services exist and your bank can implement them today.
We’ll call them Bubble Burst Opportunities: Services that leverage the current situation to help both you and your customers. There are a number of them, but two in particular fit the bill exactly for cash management solutions that generate profitable fee income by providing a unique, competitive service, and that enable you to expand to other markets. One has been around for years and the other is a relatively new kid on the block.
For many years, lockbox, or remittance processing as it is also known, was the exclusive franchise of large banks providing the service only to high volume customers. Today, thanks to significant advancements in image technology, scalable desktop solutions enable any bank to profitably offer this valuable cash management service to even the smallest account.
Your bank collects incoming payments, opens, processes and deposits the funds, and then reports a file formatted to post directly to your commercial customer’s accounts receivables. The customer gets faster access to funds while reducing clerical staff. You garner zero-cost core deposits and add profitable fee income. Since the technology knows no boundaries, lockbox gives you the capability of developing new customers and low-cost core deposits both inside and outside your traditional geographic market.

Technological Aid
The second Bubble Burst Opportunity became available just a few years ago when the National Automated Clearing House Association (NACHA) enacted rules allowing returned checks (non-sufficient funds) to be converted to ACH entries for re-presentment. These rules added one additional re-presentment and allowed for creation of a separate entry for electronic collection of the recovery fee entitled to the merchant.
It is safe to assume that any economic downturn will result in an increase in non-sufficient funds and uncollected funds returns. Fortunately, technology now makes it reasonable for all banks to profit from this service using a desktop workstation to automate the process of converting returned items into ACH entries for electronic re-presentment. You intercept the Fed return items, convert them to ACH entries and re-present them, often doubling the collection rate while generating substantial fee income (the recovery fee) to either keep or share with the merchant. The customer eliminates confrontation with their customer and cost efficiently collects returned checks. You attract new commercial customers with a unique service that not only delivers growth but some of the highest fee income to be found.
Here are the facts: Call it what you want, but we are faced with a period of reduced interest income and a commercial customer base that needs help in controlling costs. Lockbox and NSF re-presentment provide two solutions that enable your bank to leverage the effects of the economic slowdown to deliver new customers, profits and expanded market coverage. Importantly, the cash management solutions can be implemented and start generating income quickly.
So, bubble bursts may be good if they cause you to look for new ways to generate income, attract low cost deposits and expand geographic markets. Bubble bursts may also help your customers become more efficient. 

Tim Clifford has been directing banking software innovations for over 30 years. His firm, Technology Management Resources, Inc., focuses exclusively on payments processing solutions for low to medium-volume markets. See more at, or call 1-800-867-2249.

Posted on Monday, January 19, 2009 (Archive on Sunday, April 19, 2009)
Posted by Scott  Contributed by Scott


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