OPEN SOLUTIONS WEILAND FINANCIAL GROUP Account Analysis and Billing A Perfect Storm is Raging Windy City May, 2012
OPEN SOLUTIONS WEILAND FINANCIAL GROUP Account Analysis and Billing A Perfect Storm is Raging Windy City May, 2012.
Dec 15, 2015
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OPEN SOLUTIONS WEILAND FINANCIAL GROUP
Account Analysis and Billing A Perfect Storm is Raging
Windy City May, 2012
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TODAY’S PRESENTERSTEVE WEILAND
Founder & VP Strategic DevelopmentThe Weiland Financial GroupA Division of Open Solutions Inc
Principal contributor • ANSI X12 822• TWIST BSB
Principal author• AFP Guide to Account Analysis: Statement
Standards and Transaction Set 822 Implementation Guide
• ISO BSB Message Users Guide (MUG)
Contact Information• [email protected] • +1 847-810-6120
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BANK FEE ANALYSIS AND BILLINGA PERFECT STORM IS RAGING
First Things First
Change: Balance Considerations
Change: Service Considerations
Growing: Electronic Statement Usage
Q&A
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BANK FEE ANALYSIS AND BILLINGA PERFECT STORM IS RAGING
First Things First• Account Analysis – Why examine it, who cares?
• Account Analysis – What is it?
• Elements of Account Analysis
• The Change Drivers
Change: Balance Considerations
Change: Service Considerations
Growing: Electronic Statement Usage
Q&A
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WHY EXAMINE IT, WHO CARES?REASONS TO EXAMINE BANK CHARGES & BALANCES
Cost Control• Control bank fees, optimize balances• Eliminate pricing errors, bad volumes, closed accounts, redundant services• Allocate costs to departments
Investments• Maximize return on investable balances• Track balances, offset fees, & invest the rest or fund other activities
Compliance• Bank fees and balances merit oversight and transparency• SOX argues for bank fee and balance control and reporting
Metrics• Bank analysis statements provide tremendous insight into your treasury operation • What divisions/departments are using what services and at what cost?• Is our service usage (volume) increasing or decreasing? Why?• What should we budget for the coming year?
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A bill for services rendered
A marvelous record of
balances and services
A weighing process
For some…a flat out mystery
ACCOUNT ANALYSIS – WHAT IS IT?A WAY TO SAVE MONEY & SO MUCH MORE
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ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS - Traditionally
Balances Services
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Balances$10,000 EC
Services$7,000
ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Profit To The Bank
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Balances$7,000 EC Services
$10,000
ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> You pay $3,000
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ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Break Even
Balances$7,000 EC
Services$7,000
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ELEMENTS OF ACCOUNT ANALYSISCALCULATE THE BALANCE ON WHICH THE EC IS BASED
Average Daily Ledger Balance $250,000 Less Float 50,000Average Daily Collected Balance 200,000 Less Reserve Requirement (10%) 20,000Balance to Support Services 180,000
????
Balances
????????
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCECollected Balance OD 8,000 6.00% 40.77HFDIC Premium/Thou 250 .06 15,00HMonthly Maintenance 1 30.00 30.00 40,000 Deposit Items 1,000 .10 100.00 133,333 ----- ------ Total Charges Before Credit 185.77 173,333 Compensable Subtotal 130.00 173,333 Hard Charge Subtotal (H) 55.77
????
ELEMENTS OF ACCOUNT ANALYSISLIST AND TOTAL ALL PERIOD SERVICE CHARGES
Services
????
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ACCOUNT POSITION....... ..FEES BALANCESEarnings at 1.0% 150.00 180,000 Less Compensable Charges 130.00 173,333Earnings Excess 20.00 6,667
Hard Charges (H) 55.77Total Due 55.77
ELEMENTS OF ACCOUNT ANALYSISESTABLISH THE COMPENSATION POSITION
????
