RE-EXAMINING Conventional Wisdom - Curinos
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Winter 2021
RE-EXAMINING
Conventional
Wisdom
2022: A Year for
Product Innovation
What You Need To Know
About Buy Now, Pay Later
Is Home Equity On Its Way Back?
4 Cover Story
Product Innovation is Key Driver for 2022
8 | Prime Your Bank for Primary Retail Deposit Customers
11 | Deposit Download
13 | Getting Ready for a Comeback in Home Equity
16 | Commercial Primacy Comes into Focus as Higher Rates Loom
18 | Competition Drives Overdraft Overhaul
23 | Buy Now, Pay Later: Opportunity or Headache?
25 | The Importance of Deposit Due Diligence As Rates Start to Rise
27 | The Digital Transition
28 | Financial-Services Marketers Face Unique Hurdles in Adopting AI-Driven Automation
30 | At the Podium with Curinos
31 | News You May Have Missed
2
a note
from the
Welcome to the Winter issue of the Curinos Review.
We chose “Re-examining Conventional Wisdom” as the theme
for this issue because that will be an important mindset for fi-
nancial-services institutions in 2022. While it’s cliché to speak
about uncertain times, we do know with certainty that this
upcoming year will be very different from those we have seen
in the past. And we at Curinos believe there will be plenty of
EO
opportunity in the financial-services industry.
What are the certainties?
Innovation took hold in 2021 and we expect to see far more of it in 2022.
One of the biggest examples of this has been in overdraft. Companies
threw out decades-old policies in 2021, crafting new strategies and products
like Buy Now, Pay Later. Fintechs and other new entrants are nipping at the heels
of traditional players in this area; new players are expected to introduce more Editorial
products in 2022. Traditional providers will be under pressure to overhaul their Director, Thought Leadership
Robin Sidel
product lines and fee structures. +1 212.901.2742
robin.sidel@curinos.com
The shift to digital channels will continue for corporate and retail customers at
a pace that has been accelerated by the COVID-19 pandemic. There’s no going
back as consumers and businesses alike grow increasingly comfortable working,
Contributors
Brandonn Dukes
shopping and engaging remotely. That means providers will have to pump up Ken Flaherty
investments in digital strategies and technology to ensure engagement with new Pete Gilchrist
Hank Israel
customers and retain the current ones.
Michael Jiwani
Zachary Kaplan
Meanwhile, the Fed has accelerated plans to raise interest rates and is now signaling Brandon Larson
three hikes next year. Financial-services providers will need to reconsider the old Olivia Lui
Michael McCaw
definitions of primacy as they determine how and when to raise rates and for which
Randy Rosen
customers. Higher rates have big implications for the home-lending market as well, Peter Serene
likely making home equity more popular than it’s been in years. M&A will also be Adam Stockton
impacted by higher rates as prospective buyers conduct due diligence on the deposit Sarah Welch
portfolios of their targets.
Design
The next year will also be significant for Curinos as our newly-combined organiza- Art Direction and Production
tion works to create new products and services for our clients around the globe – Adrienne R. Cohen
national and regional banks, credit unions, fintechs and more.
Curinos
We wish you a happy and healthy holiday season. Curinos is a leading provider of data,
technology and advice to financial
Sincerely, institutions globally.
Craig Woodward CEO
Craig Woodward
CEO
Corporate Headquarters
485 Lexington Avenue
New York, NY 10017
Phone: +1 212.953.4444
marketing@curinos.com
www.curinos.com
3
Product
Innovation is
KEY DRIVER
for
2022 By Olivia Lui and Brandon Larson
T
he relentless surge in deposits, a Figure 1: Neobanks are gaining ground in checking accounts
collapse of overdraft revenue and
competitive pressure from new Year Primary Checking Account Opened – Primary Bank Type
entrants means that banks will be grap-
pling with reduced fee income for much National Super Regional Regional Community/Credit Direct Neobank
of 2022.
Many retail customers won’t accept
traditional fee hikes on basic products,
especially when fintechs are wooing 31%
35%
them with creative features. And com- 43%
44%
mercial customers, already frustrated by
a system that boasts thousands of price
points, are looking for greater simplicity. 16%
At the same time, financial institutions 17%
must be highly attuned to regulatory 4%
18% 5% 2%
20% 7%
flags that could result from heightened 2%
government oversight. 4% 8%
4% 2%
Curinos believes that product inno- 3% 9% 24%
vation that overhauls fee structures can 9% 18%
help drive revenue in 2022. This strategy 8%
4%
will succeed, however, only if banks 2017 2018 2019 2020
understand the very different payment
and liquidity needs of their customer
National
Q10: In which year did you open your primary checking account (the checking account you use the
segments and provide a broader range of
Super Regional
most today)?
more personalized (and fenced) offerings Direct Banks include: Ally, Discover, USAA, Capital One (Direct) and Charles Schwab Bank
Regional
that fit those needs. Source: Curinos Customer Knowledge | 2020 Year primary
Shopper checking account opened –
Survey
Community/Credit
primary bank type
Direct
NeoBank
4
Product Innovation is Key Driver for 2022
TRENDS BOLSTER NEED Figure 2: Segment-driven marketing and positioning can drive growth
FOR INNOVATION NTB Checking Account Acquisition1
There is little doubt that the traditional
days of branch-led customer acquisition Potential Uplift Base Acquisition
are fading fast, replaced by data driven,
marketing-led strategies for new prod- New Product Launch of new
Launch product suite
ucts and services. drove up NTB
Nowhere is that more apparent than acquisition Without consistent
immediately
at neobanks like Chime. Such neobanks 50-100% marketing and
compelling features,
the volume drops
overcome their lack of local presence 25-50%
with massive advertising and the use 0-20%
distinctive product features to scoop up
a bigger share of new checking accounts.
(See Figure 1.)
