Historically, banks have turned profits in times of low interest margins through cost cutting
from "Fees: 21st century profitability paradigm", by Michael Moebs, Hoosier Banker
During the Renaissance, the first banks were characterized by net interest margins of about 3 percent. Expenses were low, mostly because labor was cheap. This was the era of slaves, serfs and indentured servants. Profitability came almost completely from the generation of fee income. Projecting these historical results into the new millennium provides insight into the patterns that will emerge in banking. Banks will be facing falling margins for the next several years as baby boomers demand, and obtain from competition, higher rates on deposits as they prepare for retirement. A bank's choices then become: increase the number and price of fees, reduce expenses or go to a strategic arrangement of combining price, especially fees, with electronic self-service to reduce expenses—substituting customer self-service for bank labor. Training staff to train the customer to avoid fees by using electronic self-service is a viable strategic direction that will at least maintain profitability, no matter what happens to net interest margins. As with current-day gas stations, bankers need to offer two choices: self-service and full-service.
Written By: rnybeck
Date Posted: 10/24/2005
Number of Views: 2487