May 10, 2013
Are traditional bank branches about to become an endangered species?
As self-serve options for banking become more popular and convenient, some of the nation's biggest banks are planning branch overhauls that could offer a vastly different banking experience -- one in which automated interfaces may replace most human tellers. The changes come as consumers move increasingly toward banking habits that favor online transactions and other automated processes.
Big changes for some branches
The move to leaner, less expensive branches for brick-and-mortar banks could be seen as a move to compete with direct banks, which are growing in popularity. According to a study conducted by consultancy group TNS, of the four main types of banking institutions, only direct banks grew their market share in 2012. Direct banks, which skip branches to offer online-only accounts, grew at a rate more than three times the industry average from 2007 to 2012.
But direct banks still occupy a relatively small portion of the market, accounting for 8 percent of new primary banking relationships in 2012. So it's up for debate how much big banks see them as a threat. Nonetheless, some major institutions are re-thinking their branch models to offer an experience that relies more on automation:
- Wells Fargo is piloting a "minibranch" model in which employees walk around with tablet computers, and customers will complete their own transactions at branch ATMs.
- JPMorgan Chase told investors in February that its plan for new branches includes open, airy floor plans and ATMs that dispense exact change.
- Bank of America recently announced that select markets will soon get ATMs with Teller Assist, which will allow customers to video chat with a teller. The new machines will be rolled out at banking centers as well as remote locations.
A 2012 study by research and advisory firm Celent found most North American financial institutions are planning branch changes. Nearly two-thirds of institutions said they are likely to redesign branch layouts to support a sales/service model. Fifty-seven percent reported they are likely to invest in ultra-low-cost branch designs to replace or supplement their current branch network.
New branches combine convenience with human touch
A separate Celent report found banks could save $20,000-$30,000 per branch by implementing workforce optimization solutions that make them run more efficiently and effectively. Savings like these are likely the primary motivation for most banks reconsidering their branch models.
But these changes may also be aimed at helping brick-and-mortar banks address one of the perceived shortfalls of online banks. The TNS study found some consumers are wary of using a bank in which there is no possibility of in-person interactions. The new branch models being considered are designed to offer convenience -- one of the biggest benefits of online banking -- while still providing some personalized service.
Still, recent MoneyRates.com research indicates that online banks tend to offer the best interest rates on savings accounts and lower fees on checking accounts. So it remains to be seen whether innovative brick-and-mortar branches will be enough to slow the growth of online banks.
May 6, 2013
If your prom involved borrowing dad's station wagon to drive to the school gym for the dance, you might not recognize the spectacle that the prom has become today. The costs of the dress, tux and dance tickets are often just the beginning, and the average bill for the evening's merriment is growing.
According to a recent survey conducted by Visa, families are planning to spend an average of $1,139 to send a teen to prom in 2013. While teens are helping to shoulder a portion of this expense, the survey raises the question of how families can plan responsibly for this frequently costly event.
Single and low-income parents most likely to splurge
In breaking down average spending by region and family type, the survey uncovered some noteworthy patterns. For instance, single parents are planning to spend much more for prom on average than their married counterparts. For 2013, single parents said they plan on spending an average of $1,563 on the dance. Married parents are planning to spend less than half of that, or $770.
Likewise, low-income families plan to spend more than other parents. Visa reports that households earning less than $50,000 a year plan to spend an average of $1,245. Households earning more than that plan to spend slightly less, at $1,129.
In terms of regions, Visa discovered families in the Northeast are the biggest spenders, planning for an average of $1,528 in dance expenses. Families in the Midwest are planning to spend less than those of any other region in the country, and less than half of what Northeastern families spend, at $722.
Paying for prom
Who is paying for all this fun? According to Visa, parents are responsible for most of the expense, although teens are picking up 41 percent of the tab on average.
"The prom is an opportunity to teach teens how to budget," said Nat Sillin, head of Visa's U.S. Financial Education, in a written statement. "If they want that sparkling dress, fancy dinner, and limo ride, this is the opportunity to set a budget and save."