The COVID-19 pandemic has only
highlighted (and accelerated) these chal-
lenges. Additional branch consolidation is Before Product 0-6 Months 7-18 Months 18+ Months
a front-burner issue at many institutions Launch Post-Launch Post-Launch Post-Launch
because customers just aren’t flocking
back to the branch even when pandem-
ic-related social distancing policies are 1
Indexed to March 2016
loosened. As a result, the appetite for better Source: Curinos PriceTek CDA
Figure 3: Understanding customer segments is critical to fees and innovation
Most Confident Most Anxious
Potential Uplift NTB checking account acquisition 1
19% 18% 16%Base Acquisition
19% 16% 13%
distribution distribution distribution distribution distribution distribution
population population population population population population
Merry Engaged Confident Self-assured Engaged Nervous
Affluent Optimist Apathetic Striver Worrier Stressor
Engaged with banks Most engaged with Low category Open to banks, Highly engaged with Believe banks are
and believe they banks, with highly engagement, limited but sees them as the category and important, but dread
make life easier positive sentiment trust in banks, sees undifferentiated trust banks dealing with them
all banks as the today
Happy and Confident with few same – rate driven Lack confidence Lack confidence
optimistic about money pains, with Confident in abilities in own abilities to in own abilities to
finances the exception of Confident about and relative financial manage finances manage finances
healthcare finances, yet position
Wealthiest with the concerned about Very anxious about Most stressed
highest deposits Over-indexes in having sufficient Anxious about ability to navigate about their financial
and investments business owners retirement savings unexpected future changes future (navigating
expenses and (expected and debt, healthcare
Least likely to switch Highest percentage navigating big life unexpected) and expected/
banks of switchers changes unexpected
changes)
Over-indexes
for HENRYs* and
propensity to switch
*Acronym for "High earners, not rich yet"
Source: Curinos Customer Knowledge (Curinos Value Proposition White Space Research)
5
Cover Story
digital capabilities is only increasing, A focus on personalized offerings Figure 4: Different age groups have
particularly as consumers and businesses can help identify the fee sensitivity of different unmet needs
are demanding different solutions for cash customers and what they are willing to Potential Product Features
management, emergency savings and trade off against different fee treatments. by Consumer Cluster
overall financial management. Curinos research and experience has
found that the right product positioning Mass
CONSUMER PRODUCT and packaging based on segment-driven
insights can drive a 20% lift in reso-
AND FEE INNOVATION nance and consideration. (See Figure 2.) MAXIMIZE MONEY
The industry is beginning to respond To that end, Curinos has identified Guide money to the right place
to achieve goals
with new ideas for the same old prod- at least six types of cash management
ucts: creative providers are trying to consumers based on “engagement”
incorporate savings behaviors into pay- level—an attribute that can be key to Millennials
ments and cash management products. gauging the acceptance of new fees
This is a prime space in which banks and products. (See Figure 3.) One such
can segment their approach by custom- customer type is “Engaged Worriers,”
HELP ME FIND SAVINGS
er type, creating products with different who trust banks but aren’t confident
Features that make saving easy and
levels of complexity. in managing their own finances and convenient
Several banks have also introduced cash flow. These customers may ac-
programs in which they waive fees or pro- cept fees on new products that help Young – Gen Z
vide other incentives for customers who them manage day-to-day spend while
open multiple accounts at the same time. encouraging savings.
Others are beginning to develop “super Generational segmentation also helps
apps” that integrate savings, investing banks to design products for specific DEBT MANAGEMENT
With student loans top of mind, help bridge
and savings behavior. groups of consumers with unmet needs. money/lifestyle to paying off debt faster and
Finally, Curinos has found that loyal (See Figure 4.) Indeed, subscription pric- more easily
customers may readily respond to re- ing can be more effective with certain age
wards and innovations other than fees. groups than others. (See Figure 5.) Source: Curinos Analysis
Figure 5: Subscription pricing is an innovation that helps drive fee income
Appeal of Pricing Structures Relative to General Population Willingness to Pay by Segment
Price of subscription fee relative to waivable monthly account fee
MAF Subscription
74% 107% 108%
100% 101%
62% 62% 94%
55% 57%
53%
General HENRY $100+ Income $100+ HENRY General
Product Innovation is Key Driver for 2022
COMMERCIAL PRODUCT with tailored increases — versus across- customers’ need for better products.
the-board increases. Some banks may justify the departure
AND FEE INNOVATION of customers by saying they weren’t
There are also opportunities to drive inno- HOW MUCH IS TOO MUCH? profitable anyway. This ignores the val-
vation in commercial banking. Although ue they contribute to the overhead or
fintechs haven’t made as many inroads Simply matching fees on the way down the possibility that an offering that can
here yet, banks can front-run the future isn’t an effective option for banks in the meet their needs and turn them into
competition by optimizing their fee struc- face of competition from new entrants. profitable customers.
tures and products by customer type. Digital transformation of an indus- Banks that don’t create new prod-
Since commercial banks canceled or try often drives prices lower. But most ucts and fee structures given the on-
scaled back price increases during the customers are willing to pay even high- slaught of fintechs will find that they
pandemic, the industry today has an er fees for a product that better fits their will lose their connection to customers
ideal opportunity to tailor packages of needs. Digital transformation opens up and merely be the omnibus repositories
price increases that better meet different those kinds of opportunities. for deposits.
needs of corporate customers. New entrants in the banking in- Olivia Lui | Director, New York
The customers who received dis- dustry are winning checking accounts olivia.lui@curinos.com
counts or fee waivers last year or small because traditional providers haven’t Brandon Larson | EVP, New York
increases in 2021 should be presented been paying enough attention to their brandon.larson@curinos.com
Smaller
age the product suite. As a result, steer customers away from over-
many offer too many products that draft fees or a subscription service.
Providers
their customers just don’t want or The challenge is that these innova-
need. Chances are that even the tions take a minimum of six months
Can Innovate
bankers aren’t selling all of them. to bring new products to market.
Simplicity rules in today’s market, • Innovate Overdraft Features. If you
so focus on those products that are can’t tackle the whole product suite
Checking best for most customers.
• Be a Fast Follower. You don’t have
at once, pick a place to start. Over-
draft is going through an industry-
Products Too to re-invent the wheel to maintain
momentum. It may make sense for
wide overhaul, so now’s the time to
develop new features and fees based
By Randy Rosen some to merely emulate the movers on what consumers want and need.
and shakers, responding quickly Furthermore, you will be at a com-
to the new strategies. That doesn’t petitive disadvantage if you don’t.
S
necessarily mean you need the There’s no doubt that consumers
mall providers (especially those with lowest fees, but you need to show are changing their behaviors and expec-
less than $10 billion in assets) face your customers and prospective tations. Large and regional institutions,
challenges when it comes to prod- customers that you are keeping up neobanks and fintechs have pounced on
uct innovation, but here are some strate- with the times. As the saying goes, their willingness to try new features and
gies to help them find their footing and “you don’t have to outrun the bear, products. Some small institutions already
maintain profitability in the fast-changing you just have to outrun the person have eliminated overdraft fees altogether.
industry. The adoption of such strategies next to you.” But it’s not too late for smaller institu-
can improve profitability by as much as • Restructure Product Line. This tions to make their mark. If they don’t,
20%, according to Curinos estimates. option is the most comprehensive they will continue to fall behind the pack.
