Here's How an MCIF Can Pay for Itself.

For many banks, the dramatic lowering of interest rates this year has placed a great deal of compression on their spread, which could cause them to become less profitable. This is particularly true for banks whose prime-based loans are repricing faster than their CDs. Because of this, banks are looking for more ways to increase their profitability. As such, generating additional fee income is becoming a higher priority.

Fortunately, you can use your MCIF to help you understand how to increase your bank's fee income.

How to use your MCIF to increase your fee income

The first step in determining which fees you can increase is to analyze your competition's fees and minimum balance structures. For comparison purposes, you could even develop a product grid that displays the product features on each row and competitors on each column. You would then need to determine your bank's pricing strategy in your market area. For instance, if you are a community bank, you might want your fees to be higher than some of the other financial services providers in your market, but less than the large regional banks. By using this product grid and your bank's pricing strategy, you could determine which fees and minimum balances would be likely candidates to increase.

Your MCIF can now be used as a razor-sharp tool to determine the impact of these fees on your customers. For instance, your minimum balance fee for a checking account may be only $15 if customers have $1,000 or less in their account, while the regional banks in your market area have a minimum balance fee of $18 if a checking account has less than $1,500. With the MCIF, you can analyze the impact of increasing your minimum balance and monthly maintenance fee for a variety of scenarios. In addition, you can also identify which accounts would be impacted.

To find the number of accounts that will be affected by this charge, you will need to perform the following research: Find the "product name" and "minimum balance" more than ([greater than]) current minimum balance required and less than ([less than])the proposed minimum balance. The additional annual income as a result of this change will be the number of accounts multiplied by the difference in fees!

This research needs to be done for all of your products that may be affected by the proposed changes--include as many transactions (e.g., NSF and ATM surcharges) as you have available within your MCIF because you might want to change those fees as well.

After all of the research has been performed, assemble an ad hoc committee of people in the bank comprised of you, the GFO, the heads of branch banking, operations and IT. These people can help you understand which fees could be realistically increased based on their knowledge of the bank and its customers.

Using the MCIF to gauge the impact on customers of additional fees

More powerful than determining the accounts that would be impacted by any proposed fee increase is the ability of the MCIF to determine which customers would be impacted--and their total relationships.

For instance, you could perform the same research on the checking accounts mentioned above to find out how much these customers have in total deposit and loan balances. With the proper financial inputs, you could then determine how much these customers already bring to the bank in terms of profitability.

Then, by dividing the total impact of the change by the average customer profitability, you could determine the break-even attrition rate--that is, the number of customers who would have to leave before you would lose the entire benefit of the price change. If the risk is too great--too few customers to offset the potential--then, it's back to scenario planning for a better solution.

In addition, you could also minimize the impact of account-level price changes by setting reasonable relationship levels that would preclude your high-value customers from being impacted. In that regard, the MCIF is invaluable.

John J. Coffey, C.P.A. and Gene Palm are the principals of Profit Resources, a consulting company that specializes in MCIF technologies. Learn more about MCIFs on the web at www.profitres.com.