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THE CHANGE DRIVERSREGULATION, GLOBALIZATION, TECHNOLOGY
Reg Q – Glass Steagall Act, 1933
Reg CC – Expedited Funds Availability Act, 1987
822 – The US Electronic Analysis Statement, 1991
Check 21 Act, 2004
Electronic Services – New, imaging vs paper
BSB - The Global Electronic Billing Statement, Oct 2006
FSRR - Financial Services Regulatory Relief Act, Oct 2008
TAG – Transaction Account Guarantee, part of TLGP, Nov 2008 & Aug 2009
Dodd-Frank Wall Street Reform and Consumer Protection Act, July 2010
SWIFT – Corporate Involvement, Now
ISO20022 - BSB Electronic Statement, Now
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BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING
First Things First
Change: Balance Considerations• Some examples
• Interest on reserves
• Overdraft charge base balances
• Dodd-Frank & hard interest
• Tiered earnings credit rates
Change: Service Considerations
Growing: Electronic Statement Usage
Q&A
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BALANCE CONSIDERATIONSSOME EXAMPLES
Average Ledger Balance $250,000 Less Float/Holds 50,000Average Collected Balance 200,000 Less Reserves (10%) 20,000Balance to Support Services 180,000
Earned Credit at 1.0% 150
$250,000 20,000 230,000 23,000 207,000
173
$250,000 20,000 230,000 0 230,000
192
$250,000 20,000 240,000 0 240,000
200
Net Collected Net CollectedReduce Float
Net CollectedReduce Float No Reserves
Pos Collected Reduce Float No Reserves
A net increase in Earned Credit of $50, or 33%
We’ll start with the classic analysis statement balance presentation and earnings credit calculation
Positive
Bank Customer
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BALANCE CONSIDERATIONSINTEREST ON RESERVES, THE FSRR ACT OF 2006
Effective date moved from Oct 1, 2011, to Oct 1, 2008
Authorizes interest payments on funds maintained at the Fed
• On Required Reserves: average targeted Fed funds rate less 10 points
• On Excess Reserves: lowest targeted Fed funds rate less 75 points
• On Clearing Balances: implicit earnings credit against Fed services
Banks not required to pass along interest to their customers
How (and will) corporate checking accounts benefit?
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Average Daily Ledger Balance $250,000 Less Float 50,000Average Daily Collected Balance 200,000 Less Reserve Requirement (10%) 20,000Balance to Support Services 180,000NIF Earnings at 1.0% = 150.00 180,000
Average Daily Ledger Balance $250,000
Less Float 50,000
Average Daily Collected Balance 200,000
NIF Earnings at 1.0% = 166.67 200,000
NIF Earnings at 0.9% = 150.00 200,000
Classic Approach
Reserve reduction with ECR of 1.0%
Eliminate reserves with same rate of 1.0%
Eliminate reserves with reduced rate of 0.9%
Average Daily Ledger Balance $250,000
Less Float 50,000
Average Daily Collected Balance 200,000
Less Reserve Requirement (10%) 20,000
Balance to Support Services 180,000
NIF Earnings at 1.0% = 150.00 180,000
Reserves Earnings at 1.9% = 31.67 20,000
181.67
Reserve reduction with ECR of 1.0% and earnings on reserves at 10 points less than the Fed Funds rate of 2.0%
BALANCE CONSIDERATIONSINTEREST ON RESERVES: BANK RESPONSES
New Approaches
Good for Customer
Good for Bank
Very good for Customer
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BALANCE CONSIDERATIONSOVERDRAFT CHARGE BASE BALANCES
Example Assumptions:30 day month
Ending OD balance on day one: ($300,000)Ending balance on each of the other 29 days:
$248,275.86
Aggregate Balance Results:
Positive: 29 * 248,275.86 = 7,200,000
Negative: 1 * (300,000) = (300,000)
Net: = 6,900,000
Average Balance Results:
Positive: 7,200,000 / 30 = 240,000
Negative: (300,000) / 30 = (10,000)
Net: 6,900,000 / 30 = 230,000
Charge, good for bank
No charge, good for customer
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BALANCE CONSIDERATIONSDODD-FRANK & HARD INTEREST: July 2011,Bank Responses
Option 1: No change. “Soft” earnings credit only
• Earnings credit rates usually lower than hard interest rates
• Reserve requirement might reduce effective rate
• Soft credit not taxable
• Charges offset by soft credit cannot be expensed
Option 2: “Hard” interest only, pay with dollars
• Hard interest rates usually higher than earnings credits rates
• Customers pay tax on hard interest
• Charges can be expensed
Option 3: Hybrid combination of “Soft” credit and “Hard” interest
• Soft credits offset fees, hard interest earned on excess balances
• Earnings credit not taxable while hard interest is
• Reserve requirement rate may be a factor
• Charges offset by soft credit cannot be expensed
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BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES
ACCOUNT POSITION....... ..FEES .BALANCESEarnings at 1.5% 225.00 180,000 Less Compensable Charges 173.77 154,461 Earnings Excess 51.23 32,739
Customer now owes nothing and has an earnings excess of $51.23
Tiering to reward high balances:
• Balances < $100,00 earn at 1.0%
• Balances >= $100,000 earn at 1.5%
Good for Customer
But can you turn earnings credit rate tiering to the Bank’s advantage?