• Optimize Existing Product Suite. because it requires the creation of
Some small banks and credit unions distinctive and innovative products. Randy Rosen | VP, Los Angeles
randy.rosen@curinos.com
lack the analytic capabilities to man- This can be a safety-net product to
7
Prime Your Bank
for Primary Retail
Deposit Customers
By Michael Jiwani and Adam Stockton
D
on’t dismiss the value of prima- ter gauge primacy and propel customer due to anemic loan growth. As a result,
ry retail customers even if your growth. By adopting these analytics now, Curinos estimates that the traditional
institution is awash in deposits. they will be better positioned in the future. benefits of primacy have temporarily di-
Chances are that these customers will minished by about half – and even more
become even more valuable soon – and A VALUABLE BUNCH at some banks.
it will be more expensive to find them. Indeed, more than half of the partici-
But the traditional ways to identify There’s no doubt that primary customers pants in a recent Curinos webinar hosted
which customers are primary, such as as- are the lifeblood of banks. They keep de- by the Consumer Bankers Association
sessing direct deposit behavior, just aren’t posit coffers full, provide more fee rev- said their institutions were investing the
as reliable as they used to be. And they enue than other customers, stick around same amount or less on acquiring and
also don’t help you determine how to im- for years and don’t haggle over rate. (See growing primary deposits than they did
prove customer relationships. These dy- Figure 1.) when rates were higher.
namics will create a challenge for banks, In the current rate environment, Those who invest in primary cus-
particularly when rates start to rise. however, that benefit has diminished. tomer growth now may find that primary
Curinos believes that banks can use The rate advantage primary customers customers are “on sale.” As these banks
a combination of traditional metrics and provide is compressed, and banks can’t continue to build a stable of primary
advanced segmentation analytics to bet- put all of their excess deposits to work customers and sticky deposits, they will
Prime Your Bank for Primary Retail Deposit Customers
Figure 1: Primary customers are the lifeblood of a bank for many reasons
Greater Fee Revenue Lower Rate Sensitivity Greater Stickiness
+50-100 bp
5-10x
Cost of Deposits (bp)
4-5x
Attrition Rates
Fee Revenue
+5-10 bp
Primary Non-primary Primary Non-primary Primary Non-primary Primary Non-primary
Customers Customers Customers Customers Customers Customers Customers Customers
Today’s Normal Rate
Rates Environment
Source: Curinos research and analysis
likely find it easier to lag upcoming Fed
moves while retaining balances.
And those who didn’t invest in prima-
ry customer growth may find themselves
needing to pay more to get customers and Those who invest in primary customer
deposits later. growth now may find that primary customers
are “on sale.”
STARTING NOW
Banks can start attracting and retain-
ing primary customers today through a HOW TO MEASURE Take, for example, a customer who
combination of technology, incentives
PRIMACY receives a direct deposit every month,
and old-fashioned sales strategies aimed but who spends the funds via a combina-
at the products and services that mean Banks have traditionally taken a bina- tion of an off-us credit card and Venmo,
the most. That means pumping money ry approach to assessing primacy that transferring any excess monthly savings
into digital capabilities that make the measures direct deposits and a certain to a high-rate online bank. While this
funding process easier and create a better number of qualifying transactions. Near- customer may be considered “primary”
customer journey. ly 60% of the recent webinar participants under the traditional binary measure-
Some banks are already amping up said their institutions use the method. ment approach, he or she isn’t providing
cash offers to reel in new customers. The problem is this approach doesn’t significant value to the bank.
While most regional banks typically account for the entire customer relation- Instead, the bank would benefit
offer a few hundred dollars for a new ship, including attributes such as usage from combining traditional measurement
checking account, some offers are as and duration of balances, customer depth techniques with a more sophisticated
high as $1,500 for a new mass-affluent and share of wallet. It also doesn’t consid- approach that segments customers to
checking account. er underlying customer behaviors around determine the best treatment strategies
But while new customers may seem shopping and price sensitivity. The binary aimed at increasing primacy.
great at the outset, how do you know which approach also provides bankers with little Curinos has identified seven such
ones are really going to stick with you ver- information around treatment strategies segments (and corresponding actions) –
sus those who will bolt when a better offer to improve customer relationships, and taking into consideration a multitude of
from another bank hits their inbox? ultimately lifetime value. customer behaviors – that can help drive
9
Figure 2: Customer primacy segments and potential treatment strategies
Customer Primacy Description Potential Treatment Strategies
Full Relationship / Engagement Appear to have full deposit relationship with bank No treatment needed to keep happy
Highly-engaged, may have wallet elsewhere, but Cross-sell and direct marketing offers for new
Long-Term Relationship Builders
don’t exhibited rate sensitivity money
Incentivize to increase engagement (e.g., bonus
High-Potential Quality Builders Large wallet, aren’t fully engaged
for activating checking)
Sticky Margin Builders High-cost, low price sensitivity Reprice
Short-Term Cash Buyers Rate sensitive, with large balances elsewhere Rate offers if banks needs liquidity
Low Relationship / Engagement Limited wallet and engagement Try to activate and/or cross-sell
New To Bank Started bank relationship within last 6 months Customer outreach and onboarding
Source: Curinos research and analysis
primary customer growth. (See Figure 2.) This enables banks to understand deposit customers at the typical regional
For example, a segment that Curinos where to focus efforts to improve future pri- bank are fully engaged. Meanwhile, only
identifies as “Long-Term Relationship mary customer growth: is the bank lagging about a quarter of webinar participants
Builders” are highly-engaged customers peers in acquiring new primary customers, estimated that more 50% of their cus-
who also appear to have wallet else- cross-selling existing customers or are pri- tomers have a full deposit relationship
where. They may be responsive to cross- mary customers becoming disengaged? with the bank.
sell offers and, since they haven’t exhib- Curinos estimates that better cus- There’s only one direction for in-
ited rate sensitivity in the past, a simple tomer primacy measurement approaches terest rates to from here: up. Banks that
nudge (and not a high interest rate) may can drive one percentage point of greater focus on capturing primary customers
be all they need to move balances over. primary customer growth annually. Even today will find it less expensive to do so
One advantage to the traditional, acquiring two to three additional primary now than in a higher-rate environment.
binary approach to measuring customer customers per branch per year will go a And they will continue to reap the bene-
primacy is that metrics are prevalent in long way to increasing long-term value, fits long into the future.
the industry, meaning that ample bench- especially as we return to a more normal Michael Jiwani | Director, Chicago
marks are available. Increasingly, more deposit and rate environment. michael.jiwani@curinos.com
advanced segmentation approaches can And there’s plenty of room to grow: Adam Stockton | Director, New York
be benchmarked to industry peers as well. Curinos estimates that only 50-60% of adam.stockton@curinos.com
10Deposit Download
The
state of
U.S. deposits
remains one of the
most important and tricky
issues for the banking industry
today. Financial-services companies
remain awash in deposits as loan demand
remains lackluster and consumers are cautious
about spending.
