2. 1 Mission Impossible: Cross-Bank Comparison Steve Weiland, The Montauk Group Stephanie Andersson, Open Solutions/Fiserv

3. 2 Steve Weiland Senior Advisor The Montauk Group Stephanie Andersson Outsourcing Manager Open Solutions now Fiserv

4. 33 OPERATION XBANK Your mission: To standardize and reduce the cost of banking services across the banking network. Time to complete: 30 days

5. 4 What you will need 1 Month of Statement Data Per Bank Per Account Per Legal Entity Definitions of service from each bank for every line item you are charged at each bank

6. 5 Establish The Plan Understand the account structure and how each bank reports detail and summary levels Classify each line item with a product identity – AFP Codes work the easiest – Start with the banks AFP Code Assignment – Check Mapping Effectiveness – Build apples to apples matches across banks Ignore apple color Consider units of measure Watch for bundling Understand Service Status Follow the natural hierarchy that AFP Codes provide. You can now evaluate your fees at the product level and do detailed studies on those with the most exposure.

7. 6 Establish The Volume In order to effectively compare each bank, we need to use a standardized volume – Use actual statement volumes when determining cost of service at alternative bank – Use peak volumes when the purpose is to identify price differences – In each product, determine those items that are volume driven and those that are not.

8. 7 Calculate Line up services with the same AFP Code for each bank Insert assumed volumes into each service Evaluate and handle unmatched services Calculate each service line – P*V services using assumed volume and target bank price – Flat, Base, B*R using appropriate math from target bank

9. 8 When Math Doesnt Work In some cases, there will be no mathematical way to directly compare individual service lines, or complete products – Bundling – Complex calculation methods In those cases, you need to learn fee ratio analysis and all-in analysis – Perfect for FDIC fee analysis – Useful for bundled vs. unbundled scenarios like comparing lockbox providers

10. 9 Dont Stop at Services The fees you pay each of your banks are affected by more than just service line items. Consider building these into your model: Earnings Credit Rate Reserve Requirement Handling Negative Collected Balance Handling Negative NIF Fees Extended Compensation Cycles Right of Daily Offset Funds Availability Schedule Hard Interest Rate ECR NOR Hidden Overdraft Fees Deficit Premiums Compensation Methods Negative ECR Opportunity Costs

11. 10 For average balances the 10% reserves reduction in earnings potential may not be a current concern anymore (for most of us) but how can I make sure that my earnings credit rate isnt net of reserves? Receiving an EDI 822 Account Analysis? The answer is in the RTE segment. Standardize the earnings allowance calculation Assessed balance x Earnings Credit Rate x (Days in analysis period / days in year) Using the current earnings credit rate to determine the cost or benefit to offset $1 in analyzed service charges. Potential for hard interest on excess collected balances Conversely, Plan B Hard charge approach A Tale of Two Audit Points The fees you pay each of your banks are affected by more than just service line items. Earnings Credit Rate Analysis 1. Determine what increases and decreases the balance used to calculate earnings allowance. This exercise will provide insight into invoiced charge fluctuations where service detail doesnt provide the whole story. 2. Determine if the earnings credit rate is a double agent. Know what this rate impacts in the standard analysis formula.

12. 11 Duplicity The fees you pay each of your banks are affected by more than just service line items. There were two and now there is one! Blur the product lines to find information – Prove the need for more than one format of the same information Doe we really need a downloaded excel workbook from the online bank system, a fax of notifications to A/R, mailed advices to A/P, a BAI for the ERP, and an EDI message for my treasury workstation for current day activity? – Maybe, Maybe Not Multibank information services – Is it feasible, is it even an option? Solicit ideas using an RFI with current service providers on how to resolve business or operational problems revolving around information reporting in effort to improve cash management and reduce bank fees.

