The Boston Consulting Group (BSG) released a report last week outlining how key areas of current financial regulation – The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, Changes to Regulation E requiring consumer opt-in for debit POS and ATM overdraft protection, and the Durbin Amendment allowing the Fed to cap debit intercharge fees – will have a profound impact on bank revenues.
Their estimate? $25B in annual revenue (about 29% of total retail transaction revenue) on the retail side of the bank will be regulated away. Gone.
Aggravating this further – loss of fees will result in the death or re-tooling of a number of other popular consumer products, including reward programs and free checking. We’ll park for now the question of whether or not these changes will present a net benefit for consumers, CFPB good intentions aside.
The opportunity – or perhaps the imperative – for many lenders will be to look for revenue recovery and growth in their commercial operations to offset related losses in their retail operations. While fees are one area to be explored, the competitive nature of business lending in many recovering markets makes it an unpopular option.
More interesting – and with longer-term benefit to the bank – is the development of new commercial credit products that not only address revenue recovery, but also provide greater competitiveness, access to new or adjacent market segments and the ability to cross-sell existing business clients. While the short-term prospects for CRE remain questionable, numerous organizations we’ve spoken with recently are introducing secured lending products on various degrees along the asset-based lending spectrum.
More on this to come.