Deposit data will be especially important as the Fed
begins to raise rates next year. Deposit-rich providers
will be in a good position if loan growth improves as
DEPOSIT rates rise. If loans are anemic, deposit-rich providers will
have to determine which deposit customers are worth
DOWNLOAD keeping in a higher-rate environment. Those that need
deposits will face pressure to pay up to attract new
money, especially if loan growth increases.
Our latest data show that deposit balances per consumer
household are up 18.4% from 2019 averages.
Small Regional Super Regional Large Regional Overall
Small Regional Avg. Year Super Regional Avg. Year Large Regional Avg. Year Overall Avg. Year
Deposit dollars/consumer
$30,000 +18.4%
HH’s per branch
$25,000
$20,000
$15,000
$0
Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
Source: Curinos SalesScapeTM Comparative Analytics | Includes 18 SalesScape participants. Small regional banks under 500 branches, large regional banks
500 – 1,000 branches, super regional over 1,000 branches,
11Deposits
Bank coffers also still hold a large of stimulus funds that were
deposited into customer accounts earlier in the year.
Round 1 (April) Stimulus Deposits Runoff | Checking Deposits
Balances More than Stimulus Balances Less than Pre-Stimulus
60% Balances More than Stimulus
51% Balances Less than Pre-Stimulus
50%
40%
% of Accounts
40% 37%
38% Just over one-third of customers
have spent the entire amount of
stimulus funds received (teal at left)
30%
25% and a similar amount have saved
the entire amount of stimulus
20% (black at left).
14%
10%
0%
Apr-20 Apr-21 Oct-21 Apr-20 Apr-21 Oct-21
Looking ahead, there are multiple potential deposit scenarios for 2022.
Aggressive Runoff Case Remaining Conservative Runoff Case
60–70% 0–10%
Unknowns
• Fed Funds rate and Fed balance
Consumer surge runoff sheet position Consumer surge runoff
relative to 2021 relative to 2021
• Inflation – temporary or
• Virus (incl. variants) are contained permanent? • Continued challenges with variants
• Longer-term changes to savings and vaccination rates
• Minimal economic restrictions
patterns – more people continue • Repeated but temporary
• Government programs expire as to build a cushion? restrictions (e.g., mask mandates,
currently scheduled
• Permanence of Biden budget school closures)
• Temporary spending spike (likely policies (e.g., child tax credits, • Extension of government programs
spring or summer ’22) rent forgiveness measures) (e.g., extended unemployment
• A growing number of workers • Unemployment rate, labor benefits, rent pause)
return to the office, with many on shortages and redistribution • No spending spike, potential
a hybrid schedule. impacts foregone spending if additional
restrictions imposed
Source: Curinos Comparative Deposit Analytics (CDA) Database, Oct '21 | Simple average used to protect participant anonymity
12Getting Ready for a Comeback in Home Equity
Getting
Ready for a
Comeback in
Home Equity
By Ken Flaherty and Brandonn Dukes
H
ome-equity loans have taken a
back seat in the mortgage in-
dustry in the last several years.
Some big lenders stopped offering the
product as low rates drove customers
to refinancings and cash-out mortgages.
And even fintechs were focused on other
financial products.
That may be all about to change. homeowners raced to take advantage of
Higher rates will likely drive home- historic low rates. The refinance volume
owners back to home-equity products is poised to retreat in 2022 as rates rise;
for their cash needs and away from the economists at Fannie Mae project rates
refinancings that have been dominating will increase roughly 15% next year as demic. As a result, lenders will be looking
the industry. the Fed takes action to tamp inflation. to subsidize a large portion of their ex-
But is your bank ready to meet the Meanwhile, the total home-equity pected drop in mortgage refinance volume
coming demand for more home-equity market has been contracting. Home eq- and revenue with home-equity balances.
loans? Curinos believes this is the time uity, including HELOCs and loans, repre- Furthermore, the run-up in housing
to start preparing new home-equity sented about 12% ($58 billion) of the retail prices means that homeowners are sit-
strategies for the branch, digital channel mortgage market in 2020-21, down from ting on a mound of equity in their homes.
and back office. 39% ($85 billion) in 2018. (See Figure 1.) About 40% of U.S. homes with mortgag-
The prolonged period of extremely es were equity-rich (equity of at least
HOME EQUITY POISED low rates means that most homeowners 50%) in the third quarter, up from 28.3%
have already taken advantage of positive in the year-earlier period, according to
TO GROW market conditions for mortgage cash-out ATTOM. Fannie Mae, meanwhile, proj-
Mortgage volumes set records in 2020- vehicles as they sought to make capital ects housing prices to grow by as much
21, mostly fueled by refinance activity as improvements at home during the pan- as another 16.6% next year.
13Consumer Lending
Figure 1: Home Equity vs. Retail Mortgage Market Volume by Product Type
Cashout HELoan HELOC Refinance
100%
84.43B 110.81B 166.54B 210.62B
101.85B 89.55B 129.28B
80%
Total Volume
8.36B 9.81B 50.82B
8.85B 38.96B
60% 68.06B 84.79B 5.28B 67.87B
86.48B
40% 79.48B 603.61B 526.48B
20% 180.61B 225.77B 212.98B
112.12B
56.41B
0%
% of Total (Unit Count)
100%
19% 20% 25% 19% 26%
29% 27%
80%
12%
10%
60% 33% 33%
43% 33%
40% 50%
65% 62%
20% 43% 42%
27% 35%
0% 16%
2016 2017 2018 2019 2020 2021
Year of Date
Source: Curinos' Consortium Data Cashout HELoan HELOC
PREPARING FOR
HOME EQUITY
Curinos has identified three areas that
bankers need to address as they prepare
for the next home-equity cycle. The run-up in housing prices means that
THE BRANCH. Chances are that homeowners are sitting on a mound of equity
your branches haven’t sold a home-eq- in their homes.