13. 12 Challenges: Mission XBANK AFP Codes not used by all banks and, when used, bank definitions vary Some banks use AFP Codes broadly; other banks get very detailed Some banks include certain fees only at the master account; other banks include those fees at the sub- account The basis for charges isnt consistent among banks

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15. 14 The Attack – Mission XBANK 1.Identify Service Utilization & Obvious Problems 2.Identify Differences in Bank Pricing Methodologies 3.Identify Volume to Use for Calculations 4.Calculate Monthly Cost Per Bank 5.Review results and determine how best to use this information to save money either through negotiation or transition of banking services Your mission: To standardize and reduce the cost of banking services across the banking network. Time to complete: 30 days

16. 15 The Approach As an example, Im going to look at two service areas: Checks Disbursed:Imaging and Branch Deposits These services are currently provided by two banks, Bank A and Bank B. Im going to compare the standardized, real costs. Then Im going to compare Banks A and B to Bank C which wants my business.

17. 16 But First – Obvious Problems How does this price compare to other banks and peer averages? Is that the special price I negotiated? I dont recognize this service! Hold it, theres been a price change. I think that volume is unreasonably high. Is this the exact volume I expected? Is this close to the average charge over the last six months? Is there supposed to be a tax on this service? Consider this: one service line item buried within thousands of lines across hundreds of statements. -What can this one line tell me? -What questions can I ask about this service? -Now the lets get past the electronics and involve real people! AFP DESCRIPTION PRICE VOLUME CHARGE TAX ------ ----------------- ----- ------ -------- ------ 050100 Lockbox Processing.1200 12,000 1,440.00 144.00

18. 17 Service Utilization – Mission XBANK CHECKS DISBURSED BANK A BANK B Checks Paid - RegularGeneral Checks Paid - Truncated$ 0.15DDA Checks Paid $ 0.16 Check Imaging MaintenanceImage Maintenance - Direct$ 10.00 Check Image CaptureImage Archive - 90 Days$ -Electronic Window Extended Stor 30 $ 0.010 Check Retrieval Photocopy Automated Online Image View < 90 Days - Item $ 3.50 Electronic Window Extended Stor 60 $ 0.015 Electronic Window Extended Stor 90 $ 0.02 CEO Search $ 0.95 Check Rejects MICR Check Rejects over 2% $ 1.25 Major differences have been identified in how this customer is being charged for providing images of paid checks. Bank A: $0.15 per item paid, $10.00 bundled for Image Maintenance Bank B: $0.16 per item paid, six separate charges for retrieval

19. 18 Pricing Differences – Mission XBANK BRANCH DEPOSITSBANK A BANK B Branch DepositBanking Center Deposit $ 0.60 Credits Posted (manual check or cash deposits) $ 0.75 BRANCH DEPOSITED COIN AND CURRENCYCurr/Coin Dep/$100-BKG CTR $ 0.18Cash Dep/$1 Ver At Teller Window $ 0.0016 Branch Coin and/or Currency Order - ManualChange Order Banking Center $ 2.00 CHANGE ORDER CHARGE- BRANCH/STORE $ 5.00 Branch Furnished Coin - RolledCoin Supp / Roll-Bkg Ctr $ 0.10 ROLLED COIN ORDERED - BRANCH/STORE Branch Furnished Currency - LooseCurr Supp / $100 - Bkg Ctr $ 0.07 CURRENCY ORDERED/$1 - BRANCH/STORE $ 0.0016 Branch Deposit - Night Deposit CustodyCurr/Coin Dep/$100-QBD-ND $ 0.12Cash Vault Cash Dep Night Drop / $1 $ 0.0016 QBD/Night Drop Deposit $ 0.60 $ 0.75 Differences in units have been identified in how this customer is being charged for branch coin and currency services. Deposited Coin & Currency: Bank A=$0.18 Bank B=$0.0016 Volume charge: Bank A=per $100 deposited Bank B=per $1 deposited I better adjust for volumes in my calculations!

20. 19 Establish The Volume In order to effectively compare each bank, we need to use a standardized volume - In each product, determine those items that are volume driven and those that are not. - Use peak volumes when the purpose is to identify price differences among existing banks. - Use actual statement above average volumes when determining cost of a volume driven service at an alternative bank.

