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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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Presentation on theme: "OPEN SOLUTIONS WEILAND FINANCIAL GROUP Account Analysis and Billing A Perfect Storm is Raging Windy City May, 2012."— Presentation transcript:

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2 OPEN SOLUTIONS WEILAND FINANCIAL GROUP Account Analysis and Billing A Perfect Storm is Raging Windy City May, 2012

3 1 of 41 TODAY’S PRESENTER STEVE WEILAND  Founder & VP Strategic Development The Weiland Financial Group A Division of Open Solutions IncOpen Solutions Inc  Principal contributor ANSI X 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

4 2 of 41 BANK FEE ANALYSIS AND BILLING A PERFECT STORM IS RAGING  First Things First  Change: Balance Considerations  Change: Service Considerations  Growing: Electronic Statement Usage  Q&A

5 3 of 41 BANK FEE ANALYSIS AND BILLING A 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

6 4 of 41 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?

7 5 of 41  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

8 6 of 41 ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS - Traditionally Balances Services

9 7 of 41 Balances $10,000 EC Services $7,000 ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Profit To The Bank

10 8 of 41 Balances $7,000 EC Services $10,000 ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> You pay $3,000

11 9 of 41 ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Break Even Balances $7,000 EC Services $7,000

12 10 of 41 ELEMENTS OF ACCOUNT ANALYSIS CALCULATE THE BALANCE ON WHICH THE EC IS BASED 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 ???? Balances ????

13 11 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 8, % 40.77H FDIC Premium/Thou ,00H Monthly Maintenance ,000 Deposit Items 1, , Total Charges Before Credit ,333 Compensable Subtotal ,333 Hard Charge Subtotal (H) ???? ELEMENTS OF ACCOUNT ANALYSIS LIST AND TOTAL ALL PERIOD SERVICE CHARGES Services ????

14 12 of 41 ACCOUNT POSITION FEES BALANCES Earnings at 1.0% ,000 Less Compensable Charges ,333 Earnings Excess ,667 Hard Charges (H) Total Due ELEMENTS OF ACCOUNT ANALYSIS ESTABLISH THE COMPENSATION POSITION ????

15 13 of 41 THE CHANGE DRIVERS REGULATION, 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  ISO BSB Electronic Statement, Now

16 14 of 41 BANK FEE ANALYSIS AND BILLING EVERYTHING 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

17 15 of 41 BALANCE CONSIDERATIONS SOME EXAMPLES Average Ledger Balance $250,000 Less Float/Holds 50,000 Average Collected Balance 200,000 Less Reserves (10%) 20,000 Balance to Support Services 180,000 Earned Credit at 1.0% 150 $250,000 20, ,000 23, , $250,000 20, , , $250,000 20, , , Net Collected Reduce Float Net Collected Reduce 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

18 16 of 41 BALANCE CONSIDERATIONS INTEREST 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?

19 17 of 41 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% = ,000 Average Daily Ledger Balance $250,000 Less Float 50,000 Average Daily Collected Balance 200,000 NIF Earnings at 1.0% = ,000 NIF Earnings at 0.9% = ,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% = ,000 Reserves Earnings at 1.9% = , Reserve reduction with ECR of 1.0% and earnings on reserves at 10 points less than the Fed Funds rate of 2.0% BALANCE CONSIDERATIONS INTEREST ON RESERVES: BANK RESPONSES New Approaches Good for Customer Good for Bank Very good for Customer

20 18 of 41 BALANCE CONSIDERATIONS OVERDRAFT 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, Aggregate Balance Results: Positive: 29 * 248, = 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

21 19 of 41 BALANCE CONSIDERATIONS DODD-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

22 20 of 41 BALANCE CONSIDERATIONS TIERED EARNINGS CREDIT RATES ACCOUNT POSITION FEES.BALANCES Earnings at 1.5% ,000 Less Compensable Charges ,461 Earnings Excess ,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?

23 21 of 41 BALANCE CONSIDERATIONS TIERED EARNINGS CREDIT RATES ACCOUNT POSITION FEES.BALANCES Earnings at 0.75% ,000 Less Compensable Charges ,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.