uity loan in a long time. And given the
high levels of turnover, it is quite likely
that some of your branch bankers hav-
en’t ever talked to a customer about a DIGITAL CHANNELS. The pan- and cash bonus offers to help attract
home-equity loan. demic has accelerated the transition to new and existing business. This is an
What to do: Training will be criti- digital channels and customers are more area where fintech providers typically
cal when customers start asking about comfortable making important decisions excel, so traditional banks will need to be
home-equity loans. Because consumers online. That also means they are skilled nimble. The home-equity product hasn’t
typically buy home-equity products from at shopping around. Home equity his- changed much over the years and is still
the bank that holds their primary check- torically has been an inelastic product, typically a 10-year draw on a 30-year
ing account, it will be important for the but that may change this time around note. This may be the time to test new
banker to discuss the customer’s holistic especially if fintech providers woo con- products on the digital audience.
financial position, including savings, sumers with snazzy features and tools PROCESSING CAPABILITY. The
borrowing and investing. That includes that traditional lenders haven’t created. average size of a mortgage cash-out loan
conversations about the logic of using What to do: Lenders that want to today just over $300,000 while the aver-
home equity to pay for large purchases pump up home-equity volumes should age home-equity loan is a mere $136,000.
or home improvements rather than tap- expect to run regular marketing promo- That means banks that want to make up
ping savings or liquidating investments. tions, including short-term rate offers lost mortgage volume with home equity
14Getting Ready for a Comeback in Home Equity
will have to boost their capacity to pro- home improvements (a typical reason
cess those applications. why consumers tap home-equity prod-
What to do: Banks should allocate ucts) remains high, but some of the actual
money in the 2022 budget to prepare work is being hampered by supply-chain
for a surge in applications. This means shortages. Consumer balance sheets are
investing in better processing technol- in good shape: Americans are taking on
ogy, developing new models (especially new debt (home equity loans are often
for providers who have been out of the used for debt consolidation), but the per-
home-equity business for a while) and sonal savings rate is also high.
considering pipeline management, costs Despite this uncertainty, the shift toward
to originate and operational risk that more home equity is likely coming soon.
could also affect the bank’s reputation. Ken Flaherty | Sr. Consumer Lending Analyst, Columbus
It may be several months before kenneth.flaherty@curinos.com
the consumer appetite for home-equity Brandonn Dukes | Head of Consumer Lending, Dallas
products becomes apparent. Demand for brandonn.dukes@curinos.com
Webinar Wrap-Up
More than 70 attendees recently participated in a Curinos webinar hosted by the CBA called
“Lending Inflection Point: Are Lenders Poised for a Resurgence of the Home Equity Market?”
As part of the webinar, Curinos polled the attendees on issues related to home equity.
Here are the results:
1 What will be the tipping point for mortgage cash-out volume to shift to home equity?
29% 48% 10% 12%
Mortgage rates to Mortgage rates to Mortgage originations Home Equity originations will
significantly increase moderately increase favor purchase volume make a comeback in 2022
over refinance regardless of market factors
2 How much do you think the home equity market will grow in 2022?
4% 11% 49% 30% 7%
Negative market Flat market (= 0.00%) 1.00% to 10.00% 10.01% to 25.00% 25.00%+
growth (< 0.00%)
3 Which takes longer as of October 2021?
63% Application-to-Funding for 1st
Mortgage Cash-out Refinance 38% Application-to-Funding for Home Equity
15Commercial Primacy
Comes into Focus
as Higher Rates Loom
By Peter Serene THE EVOLUTION OF tive funding sources, including non-bank
lenders, are also extending credit.
PRIMACY Instead, banks and corporates alike
Just like in retail banking, commercial have started defining primacy as the
primary relationships bring a litany of point when the bank takes on manage-
benefits, including an outsized share of ment of the customer’s payments.
stable through-the-cycle, low-cost oper- This transition has accelerated as
ating deposits and fee income. Indeed, the pace and complexity of payments is
Curinos research has consistently shown increasing, prompting banks and fintechs
that banks with leading approaches to alike to innovate products that extend the
T
commercial relationship primacy gener- value proposition of their offerings deeper
he case for primacy has never ate 25% more fee income than the aver- into companies’ cash conversion cycle.
been stronger in commercial lines age bank. They also have more pricing Moreover, investments in digital
of business. But the definition of leverage with primary customers be- innovation are creating additional layers
what makes a primary customer has cause those clients would face high costs of differentiation between market leaders
changed, shifting from credit to pay- if they migrated complex payments rela- and all others across the bank and pay-
ments for many corporates. This puts tionships to another providers. ments fintech arena.
new pressure on banks to identify, ac- In another example of the benefits, There are also other reasons today to
quire and retain these customers before betas on ECR DDA portfolios (which typ- focus on acquiring primary relationships
rates start rising. ically comprise primary cash manage- and developing advanced approaches
Curinos believes that banks should ment deposits) were a mere 7% through to measuring primacy. First, banks are
intensify their efforts now to cement pri- the last rising-rate cycle compared with starved for high-quality commercial
mary relationships among existing corpo- 57% for commercial MMDA portfolios. assets. The average bank has grown
rate clients and also identify those who (See Figure 1.) deposits by more than 30% since March
can become primary in the near-term. It used to be that commercial cus- 2020 while the commercial loan book is
A strategy that incorporates clearly tomers were considered to be primary flat to down. This is especially true when
defined and ingrained approaches to pri- when the bank obtained a significant po- looking at core C&I. The primary bank
macy will be essential as banks navigate sition in the credit. But providing credit is will likely have first call on customers
the challenges of identifying which bal- no longer a differentiator at a time when incremental financing needs.
ances to defend with rate and which to banks have ample capital and liquidity to Furthermore, there are significant
lag aggressively. grow assets and a proliferation of alterna- implications for pricing and balance
16Commercial Primacy Comes into Focus as Higher Rates Loom
Figure 1: Average Portfolio Rate Betas for Commercial Middle Market, to capture a fair through-the-cycle value
December 2015 – June 2019 exchange with the customer. Bankers are
often caught in the middle.
