February 1, 2012

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Banking And Finance

Utah Business Staff

February 1, 2012

BEARD: When you see a service that’s being priced by a regulator, then it causes distortion. I’m not a Bank of America person, but I could see them saying, “Look, we’ve got this interchange problem. Somehow we’ve got to make up for it.” And somebody came up with the idea this isn’t for free, we’re going to charge a fee. Now, in reality that was maybe a PR disaster, but you can understand what’s going on in the mind of the bank.

            These are profit-motivated institutions. That’s the way our capitalistic system works. And they’ve got to be able to earn a profit somewhere to stay in business. If they don’t, they go out of business. It’s that simple.


It seems to me like consumer banking is under severe stress. The economics of that business have fundamentally shifted. Are we going to see a change?     


THREDGOLD: The reality in banking is when you’ve got extraordinarily low short-term and long-term interest rates, the yield curve doesn’t provide the opportunity to generate the net interest margin that makes you profitable. We’ve seen banking move in a direction of more fee-based activity, less in contribution from investment portfolios and from the lending side. So the pressure is there.


HEADLEE: The fact of the matter is the government is now protecting consumers, and this is the cost of government protection. It’s a much more difficult business, and capital is not going to flow to it.

            That’s what you get with government protection and when you have a president who thinks that profits are evil. People are not going to invest their capital there, and therefore people are not going to get the services that they’ve been accustomed to. It’s just a fundamental lack of understanding of the free market system, or maybe it’s just a fundamental belief among a few people that are running the country right now that free markets are bad. But it’s very troubling, and it’s playing itself out in the market place.


GOLDEN: The irony, though, is that it’s an attempt to protect the consumer. They’ve done nothing for the consumer. If you go back to the debit card interchange issue, in essence, the government transferred billions of dollars from the banking industry to the retail industry, and that cash will never see the inside of a consumer wallet.

We’re seeing a lot of technology change. Are your banks taking steps to implement the new technology, or is that 10 years down the road?


PIGNANELLI: Some of our members have really moved into the gift card area—the prepaid cards, the reloadable cards and things like that. There is an explosive growth there and because of state legislation that was passed a couple years ago, Utah has real potential of being a source for that.

            That is really worth a lot and will be worth even more down the road because as consumers come across regulatory or financial obstacles, the preloaded cards and the reloadable cards are going to be an alternative mechanism for people to be able to enjoy the benefits of credit cards but access them without paying a lot of fees. So we see a lot of growth in that area, especially here in Utah, to service Americans in the other 49 states.


PITCHER: Historically, there’s been up to a 25 percent attrition rate on checking accounts and those kind of accounts. There’s a group of people who move from bank to bank to bank, and we have trained them over the years to do it for the next deal that they’re going to get. Those are not the clients who are attractive to banks.

            But there are a group of clients who are very attractive, and they’re the ones who bring full relationships. Those are the ones that all of us at banks are striving to possess. So you can approach it in several different ways. You can retarget who you’re going to go after as clients and devise programs to get those and retain those, or you can go the fee route.

            There are banks out there who are devising bonus programs and so forth to retain the really good retail clients. For example, if you get a consumer to sign up for an online banking product, the attrition rate falls to 4 percent.


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