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BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES
ACCOUNT POSITION....... ..FEES .BALANCESEarnings at 0.75% 112.50 180,000 Less Compensable Charges 173.77 278,032 Compensable charges due (61.27) (98,032)
Same customer now owes $61.27
Tiering to generate higher fees:
•Balances < $200,00 earn at 0.75%
•Balances >= $200,000 earn at 1.0%
Very good for Bank
We are now reserving our standard earnings credit rate, 1.0%, only for our high balance customers. Lower balance customers will receive a lower rate and generate higher fees.
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BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING
First Things First
Change: Balance Considerations
Change: Service Considerations• DODD-FRANK & FDIC fees• Hard Charged vs Balance Compensable• Bargaining: volume discounts
Growing: Electronic Statement Usage
Q&A
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SERVICE CONSIDERATIONSDODD-FRANK & FDIC FEES
Prelude: Transaction Account Guarantee Program (TAGP)• Guarantees non-interest bearing deposit accounts over $250,000 without limit• Bank’s TAG fee based on risk category and non-interest balances exceeding $250,000• Termination Date: December 31, 2010 (third extension)• Dec 2009 one-time payment of 13 quarters’ fees & FDIC credit swaps
Dodd-Frank Wall Street Reform & Consumer Protection Act• Singed into law July 21, 2010 (Public Law 111-203)• Unlimited coverage for non-interest accounts extended to December 31, 2012
– Unlike TAGP, participation is mandatory for all banks– Unlike TAGP, prohibits FDIC charging a separate premium for this increased coverage– Unlike TAGP, does not cover NOW accounts
• Reserve ratio increased from 1.15– 1.5% cap lifted, goal is 2.0%– 9/30/20 target – DIF is $20 Billion in the red as of June 2010– Offset required for institutions with total consolidated assets of less than $10 billion
• Changes assessment base calculation from deposits to assets• Insurance coverage permanently raised from $100,000 to $250,000 for all accounts
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Experience shows a major increase in FDIC fees
The FDIC is silent on how or if their fees are to be passed on to bank
customers – are you paying a premium or receiving a discount?
Impossible to tell if you are being penalized for your bank’s risky behavior
Impossible to determine if you are paying your “fair share”
Dodd-Frank makes assessing the price of extended coverage impossible
SERVICE CONSIDERATIONSDODD-FRANK & FDIC FEES
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCECollected Balance OD 10,000 6.00% 50.00H FDIC Premium/Thou 250 .06 15,00HMonthly Maintenance 1 30.00 30.00 40,000Deposit Items 1,000 .10 100.00 133,333 ------ ------- Earnings at 1% 150.00 Less Compensable Charges 130.00 173,333 ------ Excess Earnings 20.00 Plus Hard Charge Subtotal (H) 65.00 Total Due 65.00
SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE
Two services are Hard Charged. No balance offset. What you see is what you pay
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE CHARGE BALANCECollected Balance OD 10,000 6.00% 50.00H 50.00 60,000 FDIC Premium/Thou 250 .06 15,00H 15.00 18,000Monthly Maintenance 1 30.00 30.00 36,000 30.00 36,000Deposit Items 1,000 .10 100.00 120,000 100.00 120,000 ------ ------- ------ ------- Earnings at 1% 150.00 150.00 Less Compensable Charges 130.00 156,000 195.00 180,000 ------ ------ Deficit Earnings 20.00 45.00 Plus Hard Charge Subtotal (H) 65.00 .00 Total Due 65.00 45.00
SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE
Change the two services to compensable and the charge can be offset by balances.
You saved $20.00
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCECollected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000Monthly Maintenance 1 30.00 30.00 36,000Deposit Items 1,000 .10 100.00 120,000 ------ ------ Total Charges Before Credit 195.00 240,000
SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS
No volume discount on high volume services
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCECollected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000Monthly Maintenance 1 30.00 30.00 36,000Deposit Items 400 .10 40.00 48,000 300 .08 24.00 28,800 300 .06 18.00 21,600 ------ ------ Total Charges Before Credit 177.00 212,400
SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS
Tiered pricing discount on high volume service
You saved $18.00
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Time Out !Analysis Information Overload?
What Shall We Talk About?•Cloning?•Politics?•Ethics, Morality, Religion, Dying?•Sex
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BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING
First Things First
Change: Balance Considerations
Change: Service Considerations
Growing: Electronic Statement Usage
• What are the Electronic Statements?
• What’s the purpose?
• AFP Code use and globalization
Q&A
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ELECTRONIC STATEMENT USAGEWHAT ARE THE ELECTRONIC STATEMENTS?
822 BSB
Standards Body ANSI ASC (US) ISO20022 (Global)
Format X12 Looping Format XML
BalancesImportant – earnings
credits, reservesNot required but desirable
(No Reg Q)
Compensation Yes – single currency Yes – multiple currencies
ServicesVery important – AFP
codes, balance requiredVery important – AFP codes optional, no balance required
Taxes & Currencies NA Very Important
Relationship Structure Yes Yes
Adjustments Yes Yes
A Tool for Treasury? Absolutely! Absolutely!