60% We anticipate additional layers of
complexity in the upcoming cycle. First,
bankers and clients alike will have recent
50%
memories of the heady times at the late
stages of the past rising-rate cycle when
40% betas of 80% or more on commercial
interest-bearing deposits weren’t uncom-
30% mon. Moreover, there will likely be addi-
tional elements of pricing disruption due
to the emergence of fintechs that have
20%
acquired bank charters. But with balance
sheets loaded with liquidity, established
10% players won’t be able to profitably apply
the playbook they used in the late stage
0% of the last cycle.
A fair value exchange will typically
ECR DDA MMDA
dictate that primary customers should
Source: Curinos CDA
get a good rate, but not necessarily the
best rate in the bank. This is because the
sheet allocation. In the current environ- know where the opportunities are. This relationship is secured through many
ment, banks have limited capacity to helps bankers to focus calling efforts on a layers of sticky integration and value
grow deposits without diluting return narrow subset of clients where they have exchange across product and business
metrics such as ROE and ROA. the greatest potential for cross-selling lines. That said, if a primary relationship
(and advising) their way into the primary comes under attack from a competitor,
IDENTIFYING PRIMACY position. On the flip side, it is critical to the bank should be positioned to move
know where primacy potential is low to swiftly and decisively to defend the
OPPORTUNITIES avoid deploying resources towards activ- customer relationship.
What does this all mean? Achieving pri- ities that will likely have low value. For non-primary relationships, the
macy with your customers and measur- The next rising-rate cycle, which pricing strategy should depend on the
ing when you’ve gotten there are more according to half of the FOMC is ex- potential for future primacy. Pricing
difficult than ever. pected to start in 2022, will present an can be an effective lever to deepen the
Curinos believes that banks should unprecedented pricing challenge. In prior relationship for non-primary customers
measure primacy along two dimensions: cycles, most banks have had a practically with high potential. For non-primary re-
current primacy and future primacy. unlimited demand for deposit growth, so lationships with low potential, the bank
These measures will vary by bank and elasticity was the foundation for pricing should treat the deposits as wholesale
customer, but both require a combi- strategies. But we anticipate that many funding and use rate only when the
nation of analytics and data. The best banks will still be carrying significant bank needs the liquidity. Curinos ac-
approaches systematically incorporate excess liquidity on their balance sheets knowledges that this can be a challeng-
data to measure and validate the “off-us” when rates rise next year. Consequently, ing message for bankers because it may
portion of the customer’s business. customer primacy, not rate elasticity, result in deposit attrition.
In measuring current primacy, the should form the foundation of most Successful primacy programs re-
biggest challenge is to move from the pricing strategies. quire committed executive leadership,
notion of “what do I have?” to “what an inclusive approach across front line
should I have?" Many banks’ primacy BETAS AND PRIMARY teams, rigorous but accessible analytical
definitions are heavily levered to total approaches that are backed by both bank
revenue or product utilization. This can
CUSTOMERS data and “off-us” data and a programatic
lead to wrong conclusions where clients Lagging betas in a rising-rate cycle al- approach. These efforts take time, so
produce large revenues at thin margins ways entails a delicate balancing act be- there’s no time to waste.
in non-primary products. With respect to tween the customer’s desire to ride the Peter Serene | Director, Chicago
future primacy, it is equally important to tide of higher rates and the bank’s need peter.serene@curinos.com
17Competition
Drives
Overdraft
Overhaul
By Hank Israel
T
he evolution of overdraft is upon research also builds upon a study that of the Consumer Bankers Association to
us, but it isn’t regulators who are Curinos conducted in 2015 to understand better understand consumer sentiment and
leading the charge. Instead, it’s why consumers use overdraft and choose fill a gap in current research. CBA provid-
good old-fashioned competition. to opt in to debit overdraft coverage. ed funding for the market research survey.
That is one of the conclusions of new Curinos commissioned an online Curinos independently designed, analyzed
Curinos research that examines the role survey of 2,251 consumers in April 2021, and documented research results.
of overdraft amid a wave of new policies focused on consumer overdraft behavior
and programs among financial-services and the reasons and decision-making KEY FINDINGS
providers. The research — which confirms process behind this behavior. The online
and expands upon previous work from survey sought sufficient responses from • Overdraft fee revenue is down sig-
Curinos, regulators and consumer advo- eight identified segments of consumers, nificantly. U.S. overdraft revenue fell
cates, also finds that consumers have a defined by their frequency of overdraft approximately 57% from $40 billion
deep understanding of overdraft and the in the past year (none, 1-5, 6-10, more in 2008 to $17 billion in 2019. (See
fees associated with it. than 10) and by their self-stated credit Figure 1.)
There is also a clear message for quality (could or couldn’t qualify for a • Fewer people use overdraft. The per-
banks: consumers view providers that credit card). centage of regular overdraft users
innovate overdraft policies and offer The survey aimed to provide an (those with 10 or more transactions
overdraft alternatives as being distinc- update to our research from 2015 to un- annually) fell by 40% to 4.9% of the
tive – and they are more likely to bank derstand what, if anything, has changed population between 2010 and 2020.
with them. about consumer behavior and attitudes in • Challengers that adopt consumer-
the intervening years. As such, many of friendly policies win market share.
THE RESEARCH the questions asked in the 2015 research New entrants, including fintechs and
were asked verbatim in this research to challenger banks, have created solu-
This article summarizes key findings ensure a consistent comparison between tions to better manage or reduce the
of a comprehensive overdraft study the time periods. cost of overdraft. These entities have
that Curinos released last month. The This study was initiated at the request experienced a 40% improvement in
18Competition Drives Overdraft Overhaul
Figure 1: Overdraft Fees, Total and Per Capita
2020 OD Fees/Population Adjusted for COVID-19 SNL SCDA adj. for OD Fees
OD Fees (OD adj. SCDA*)/18 years and over SNL OD Fees
OD Fees/18 years and over COVID-19 Impact
$40 $220.0
Curinos estimates that overdraft revenues $200.0
$35 fell by 35% resulting from higher balances
Total Overdraft Fees ($B)
OD Fees ($)/Population
among frequent overdraft segments due $180.0
$30 to government stimulus programs and
more cautious customer behavior $160.0
$25 $140.0
$20 $39.0B $37.0B $38.0B $120.0
$33.2B $15.6B
$15 $28.4B
$80.0
$4.0B
$23.6B $60.0
$10 $18.8B $17.2B
$15.4B $15.5B $15.9B $16.3B $40.0
$5 $20.0
$10.5B
$0 $0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Debit transaction volume increased
2020 OD Fees/Population Adjusted for COVID-19 SNL SCDA adj. for OD Fees by 58% from 2008 to 2020, while
the population 18 and older grew
OD Fees (OD adj. SCDA*)/18 years and over SNL OD Fees by 12% over the same period
Source: Curinos Overdraftyears
OD Fees/18 Study, 2021
and over COVID-19 Impact
account acquisition since 2017. Finan- Figure 2: Innovation and Account Acquisition
The Market
cial institutions that haven’t adopted
overdraft innovation have experi-
enced a nearly 30% reduction in
is Rewarding
consumer acquisition. (See Figure 2.)
