Collections Could Improve Bank Noninterest Income
Noninterest income is vital to a bank’s long-term success. This is particularly true today, when an assortment of financial and compliance factors are detrimental to the net interest income. Improving collections and lowering delinquencies provides a source of revenue the bank can control with software.
It’s important that your financial institution carefully analyze the costs and benefits associated with the customer relationship to ensure the relationship is sufficiently profitable. Oddly, the frequent debtor in the 15, 20, or 30 days late group; that never slides beyond 30 or 40 days late; yet pays their late fees, may be a very profitable customer.
It’s critical to monitor the connection. Banks often lose revenue because they are unaware that the relationship has changed. In addition, due to rate pressure, regulatory expense, and net-interest margin compression, banks need to have some understanding of ways to improve the bottom-line.
The problem today is that noninterestincome is also declining for many banks. The reasons are many, but they include the general financial climate, including growing and often new competitive pressures and regulatory changes, such as opt-in requirements for overdraft protection fees and limitations on credit card and debit card interchange fees.
The lowering of operating costs and leveraging of powerful technology – as well as working the right accounts in the right sequence – increases noninterest income
Enhance Gathering of Existing Fees
The banking industry has obviously become progressively more reliant on noninterest income, and the need to preserve profit margins will certainly lead many in the banking industry to increase their creativity in determining new revenue streams. Common sources of noninterest income include deposit-account service charges, loan origination and servicing fees, overdraft and NSF charges, and gains on sales of loans and investment securities. Expansion into these new areas will ensure stability if any of the new regulation affect existing revenues.
New collection resources, with improved technology, increases productivity, and allows the unfettered staff to focus on recovering prior charged offs, which increases noninterest income. The right, powerful software checks for possible compliance as well as incorporates your institutions compliance policies within the systems work flows. This way time and resources are not wasted (and required steps are not missed), and fines and penalties are avoided.
Lower delinquencies and charged-offs, permits decreased Allocation for Loan and Lease Losses (ALLL), thus reducing that expense while also improving noninterest income.
Deploying best-of-breed collection automation workflows improves debtor contact frequency and effectiveness, at lower costs than manual-like efforts, while also improving collection compliance. This also prevents unnecessary staff expansion to cover compliance and volume growth. Improved debtor collection effectiveness reduces delinquencies, reducing ALLL, while preventing some future charged-offs. Powerful collection technology frees staff resources to proactively recover prior charged-offs, all enhancing non-interest income. Leveraging modern “skip trace” options can ease prior debtor location efforts, further growing prior charged-off recoveries (at lower costs than outside recovery services).
Reduce, Prevent cost growth, while improving compliance; to aid non-interest income
Put a Waiver on Waivers
Although it is important for bank staff to have the discretion to dismiss fees, high waiver rates — some estimates are higher than 50% — can quietly take out ample amounts of revenue. To keep waivers under control, set a goal level for discretionary waivers and train bank personnel so they understand the significance of noninterest income, make good decisions regarding fee waivers and handle customer complaints.
In addition to providing the right technology, IBS offers clients with ongoing and dependable training for your staffs. Our Online Self-Guided User Training Modules provides interactive training at no additional cost to support IBS clients, allowing platform users to take the online classes based on their availability.