Reg, Reg, Go Away: Sorry Banks, They're Here to Stay

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29 April 2010


The US government has come down with new regulations on the financial services industry, and more are expected. What are the implications for retail financial institutions? Celent estimates 15% of checking account revenue is at risk with the new Reg E. How should financial institutions respond?

In a new report, Reg, Reg Go Away, Celent examines one of the most important government responses to the financial crisis. It has been, and will continue to be, an increase in regulations of financial institutions. This report examines the impact of two newly changed regulations, Reg DD and Reg E, and what they mean for the retail banking business.

While Reg DD impacts communication with the customer, Reg E will dramatically change the top and bottom lines of most retail financial institutions (FIs), and not for the better. This report addresses what the changes are, what FIs need to do to comply, and perhaps most importantly, how FIs should proactively respond to the new regulatory environment.

Celent lays out a number of options:

  • Wait and see: Do nothing and wait to see what everyone else does.
  • Raise price: Eliminate free checking.
  • Create bare bones accounts that are free, and upcharge everything else.
  • Create bundles that customers are willing to pay for.
  • Offer value-added services such as expedited bill payments, secure storage, ID theft protection, one-time opt-in, etc.
  • Reduce costs on technology and operations. Pare the branch network.
  • Relationship pricing: Grow share of wallet.
  • Fire customers: Understand customer profitability and get rid of customers who aren’t profitable.

“Checking customers with low and frequently negative balances have been subsidizing free checking for quite some time,” explains Bart Narter, Senior Vice President of Celent’s Banking Group and author of the report. “As regulations cut into the NSF revenues, these subsidies will shrink, and banks need to respond intelligently.”