As many of you are aware, there is a proposal in Congress to cap debit interchange, and it’s likely to pass into law. For institutions with less than $10B in assets, the cap could eliminate 25% to 35% of interchange income. While it’s always a good idea to have multiple healthy income streams, this unfavorable outlook for interchange makes it especially relevant now.
Let’s take a look at some fee-based revenue sources that you may not be offering. Maybe one or more of these will make sense for your institution.
Small Business Accounting
According to Adroit Market Research, the small business accounting software market worldwide is expected to reach $13.7 billion by 2023. That reveals a significant need. Any solution that helps manage, simplify, and integrate receivables, payments, and bookkeeping is a relief for small businesses. Mid-size, small, and “micro” businesses – those with just a few employees – have limited resources, and a reduction in labor at a reasonable price is worth their consideration. They can gain benefits such as the ability to send professional-looking invoices, provide payment links, and get the reporting they need.
Cash Management for Commercial Accounts
Most small and mid-sized companies are keenly aware of the need for robust cash management. Half of all small businesses only have a 27-day cash buffer, according to a JPMorgan Chase analysis. Cash flow problems are among the most common reasons that small businesses fail. You can attract new business customers with a cash management system that handles both short and long-term financial positions. If a solution allows businesses to access account information, transaction history, and also decision positive pay items, they’ll find it very appealing. Multiple payment options and high security standards boost the service’s desirability.
There are numerous detailed requirements pertaining to escrow account management, and many are not easily handled by standard deposit systems. You can stand out from other institutions with the ability to manage a wide variety of escrow accounts simply and accurately. Offer your commercial customers the ability to open, manage, and close their own escrow accounts for multiple lines of business.
According to Mastercard’s New Payments Index 2021, 40% of consumers are planning to use cryptocurrency over the next 12 months. Millennials are particularly interested in using it. While institutions may not want to put bitcoin or other such currencies on their own balance sheet yet, they can certainly partner with third parties. Today’s open APIs make this possible without a daunting technical effort. A fintech vendor can offer to buy, sell, and hold cryptocurrency for your customers through a platform integrated with your own. This is an area where opportunities may grow as the associated technologies mature.
Products in this area include business bill pay applications, remittance and lockbox solutions, and faster payments such as Zelle® and RTP®. ACI Worldwide found that real-time payment use in the U.S. is expected to quintuple between 2020 and 2024.
I hope these options give you some food for thought. Beyond fee income, financial institutions can save money by automating and digitizing. This topic has been emphasized again and again in the last few years because the gains are significant. We’ve seen clients save thousands of hours and dollars annually by implementing workflow automation.
We’ve also seen the benefits of open banking APIs that use off-the-shelf programming tools, reducing IT costs and speeding time to market. As mentioned above with cryptocurrencies, institutions can offer income-producing solutions that accountholders need and want by partnering with a fintech or developing their own product.
In some respects, selling services to accountholders is like investing in the stock market – it’s good to be diversified.