Given the rising costs of prom, parents may want to sit down with their teens to discuss their expectations and plans for prom well in advance of the big night. In conjunction with its survey, Visa launched a Plan'it Prom budgeting app for Apple and Android devices. Should a teen's dreams outweigh their wallet, the card issuer recommends students consider sharing some expenses with friends or taking their own photos to cut costs.
To help encourage a joint saving effort between teens and their parents, families may even want to consider opening a separate savings account to build prom savings. A savings account from an online bank may be ideal because these accounts are often easy to open and are likely to offer higher interest rates than the accounts offered by traditional banks, according to recent MoneyRates.com research.
But whatever approach families take to paying for prom, selective restraint and careful planning may prove essential in preventing the big night from becoming a financial mess.
April 26, 2013
Following MoneyRates.com research that has documented the rise of ATM fees, a new government report confirms that bank customers are paying more to access their funds at these machines.
According to a U.S. Government Accountability Office report released this month, some customers are paying ATM fees as high as $5 per transaction. But banks may be inclined to argue that these fees aren't out of line, as the GAO report also indicates financial institutions are paying more to maintain ATMs and the revenue from these machines is declining.
More ATM fee increases may be coming
When adjusted for inflation, the average ATM fee in 2007 was $1.75. That amount has risen over the last five years to reach $2.10 in 2012. Overall, ATM fees at machines surveyed by GAO ranged from 45 cents to $5.
Those numbers were for ATMs operated by financial institutions. Independent ATMs had slightly higher fees, with an average of $2.24 in 2012. Fees at these machines ranged from $1.50 to $3.00.
While conventional wisdom may indicate ATMs help banks save money by reducing their need for branch staffing, the financial institutions surveyed by the GAO say the cost of maintaining their automatic tellers is rising. Some of the reported costs associated with operating ATMs included hardware and software investments, rent, infrastructure and transaction processing.
ATM operators told the GAO their costs have increased during the past five years while their revenues have declined. Many operators told the government office that in the near future they expect their costs to continue to rise while revenues remain flat or decline further, suggesting that consumers may see more fee increases in the future.
How to avoid ATM fees
At up to $5 a pop, ATM fees can quickly become a serious drain on your wallet. Fortunately, there are ways to avoid paying them.
- Use in-network ATMs. Banks and credit unions typically do not require their own customers to pay fees when using the institution's ATMs. In addition, the GAO notes many banks and credit unions belong to larger networks that offer additional locations where customers can access their accounts fee-free.
- Swipe your debit card as a credit card. Even financial institutions that offer free ATM transactions may put a limit on how many free PIN-based transactions you get each month. If you always enter your PIN when making purchases with your debit card, you could quickly exhaust your free transactions and start racking up fees. Instead, ask the clerk to run your card as credit when possible.
- Switch banks. Finally, you may want to re-evaluate your choice of banks if you find yourself regularly paying ATM fees. Other banks may have a more extensive network of ATMs closer to your home or workplace. Another option may be online banks, some of which, such as Ally Bank, currently refund ATM fees charged by operators outside their network. As a bonus, the best interest rates on savings accounts can often be found at online banks.
ATM fees may be on the rise, but with a little planning and some comparison shopping, savvy consumers should be able to minimize the fees they pay when accessing their accounts.
April 24, 2013
In addition to feeling unprepared for their own retirement, older Americans are uncertain about their ability to help with college expenses for their children or long-term care costs for their aging parents. Those are a few of the findings from a report published this month by the Insured Retirement Institute (IRI).
This year marks the third time the institute has surveyed boomers regarding their retirement confidence, and each year confidence levels have dropped. This year's IRI report found that only 37 percent of boomers feel confident in their retirement preparations.
Boomers planning to work longer
Retirement confidence has been on the decline since 2011 when 44 percent of those surveyed were feeling confident. In addition, 61 percent don't believe their finances will get any better in the next five years.
Boomers who are already retired are feeling a little more confident than their working counterparts, but even retirees appear to be nervous about their future. Less than half of retired boomers -- 46 percent -- say they are confident in their ability to live comfortably in retirement. Among those still in the workforce, the number expressing confidence drops to 32 percent.
