Paper Check Orders Continue to Rise.

The 1998 U.S. Check Shipment Survey conducted by Check Payments System Association (CPSA) is now complete. CPSA members account for 98% of all personal checks printed in the U.S. The figures are not statistical projections or extrapolations. Rather they are raw figures as produced by the payments industry and for evaluation by the payments industry at large. First, from 1995 to 1998 the total number of check orders rose from 265 million to 280 million. Second, order check volume rose from 44.5 billion to 47 billion annually. Third, the period saw the rise in laser sheet business check volume from 715 million to 1.2 billion. See www.cpsa-checks.org.

Acquisitions of Banks or Bank Customers?

Merger frenzy has struck Europe as bidding begins for National Westminster. But investment bankers carrying long lists of U.S. "sell" candidates are quiet. Any deal automatically increases market share among DDA customers. And why not? On average, a bank customer can produce approximately $100 in annual revenues. Research shows that acquiring a bank customer costs an average of $300. (Online brokerages spend in the range of $90 to $250 based on SEC filings.) Surprisingly, lower income segments, rather than higher ones, are more willing to pay bank fees. To find retail market segments that produce revenue, major banks should not necessarily exclude from their target markets the unbanked or underbanked segments. A private conference in a wood-paneled office is a nice professional image; but let's not forget the low-profile customer who never sits down in the private office but still pays regular fees and charges.

Imaging - How long and how much?

It's been around for over two decades. Me-too software options abound for the major banks and community banks alike. Imaging works well for documenting complex loan applications. Image POD is beginning to turn the corner. You will always have new opinions and polarity. One bank consultant said this year that certain executives should have been fired for their IT decisions on imaging. An EVP admitted that his bank was still looking for a case for a check image archive. Wholesale customers find value, but retail consumers don't promise genuine profit potential (for now). That's okay - in meeting the 7-year check retention requirements, banks have seen archiving costs fall. Steadily, microfilm storage is yielding to image retrieval from CD or tape storage. As hardware vendors vie for the same space, banks as customers will benefit from the increased competition.

"Banking is necessary; banks are not." Richard Kovacevich, CEO, Wells Fargo & Company.

The CEO Footnote...

IT Investment. Rarely do CEOs take the helm on IT decisions, but Internet banking is an exception, according to researchers at the Wharton Financial Institutions Center. One major bank is spending $200 million. With that, you can add $50 million for web advertising. You can also commit $50 million on a data warehouse to track your customer data for a single year. A complete imaging POD system can cost $20 million. These and other investments, could almost be considered "play money" to enable a major bank to operate and compete. Somehow investment analysts and shareholders are happy to join in on the expectations of Internet ventures. But does this necessarily carried over to the banking industry? When you put all of the advertising and IT dollars together, at the end of the day either costs need to fall or revenues need to rise. Or, perhaps the rigors of ROI don't have a place here. For example, ATMs ($30K each) have to be there to meet service thresholds, even if they are not profit centers.

inCYde circulates each Friday via facsimile among bank CEOs and other decision-makers involved in bank marketing, technology, and operations. Copyright ©1999 by Chen-Yu Enterprises LLC. All rights reserved. We carry no advertising, and subscriptions are complimentary. Commentators and new subscribers may fax or e-mail the editor, Gregory J. Yu, at: Chen-Yu Enterprises LLC, 1601 Bayshore Highway, Suite 311, Burlingame, CA 94010 / 888.454.7687 (outside the US call 650.652.6565) / Fax 650.652.6567 / glgroup@inreach.com. Prior issues appear at www.abcye.com. Subscriber list information is never released under any circumstances.