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Windy City May, 2012. Account Analysis and Billing A Perfect Storm is Raging. TODAY’S PRESENTER STEVE WEILAND. Founder & VP Strategic Development The Weiland Financial Group A Division of Open Solutions Inc Principal contributor ANSI X12 822 TWIST BSB Principal author

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today s presenter steve weiland
TODAY’S PRESENTERSTEVE WEILAND

Founder & VP Strategic Development

The Weiland Financial Group

A Division ofOpen 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

Stephen.Weiland@OpenSolutons.com

+1 847-810-6120

bank fee analysis and billing a perfect storm is raging
BANK FEE ANALYSIS AND BILLINGA PERFECT STORM IS RAGING

First Things First

Change: Balance Considerations

Change: Service Considerations

Growing: Electronic Statement Usage

Q&A

bank fee analysis and billing a perfect storm is raging1
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

why examine it who cares reasons to examine bank charges balances
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?

account analysis what is it a way to save money so much more
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
slide8

Services

$7,000

ACCOUNT ANALYSIS – WHAT IS IT?A WEIGHING PROCESS -> Profit To The Bank

Balances

$10,000 EC

slide9

Services

$10,000

ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> You pay $3,000

Balances

$7,000 EC

account analysis what is it a weighing process break even
ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Break Even

Services

$7,000

Balances

$7,000 EC

elements of account analysis calculate the balance on which the ec is based
ELEMENTS OF ACCOUNT ANALYSISCALCULATE THE BALANCE ON WHICH THE EC IS BASED

Balances

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

????

????

????

elements of account analysis list and total all period service charges
ELEMENTS OF ACCOUNT ANALYSISLIST AND TOTAL ALL PERIOD SERVICE CHARGES

Services

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE

Collected Balance OD 8,000 6.00% 40.77H

FDIC Premium/Thou 250 .06 15,00H

Monthly 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 analysis establish the compensation position
ELEMENTS OF ACCOUNT ANALYSISESTABLISH THE COMPENSATION POSITION

ACCOUNT POSITION....... ..FEES BALANCES

Earnings at 1.0% 150.00 180,000

Less Compensable Charges 130.00173,333

Earnings Excess 20.00 6,667

Hard Charges (H) 55.77

Total Due 55.77

????

the change drivers regulation globalization technology
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
bank fee analysis and billing everything is changing
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

balance considerations some examples
BALANCE CONSIDERATIONSSOME EXAMPLES

We’ll start with the classic analysis statement balance presentation and earnings credit calculation

Net Collected

Net Collected

Reduce Float

Net Collected

Reduce Float

No Reserves

Pos Collected

Reduce Float

No Reserves

Positive

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

230,000

23,000

207,000

173

$250,000

20,000

240,000

0

240,000

200

$250,000

20,000

230,000

0

230,000

192

Bank

Customer

A net increase in Earned Credit of $50, or 33%

balance considerations interest on reserves the fsrr act of 2006
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?

balance considerations interest on reserves bank responses
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

BALANCE CONSIDERATIONSINTEREST ON RESERVES: BANK RESPONSES

Classic Approach

Reserve reduction with ECR of 1.0%

New Approaches

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

Eliminate reserves with same rate of 1.0%

Good for Customer

Eliminate reserves with reduced rate of 0.9%

NIF Earnings at 0.9% = 150.00 200,000

Good for Bank

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%

Very good for Customer

balance considerations overdraft charge base balances
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

balance considerations dodd frank hard interest july 2011 bank responses
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

balance considerations tiered earnings credit rates
BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES

ACCOUNT POSITION....... ..FEES .BALANCES

Earnings at 1.5% 225.00 180,000

Less Compensable Charges 173.77154,461

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?

balance considerations tiered earnings credit rates1
BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES

ACCOUNT POSITION....... ..FEES .BALANCES

Earnings at 0.75% 112.50 180,000

Less Compensable Charges 173.77278,032

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.

bank fee analysis and billing everything is changing1
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

service considerations dodd frank fdic fees
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

slide25

SERVICE CONSIDERATIONSDODD-FRANK & FDIC FEES

  • 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 hard charged vs balance compensable
SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE

Collected Balance OD 10,000 6.00% 50.00H

FDIC Premium/Thou 250 .06 15,00H

Monthly Maintenance 1 30.00 30.00 40,000

Deposit 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

Two services are Hard Charged. No balance offset. What you see is what you pay

service considerations hard charged vs balance compensable1
SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE CHARGE BALANCE

Collected Balance OD 10,000 6.00% 50.00H 50.0060,000

FDIC Premium/Thou 250 .06 15,00H15.00 18,000

Monthly Maintenance 1 30.00 30.00 36,000 30.00 36,000

Deposit 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

Change the two services to compensable and the charge can be offset by balances.

You saved $20.00

slide28

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE

Collected Balance OD 10,000 6.00% 50.00 60,000

FDIC Premium/Thou 250 .06 15,00 18,000

Monthly Maintenance 1 30.00 30.00 36,000

Deposit 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

slide29

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE

Collected Balance OD 10,000 6.00% 50.00 60,000

FDIC Premium/Thou 250 .06 15,00 18,000

Monthly Maintenance 1 30.00 30.00 36,000

Deposit 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

time out
Time Out !

Analysis Information Overload?

What Shall We Talk About?

Cloning?

Politics?

Ethics, Morality, Religion, Dying?

Sex

bank fee analysis and billing everything is changing2
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

electronic statement usage what s the purpose to automate review
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
electronic statement usage what s the purpose examine every service line
ELECTRONIC STATEMENT USAGEWHAT’S THE PURPOSE? EXAMINE EVERY SERVICE LINE

One service line item buried within thousandsof lines across hundreds of statements.

- What can this line tell the bank and the customer? - What questions can be asked about this service?

AFP DESCRIPTION PRICE VOLUME CHARGE TAX

------ ----------------- ----- ------ -------- ------

050100 Lockbox Processing .1200 12,000 1,440.00 144.00

The account doesn’t use this service!

Is that the special price we negotiated?

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?

How does this price compare to other banks and to customer peer averages?

electronic statement usage afp global service codes are here now
ELECTRONIC STATEMENT USAGE AFP GLOBAL SERVICE CODES ARE HERE NOW

AFP provides a mapping that links the Global to the Domestic codes for corporations who may use both.

slide36

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
bank fee analysis and billing everything is changing3
BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING

First Things First

Change: Balance Considerations

Change: Service Considerations

Growing: Electronic Statement Usage

Q&A

slide38

WE’VE REACHED THE FINISH LINE!ANY QUESTIONS?

Please give us your card if you want more information or a follow up call.

why examine it who cares reasons to examine bank charges balances1
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

balance considerations dodd frank hard interest broadridge s experience
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

slide42

SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE

Collected Balance OD 10,000 6.00% 50.00 60,000

FDIC Premium/Thou 250 .06 15,00 18,000

Monthly Maintenance 1 30.00 30.00 36,000

Deposit 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