Perhaps in an effort to shore up their finances, more boomers say they are planning to delay their retirement. In 2011, only 11 percent of respondents said they expected to work until age 70. That number jumped to 18 percent for the 2013 survey. Overall, more than one in five boomers say they will be delaying their retirement.
It isn't just paying for retirement that has boomers nervous. The IRI study also found most of those surveyed question whether they will be able to pay for other pending expenses.
- 69 percent say they are not confident in their ability to pay children's college expenses
- 75 percent say they are not confident in their ability to pay their parent's long-term care expenses
Retirement coping strategies
However, the report isn't all bad news. The IRI found boomers who sought out professional help were more likely to feel confident about their future.
"The silver lining to this report is that boomers who work with a financial professional are much more confident in their retirement plans," said Cathy Weatherford, IRI CEO and president, in a written statement. "They also are more likely to have determined a retirement savings goal, more likely to have retirement savings, and more engaged with their retirement plans."
Of those who consulted with a financial advisor, 48 percent said they were very or extremely confident in their retirement preparation. For comparison, only 28 percent of those preparing for retirement on their own could say the same.
Boomers who consult with finance professionals also take more proactive steps to prepare for retirement. Virtually all of them, 94 percent, have retirement savings, and 71 percent have a savings goal. Meanwhile, only 64 percent of those working on their own have savings and a mere 34 percent have established a savings goal.
It should be noted that the IRI is a trade group that represents various financial professionals. Still, the results support a fairly non-controversial principle: Careful planning is a key part of feeling assured about retirement, and if you feel over your head in managing the process, there's nothing wrong with seeking help.
April 12, 2013
Prepaid cards are shaping up to be big business. According to the Consumer Financial Protection Bureau, a 2009 FDIC study found that nearly 10 percent of households use the cards, while the Mercator Advisory Group estimated growth to be 42 percent per year from 2010 to 2014.
As one of the more noteworthy cards on the market, the Bluebird prepaid card is likely helping fuel that growth. The card was introduced by American Express and Walmart last year and was expected to make prepaid cards more accessible and appealing to a wider consumer base.
"When we launched Bluebird last October, we were focused on serving the tens of millions of Americans who are not well served by the traditional financial services industry," said Dan Schulman, group president of Enterprise Growth at American Express, in a press statement.
However, at least one banking group says the Bluebird card is looking more like a checking account than a prepaid card and should be regulated as such.
Bluebird prepaid cards now offer FDIC insurance
Camden Fine, President and CEO of Independent Community Bankers of America, sent a letter in April 2013 stating Bluebird prepaid cards should be regulated as a banking product. His correspondence -- addressed to the CFPB, the FDIC and the Office of the Comptroller of the Currency -- appeared to be a response to a recent announcement that money loaded on Bluebird prepaid cards was now protected by FDIC insurance.
Fine states it is just the latest addition to the cards that makes them look and act more like checking accounts than prepaid cards. In his letter, he says Bluebird includes many features associated with traditional checking accounts:
- Check-writing privileges
- ATM withdrawals
- Direct deposit
Taken together with the FDIC insurance, Fines says in his letter, the Bluebird card "has all the attributes of a traditional checking account." He calls upon the federal government to require the Bluebird prepaid cards to comply with all the regulations and oversight currently applied to bank accounts.
CFPB already reviewing prepaid cards
While there has not yet been a formal response to the ICBA letter, the CFPB had previously initiated its own review of prepaid cards. In May 2012, the bureau launched its inquiry into the transparency and safety of the cards. It received public comments on the issue until July 2012 but has not yet released its findings or recommendations.
Although Bluebird accounts did not exist at start of the CFPB investigation, a representative from American Express implied recent changes to the prepaid cards came at the suggestion of government officials, among other sources.
"Today's announcement [regarding the addition of FDIC insurance, check writing and direct deposit], which reflects feedback from consumers, advocacy groups and government officials, represents the next set of enhancements that further distinguish Bluebird from other financial services options," said Schulman in a prepared statement.
It remains unclear whether the CFPB will see the Bluebird enhancements as a positive response to its concerns regarding transparency and safety, or as an attempt to turn the card into something that resembles a checking account -- minus the banking regulations that come with it.