21. 20 Calculate Bank A VOLUMES Items deposited 2,000 Month1 Images retrieved30 Deposits25 Accounts90 BANK ABANK A PRICE Desktop Deposit - DEP ITEM $ 0.050 DESKTOP DEPOSIT-DEPOSIT ITEM $ 0.085 Desktop Deposit Credit Posted $ 0.00 Desktop Deposit Images Retrieved $ 0.500 Desktop Deposit Report Mthly Base $ 7.500 Desktop Deposit Report per Item $ 0.250 Total Cost at Bank A $ 1,342.50 Bank is breaking out the per-item clearing charge by On-Us or Other specific to RDC. Must determine a ratio based on historical volumes to apply weighted average cost correctly. This bank does not charge at the account level but charges significantly for reporting.

22. 21 Calculate Bank B VOLUMES Items deposited 2,000 Month1 Images retrieved30 Deposits25 Accounts90 BANK BBANK C PRICE Image Deposited Items RDSO $ 0.35 Medium Volume scanner maintenance $ 15.00 Deposit Correction RDS $ 7.00 Remote Dep - Account Maintenance $ 25.00 RDSOL - Item Storage $ 0.00 IRD DEPOSITED ITEMS RDSO $ 0.00 Total Cost at Bank B $ 2,965.00 Bank B bills per account and per item primarily. Is clearing a part of the per item cost? Scanner fee is tied to monthly volume. IRD and deposit corrections are not added in because the volume is insignificant and irregular. Fewer line items but double the cost!

23. 22 Calculate Bank C VOLUMES Items deposited 2,000 Month1 Images retrieved30 Deposits25 Accounts90 BANK CBANK C PRICE Remote Dep Cap - DepItm $ 0.08 Remote Deposit Credit Posted $ 0.75 Total Cost at Bank C $ 178.75 Bank C provided a competitive bid with pricing. Confirm before signing that there are no additional monthly fees, clearing fees, scanner fees, etc. You will always face implementation charges when you switch banks.

24. 23 Review Results BANKANNUAL COST Bank A $ 16,110 Bank B $ 35,580 Bank C $ 2,145 This client could save $33,000 a year if they accepted Bank Cs proposal and switched from Bank B. If you redirected all checks to Bank C, that could equal $50,000 in savings.

25. 24 Lessons Learned A comparison of one line item is never enough. Each bank has its own billing strategy. Devise your own. BANK ABANK BBANK C Desktop Deposit – OnUs ITEM $ 0.050 Image Deposited Items RDSO $ 0.35 Remote Dep Cap - DepItm $ 0.08 DESKTOP DEPOSIT- Other DEPOSIT ITEM $ 0.085

26. 25 Strategy Imbalances in information and power will drastically impact the success of a negotiation Information – Banks have the upper hand (up until now) Power – Know your alternatives (Bank C)

27. 26 Mission XBank Identify Service Utilization & Problems Identify Differences in Bank Pricing Methodologies Identify Volume to Use for Calculations Calculate Monthly Cost Per Bank Review results and determine how best to use this information to save money either through negotiation or transition of banking services

28. 27 Mission XBANK Dont be afraid to shake up bank fees…..after all, bank fees should be shaken and not stirred!

29. 28 AFP Update 2013 Version AFP Codes to be published this June!

30. 29 The Latest Standards2013 AFP Service Code Taskforce has made major modifications to the existing set of standard AFP Codes designed to facilitate Cross Bank Comparisons

31. 30 Deprecation Introduced Deprecation allowed many codes that were not used to be identified and set for retirement for the first time since their inception in 1986

32. 31 Deprecated Codes Merchant Card Services Tape/Diskette/Microfiche Terminal and Network delivery methods Bank Provided Account Analysis Software (more to be added upon completion of the panel)

33. 32 Modified Services CD/DVD charges modified to read External Media FDIC Assessment updated to Pass Through Charge Remote Deposit Section Redesigned (add more when list is modified)

34. 33 New Services Online Banking Fees – Product Maintenance vs. Online Product Module Maintenance Full Reconciliation + Pos Pay Services Virtual Sub-Accounts Global Trade Services Mobile Banking

35. 34 In Summary Cross Bank Comparisons require major effort but the results are worth it. Use the Standards and Software Tools available to help you on your mission. The first step is to understand exactly what you are paying for at each bank. When all else fails…

36. 35 Questions? Contact us for help! steve.weiland@themontaukgroup.com stephanie.andersson@fiserv.com Visit us at Booth 109