24 22 of 41 BANK FEE ANALYSIS AND BILLING EVERYTHING 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

25 23 of 41 SERVICE CONSIDERATIONS DODD-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 ) 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

26 24 of 41  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 CONSIDERATIONS DODD-FRANK & FDIC FEES

27 25 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10, % 50.00H FDIC Premium/Thou ,00H Monthly Maintenance ,000 Deposit Items 1, , Earnings at 1% Less Compensable Charges , Excess Earnings Plus Hard Charge Subtotal (H) Total Due SERVICE CONSIDERATIONS HARD CHARGED VS BALANCE COMPENSABLE Two services are Hard Charged. No balance offset. What you see is what you pay

28 26 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE CHARGE BALANCE Collected Balance OD 10, % 50.00H ,000 FDIC Premium/Thou ,00H ,000 Monthly Maintenance , ,000 Deposit Items 1, , , Earnings at 1% Less Compensable Charges , , Deficit Earnings Plus Hard Charge Subtotal (H) Total Due SERVICE CONSIDERATIONS HARD CHARGED VS BALANCE COMPENSABLE Change the two services to compensable and the charge can be offset by balances. You saved $20.00

29 27 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10, % ,000 FDIC Premium/Thou ,00 18,000 Monthly Maintenance ,000 Deposit Items 1, , Total Charges Before Credit ,000 SERVICE CONSIDERATIONS BARGAINING: VOLUME DISCOUNTS No volume discount on high volume services

30 28 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10, % ,000 FDIC Premium/Thou ,00 18,000 Monthly Maintenance ,000 Deposit Items , , , Total Charges Before Credit ,400 SERVICE CONSIDERATIONS BARGAINING: VOLUME DISCOUNTS Tiered pricing discount on high volume service You saved $18.00

31 29 of 41 Time Out !  Analysis Information Overload?  What Shall We Talk About? Cloning? Politics? Ethics, Morality, Religion, Dying? Sex

32 30 of 41 BANK FEE ANALYSIS AND BILLING EVERYTHING 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

33 31 of 41 ELECTRONIC STATEMENT USAGE WHAT ARE THE ELECTRONIC STATEMENTS? 822BSB Standards Body ANSI ASC (US)ISO20022 (Global) Format X12 Looping FormatXML Balances Important – earnings credits, reserves Not required but desirable (No Reg Q) Compensation Yes – single currencyYes – multiple currencies Services Very important – AFP codes, balance required Very important – AFP codes optional, no balance required Taxes & Currencies NAVery Important Relationship Structure Yes Adjustments Yes A Tool for Treasury? Absolutely!

34 32 of 41  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 USAGE WHAT’S THE PURPOSE? TO AUTOMATE REVIEW

35 33 of 41 ELECTRONIC STATEMENT USAGE WHAT’S THE PURPOSE? EXAMINE EVERY SERVICE LINE Lockbox Processing ,000 1, 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?

36 34 of 41 ELECTRONIC STATEMENT USAGE AFP GLOBAL SERVICE CODES ARE HERE NOW AFP Domestic CodesAFP Global Codes Length6 digit alphanumeric8 digit alphanumeric Level of detailHighModerate Compatibility822, Web/ExcelOnly BSB Balance CodesYesNo Service CodesYes Accessible/Searchable online YesComing Accreditation/Mapping Services YesComing AFP provides a mapping that links the Global to the Domestic codes for corporations who may use both.

37 35 of 41 ELECTRONIC STATEMENT USAGE GLOBALIZATION UNDER ISO20022 TWIST and SWIFT now maintain the BSB standard jointly under the ISO 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

38 36 of 41 BANK FEE ANALYSIS AND BILLING EVERYTHING IS CHANGING  First Things First  Change: Balance Considerations  Change: Service Considerations  Growing: Electronic Statement Usage  Q&A

39 37 of 41 WE’VE REACHED THE FINISH LINE! ANY QUESTIONS? Please give us your card if you want more information or a follow up call.

40 OPEN SOLUTIONS WEILAND FINANCIAL GROUP Account Analysis and Billing A Perfect Storm is Raging NYCE May, 2012

41 39 of 41 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

42 40 of 41 BALANCE CONSIDERATIONS DODD-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

43 41 of 41 SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10, % ,000 FDIC Premium/Thou ,00 18,000 Monthly Maintenance ,000 Deposit Items , , , Total Charges Before Credit ,400 SERVICE CONSIDERATIONS BARGAINING: 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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