• Consumers understand overdraft.
Consumers, especially overdraft us-
Innovators
ers, continue to demonstrate a deep
understanding of overdraft and avail-
able alternatives. More than 60% of
overdrafts come from consumers
who intend to use the service. More
BANKS with overdraft innovations enjoy a
than 80% of overdraft transactions
come from consumers who opted
in to debit card overdraft programs
with the clear intention of using it to
cover their payments. (See Figure 3.)
• Two-thirds of consumers indicate
that, while overdraft can be expen-
sive, they don’t want to see reduc-
tions in their access to the service.
• Consumers want more short-term
liquidity choices. Consumers seek
AVERAGE PURCHASE RATE
convenient and relevant alternatives than those without
to overdraft. The emergence of alter-
natives in the market is driving con-
sideration of new checking purchases. % Change in Banks without overdraft innovations
• Larger transactions now trigger over- Purchase Rate Banks with overdraft innovations -27%
draft. The proliferation of overdraft (2017*-2020) 42%
grace balances and changes in post-
Banks with OD innovation include: Bank of America, Capital One, Citibank, Huntington, M&T, U.S. Bank,
ing order practices have reduced Chime, Current, Varo, SoFi Money, Discover.
the number of small purchases that *Purchase rate is % of existing checking base acquired each year.
19Overdraft
Figure 3: What was your primary reason for opting in?
Just in case for important payment Intended to use for credit Banker recommendation Confused No intention to use, but free
11%
14% 3%
1%
86%
81% c
13% 42%
chose paym
17%
hose paym
2015 2021
59%
ent
ent
13%
c
c
o
ov
ve
er
28%
ra
ag
g
e e
Just2021
Source: Curinos Overdraft Study, in case for important payment Confused
Intended to use for credit No intention to use, but free
Banker recommendation
are tied to overdraft. As a result, the overdraft and overdraft alternatives, they WHERE TO GO FROM HERE
average size of purchases that trigger clearly no longer hold a preference for Given the wave of change that has envel-
overdraft fees has nearly quadrupled traditional bricks-and-mortar banks and oped the industry in the last few months
from $50 to almost $200. instead would consider banks based on alone, all financial institutions should be
the features they offered. (See Figure 4.)reviewing current overdraft policies and
INNOVATION WINS THE DAY pricing to ensure they remain competitive.
They should also consider ways to poten-
Overdraft innovation has become the cen- Figure 4: Average likelihood to tially differentiate themselves from others.
terpiece of many new entrants that are switch banks for an overdraft There is little doubt that a growing
challenging traditional banks. Their efforts feature (%) number of institutions will offer inno-
have also prompted many of the traditional vative liquidity and overdraft solutions
players to evolve their offerings. No overdrafts in past 12 months while improving traditional overdraft fee
Indeed, Curinos believes that new One or more overdrafts in past 12 months structures and policies. Indeed, those ef-
42 and a 42
technology focus on the importance forts have already begun, but they bring
of financial health have driven more in- their own set of challenges. (See sidebar.)
novation than have regulatory actions. 32 32 32 32 Banks can use more advanced met-
From Safe Money accounts that were rics and analytics to help create new
introduced 20 years ago to the recent products and manage consumer health
flurry of announcements from traditional 18 18 and performance. This includes compar-
17 17
providers who are dropping overdraft ing unique customer cohorts to identify
fees altogether, these market-driven products that fit their needs and educate
6 innovations have a positive impact on them about their financial lives.
consumer consideration and purchase. It is increasingly clear that consum-
Furthermore, they provide compet- ers want and need these new alternatives.
itive advantages to the financial insti- Online
Online Only Only Bank
Bank Traditional
Traditional Bank Bank
The burden is now on banks to provide
tutions that adopt them. When asked if them – or risk losing this important set
they would consider an online-only or of customers.
network bank for transaction services N = 2251 Hank Israel | Director, New York
if they offered these consumer-friendly Source: Curinos Overdraft Study, 2021 hank.israel@curinos.com
20 -27 -27Competition Drives Overdraft Overhaul
Deposit
structural barriers to financial inclusion. when other lenders using traditional
Industry providers have also taken ac- credit data would have to say “no.”
Analytics
tion – some are expanding traditional For those institutions that are for-
payment data by analyzing phone, util- tunate enough to have historical deposit
ity and streaming bills. This, however, data, the right metrics are critical. For
Add New ultimately represents just another flavor
of assessing prior behavior within the
example, a simple metric like total bal-
ances does a great job discriminating
Lens to credit landscape.
Lenders who hold deposits are in
overall risk – those with more than
$6,000 in balances are eight times less
Credit a unique position to expand financial
inclusion with their deposit customers.
risky than those without. But, that simple
metric won’t materially help approve
Underwriting They have extensive data on their cus-
tomer’s deposit accounts, which provide
more customers, as those with more than
$6,000 are already much more likely to
a comprehensive view of applicants’ be approved (for one lender, approved
By Zachary Kaplan
financial well-being. This data is FCRA customers had $40,000 in average de-
compliant and already sits within the posits, while rejected customers had
L
lender’s firewall. only $5,000). To approve more cus-
enders are increasingly looking for And while many fintech lenders are tomers without increasing risk, lenders
alternative data sources to improve using self-permissioned deposit data to must use advanced deposit metrics to
credit decisions across the credit improve underwriting, adverse selection understand the behaviors that drive de-
spectrum. This is particularly important may be an issue. Customers worried about posit balance changes.
to drive financial inclusion for thin-file or
no-file customers.
Curinos’ research and client expe-
rience has shown that on-us deposit
behaviors are highly predictive of credit Deposit-holding lenders are uniquely
performance. By leveraging customer
deposit behaviors to better understand
positioned to expand access to credit,
a customer's ability and willingness to driving financial inclusion while deepening
repay, lenders can approve as many as customer relationships.
10%-40% of applications that historically
would have been rejected.