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Gain faster delivery, accelerate payment
Eliminate the paper, reduce statement charge
Satisfy SOX and EU directives by examining all prices & charges
Check all bank calculations (find errors)
Check expected balances, volumes, prices
Allocate bank charges automatically
Perform modeling and “what if” scenarios
Compare divisions, departments, regions, etc...
Export data to existing systems ( GL, Budgeting, Payables )
Perform bank-to-bank comparisons
Examine each and every line item charge and tax
Analyze global fees in one common currency
Archive statements electronically
ELECTRONIC STATEMENT USAGEWHAT’S THE PURPOSE? TO AUTOMATE REVIEW
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ELECTRONIC STATEMENT USAGEWHAT’S THE PURPOSE? EXAMINE EVERY SERVICE LINE
050100 Lockbox Processing .1200 12,000 1,440.00 144.00
AFP DESCRIPTION PRICE VOLUME CHARGE TAX------ ----------------- ----- ------ -------- ------
How does this price compare to other banks and to customer peer averages?
One service line item buried within thousands of lines across hundreds of statements.
- What can this line tell the bank and the customer? - What questions can be asked about this service?
Is that the special price we negotiated?
The account doesn’t use this service!
Is the customer aware there’s been a price change?
I think that volume is unreasonably high.
Is this the exact volume we expected?
Is this close to the average charge over the last six months?Is there supposed to be a tax on this service?
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ELECTRONIC STATEMENT USAGE AFP GLOBAL SERVICE CODES ARE HERE NOW
AFP Domestic Codes AFP Global Codes
Length 6 digit alphanumeric 8 digit alphanumeric
Level of detail High Moderate
Compatibility 822, Web/Excel Only BSB
Balance Codes Yes No
Service Codes Yes Yes
Accessible/Searchable online
Yes Coming
Accreditation/Mapping Services
Yes Coming
AFP provides a mapping that links the Global to the Domestic codes for corporations who may use both.
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ELECTRONIC STATEMENT USAGE GLOBALIZATION UNDER ISO20022
TWIST and SWIFT now maintain the BSB standard jointly under the ISO 20022 umbrella. They are working together to provide:
• Ongoing standards maintenance under the ISO20022 umbrella
• Strong impetus for more global banks to produce the BSB
• Complementary BSB and eBAM standards to provide one comprehensive set of bank-customer administrative standards
• Possible extension of the BSB standard to enable electronic invoicing
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BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING
First Things First
Change: Balance Considerations
Change: Service Considerations
Growing: Electronic Statement Usage
Q&A
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WE’VE REACHED THE FINISH LINE!ANY QUESTIONS?
Please give us your card if you want more information or a follow up call.
OPEN SOLUTIONS WEILAND FINANCIAL GROUP
Account Analysis and Billing A Perfect Storm is Raging
NYCE May, 2012
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WHY EXAMINE IT, WHO CARES?REASONS TO EXAMINE BANK CHARGES & BALANCES
Metrics and Cost Control
•Analyze monthly bank analysis statement for:– High dollar and high volume services– Isolate pricing errors or changes– Identify unnecessary services
•Establish a relationship with Business Units and
identify those using high volume services– Important for BU’s to understand that you are
there to help
•Propose alternatives or process changes if
possible
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BALANCE CONSIDERATIONSDODD-FRANK & HARD INTEREST: Broadridge’s Experience
Option 1: No change. “Soft” earnings credit only
• Broadridge has negotiated higher earnings credit rates and has opted
out of the hard interest on MOST banking relationships
Option 2: “Hard” interest only, pay with dollars
• Currently hard interest rates only slightly higher than ECR - not
reflective of average balances
• Accounts receiving interest are due to Broadridge Fiduciary
responsibilities
• Banks “pushing back” on large balances
Option 3: Hybrid combination of “Soft” credit and “Hard” interest
• Not a valuable option for Broadridge in current environment
– Future state could be to tier balances
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SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCECollected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000Monthly Maintenance 1 30.00 30.00 36,000Deposit Items 400 .10 40.00 48,000 300 .08 24.00 28,800 300 .06 18.00 21,600 ------ ------ Total Charges Before Credit 177.00 212,400
SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS
Tiered pricing discount on high volume service
You saved $18.00
►Do a bank to bank price comparison or send out an RFI ►Don’t be afraid to tell a bank that a service is too expensive
► Ask your departments or business units for feedback on the banks. ….Create a scorecard for them
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