Traditional credit underwriting has being approved may be the only ones to Ultimately, on-us deposit data are a
left many behind, limiting a large seg- provide deposit data and, when provided, rich source of alternative credit data that
ment of the population to costly forms of may only choose to share accounts that are proprietary to each deposit-holding
credit such as payday loans. According paint their best financial picture. lender. Curinos has found that lenders
to the Office of the Comptroller of the Deposit-holding lenders, on the oth- can approve up to 40% of historically
Currency (OCC), “Nearly 50 million peo- er hand, have unbiased and consistent rejected applications without increasing
ple in the United States have no usable historical deposit data that can be used risk by leveraging advanced deposit be-
credit scores." Building credit is critical to for modeling. Fortunately for them, as havioral metrics, expanding financial in-
unlocking financial opportunities, such as much as 90% of consumer loans are un- clusion while simultaneously deepening
wealth building through home ownership. derwritten to existing deposit customers. customer relationships.
Regulators have recognized this This also presents a chance to deepen Zachary Kaplan | Principal, Chicago
problem and are starting to look at the customer relationships by saying “yes” zachary.kaplan@curinos.com
21Buy Now,
Pay Later:
Opportunity or
Headache?
By Hank Israel
U
.S. consumers are being flooded As a result, pressure is mounting on Curinos believes the rise of BNPL
with offers to “buy now, pay lat- financial institutions to offer unsecured can be tied to three global consumer
er,” whether it’s a $345 baseball lending products. While such products trends that are changing the way people
cap from Tom Ford (“starting at $32 a can provide much-needed differentiation pay for goods and services.
month”) or a $2,199 LG Smart TV from among institutions and improve tense First, regulators and consumer advo-
HSN (“3 payments of $733.33”). And just merchant relationships, they can also cates want to see more stable and well-
in time for the holiday travel season, take a bite out of interchange revenue, priced credit products for underserved
American Airlines recently announced complicate underwriting and attract reg- consumers. While regulators have al-
that passengers could split the cost of ulatory scrutiny. ready raised some concerns about BNPL
their airfare into $50 monthly payments. late fees and the chance that customers
The appeal for the consumer is obvi- SECULAR TRENDS are biting off more than they can chew,
ous: unlike credit cards or old-fashioned financial institutions are in position to
layaway plans, the buyer pays no interest
PROVIDE A BOOST address those issues while they expand
on the purchase, agrees to a set payback A report from merchant processor World- lending for consumers who historically
schedule and gets the immediate grati- Pay found that BNPL is the fastest-grow- have been locked out of credit products.
fication of ownership. Decisions to use ing online payment method in the U.S., Secondly, the global financial crisis
the payment plan can be made instantly, Australia, the U.K. and is expected to of 2008 and the COVID-19 pandemic
whether at the physical point of sale or grow at a 28% compound annual growth have made younger consumers more hes-
during online checkout. rate globally over the next five years. itant to use traditional credit cards. Many
So far, fintechs like Klarna, Affirm Still, BNPL only accounted for about $100 of these consumers saw their parents fall
and AfterPay are dominating the bur- billion, or 2%, of all global e-commerce into a debt trap during the financial cri-
geoning financing business, which dis- transactions in 2020, while global cred- sis that they attribute to the convenience
rupts the banking industry’s interchange it-card spending is expected to reach $45 of credit cards and the economics that
model and merchant relationships. trillion in 2023. incentivize spending. And in the case
22Buy Now, Pay Later: Opportunity or Headache?
of the pandemic, consumers have in-
creasingly turned online for purchases
and found BNPL solutions could smooth
their payments.
Finally, advancements in BNPL solu-
tions at checkout are now as convenient
as using a credit card.
THE CHALLENGE
FOR FINANCIAL
INSTITUTIONS
BNPL creates a challenge for tradition-
al financial-services providers that are
facing yet another round of competition
from fintechs and challenger institutions
that seek to disrupt consumer and mer-
chant financial services.
BNPL takes aim at the long-fraught
relationship between merchants and
their banks over interchange fees be-
cause the unsecured loans don’t carry
interchange. Merchants have long cas-
tigated interchange fees, paying more consider a number of factors before join- gram profitable with the prospect of
than $50 billion to banks each year for ing the fray. being distinctive as noted above.
purchases made with credit cards and • Differentiation. Consumers are ea- • Regulatory scrutiny. Institutions that
debit cards. Meanwhile, financial institu- ger for their banks to provide new have been in the crosshairs of reg-
tions depend on interchange to fund their and innovative products. Offering a ulators may want to tread carefully
card programs. product like BNPL can deepen rela- when it comes to BNPL. The Con-
Unlike the new challengers, banks tionships with customers and attract sumer Financial Protection Bureau
have complicated financial relationships new ones. Wrapping a financing prod- issued a warning about the products
with multiple parties in the payment uct into a checking account, for ex- in July, reminding consumers that
process – all of which can be disrupt- ample, could be appealing for some they carry late fees and don’t offer
ed if they start offering new unsecured consumers. Financial institutions the same dispute protections as
lending products. Although a growing could also develop serial installment credit cards. Appropriate and trans-
number of banks have started offering loans that consumer could access parent disclosure will be essential
installment loans in the past few years, through a separate debit card or for banks that want to offer the
those products have been slow to gain within their digital wallet; the bank product.
acceptance, partly because they have a could then approve each purchase • Underwriting challenges. Banks have
fixed interest rate. individually. And, of course, they a clear advantage to new entrants
The ultimate decision by a tradition- can always buy one or partner with when it comes to assessing the
al bank to develop a BNPL program or one a BNPL providers. creditworthiness of customers. The
challenger proposition will vary based • Economic implications. Banks with mountains of data and analytics
on its position in each of the underlying outsized reliance on interchange, available to banks can help estimate
markets – from the merchant acquirer overdraft fees or merchant-acquiring loss ratios and assess the risk in of-
relationship to its reliance on interchange. businesses must weigh the potential fering these products.
that BNPL will cannibalize those • Merchant relationships. Many mer-
SHOULD YOU JUMP ON revenues, particularly if the product chants already view banks with
grows exponentially. That said, it is suspicion when it comes to custom-
THE BNPL BANDWAGON? unlikely that BNPL will have any er payments and may be hesitant
Curinos believes that banks can deepen material impact on volumes in the to engage in a new offering. Banks
customer relationships by offering BNPL- near term. Banks must weigh the will need to convince merchants that
like products, but they must carefully challenges of making a BNPL pro- they have a competitive offer.
23You can also read
