1. Striking the Right Balance: Free vs. Fee Account Strategy
Presentation by:
Todd N. Werner
GVP, Business Development and Marketing
June 2011

2. Industry Update
Average member/customer profitability down at most financial institutions following crisis
Globally, average member profitability declined 5% to 15% since the crisis
Efforts by financial institutions to restore member profitability face hurdles
59% reported decreased member loyalty
63% say members more price sensitive
63% say members are ‘shopping around’ more frequently
Greater willingness to move away from ‘poor’ service
Traditional profit recovery strategies – rate and fee increases, conventional cross-selling
and organic growth – will not readily fix the problem. Many will struggle
Members have broader expectations
Service demands have increased
– High-value services,
– Relevant offerings, and
– High-usage delivery channels
June 2010 Accenture study across 35 retail banking institutions
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3. Legislation and regulation continue to be game changing.
We expect more regulation in the financial services sector in the
near future.
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4. Legal and regulatory developments promise to have a significant
impact on financial services
CARD Act: ‘Reasonable’ penalty fees defined
Fee limit set at $25 (cannot exceed dollar amount of violation)
• Average penalty fee is $391
Bans inactivity fees, multiple penalty fees for single violation
Issuers must reevaluate interest rate increases since Jan. 2009 and reduce rate if
appropriate
Regulation E: NSF/Overdraft fees
Financial institutions must obtain consumers’ affirmative consent in order to
assess overdraft fees for one-time debit and ATM transactions
Banks made preparations to comply
Durbin Amendment (part of Dodd-Frank Act): Interchange
Implementing in late July
Requires debit interchange fees be proportional to cost; Prohibits debit exclusivity
arrangements and routing restrictions; Limits restrictions on offering discounts for
forms of payment; Limits restrictions on transaction minimums and maximums
(credit only)
1Pew Safe Credit Cards Project, qtd. in 6/15/10, “Fed limits card fees to $25, CNNMoney.com
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5. 13 Billion Next
13 Billion
Legislation. . .
11 Billion
11 Billion Durbin
Amendment
9 Billion
9 Billion
7 Billion
7 Billion
5 Billion
5 Billion
Reg E
?
3 Billion
3 Billion
1 Billion
1 Billion
How many
o f yo u r m e
u p a y a fee f mbers will
How many of yo o r a n a c co
checking? unt with NO
ca n afford to offer FREE perks?
5

6. Income Source Amount
Overdraft Income $150
Debit Interchange $36
Interest Spread $25
Other Income $7
(Checks/Add Ons)
Total $218
Subtract Statements
Expenses: Checks
Branch Networks
Systems
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7. $218 Opt-In
-$30 How do
you
replace
$188 Interchange $68
-$20
of annual
revenue?
$168 ($5.66/mo)
Future Regs
-$18
$150 7

8. Conclusion
Credit Unions need to “de-commoditize” their accounts by
delivering products that build stronger relationships
between their members and their institutions
Credit Unions are looking for strategies and programs that
provide high value to members and help substantiate fee-
based checking accounts
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9. Polling question 1
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10. Revenue pressures from legal and regulatory developments are
exacerbated by ongoing consumer behavior trends.
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11. With consumer confidence shaken, members expect more from their
financial institutions.
39% 94%
Don’t want all of their accounts Believe trust is somewhat or
in one place because they very important in choosing a FI.
don’t trust financial
companies.*
80% 64%
Plan to permanently increase Want to learn more about
the amount of money they managing their finances.**
save.*
*Members with $100K+ household income
**Members age 18-24
Source: 5/10, “Seven Predictions for the Future of Banking,” Mintel Comperemedia (webinar)
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12. Community banks rank notably better in the eyes of consumers
Large
Category banks Community banks
Easy to do business 53% 81%
A bank I trust 48% 78%
Friendly 51% 80%
Responsive staff 46% 74%
Quick problem resolution 41% 70%
Source: BAI research report—”Navigating in Turbulent Times—Competing for Deposits and Relationships” (1Q 2010)
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13. Things that FIs do to build trust
Put members in the right product
Deliver incremental value in accounts with fees
Be committed to solving a problem
Be informed
Fee waivers
In business: know my business
Simple, Easy, Fast, Friendly
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14. What All of This Means
Many national “brands” have disappeared – a few more could also
falter.
The winners will be those employing distinctive strategies and
tactics that cost-effectively target, attract, and capture profitable
deposit members.
New products and differentiated acquisition strategies and tactics
are essential.
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15. How are you handling…
Current account structure?
The cost of free checking?
Number of members who opted-in?
Increased branch operation costs?
Personal performance pressures?
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16. Polling question 2
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17. The Decision
Whether your choice is:
1. To keep Free Checking, or…
2. To eliminate/grandfather Free Checking,
A member engaging account design that allows FIs to provide increased value
within their DDA accounts, enhance the member relationship, drive profitable
behaviors and deliver incremental fee income.
Greater
Greater
Improved
Improved tenured
Member tenured
Member member
member
Satisfaction
Satisfaction relationships
Deeper & relationships
Deeper &
more
more
profitable
profitable Heightened
Heightened
member
member frequency
frequency
relationship
relationship of member
of member
s (increased
s (increased interaction
interaction
LTV)
LTV)
Increased
Increased Reduced
Reduced
member
member Member operating
operating
acquisition
acquisition expenses
expenses
Checking
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18. Back to Basics
Embedded accounts that marry financial and non-financial products and
services
Development of overlay strategies to compliment core account
Fee checking accounts that are value behavior based with the ability to
“earn down” the monthly fee
Full or Partial conversion
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19. Polling question 3
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20. Consumer Insights
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21. Marketplace Needs
I want to acquire
Will you give me more members and
tools to protect I want my more deposits.
my identity? members to have
more products
with my
Where can I get institution.
access to good
benefits at a
reasonable price?
I want to I want to increase the
simplify my longevity of my
banking member relationships.
relationships.
I want to maximize
Can you provide non-interest income
our family with in a way members
access to will respond to
insurance positively
alternatives?
Can you give me
I want to migrate
discounts on
from free-checking
the things I buy
to fee-based
everyday?
services.
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22. Benefits
The opportunity to provide
services and features members
want while also meeting CU needs
Provides better value
in the checking/share draft account
Acquisition
members are a 1/3 more likely to open an
account if money saving and fraud protection
were offered with their account
Members
Member Retention & Referral
are looking for “free” checking Consumers are 60% more likely to
and are willing to change their refer/recommend their FI if they were offered
behaviors to keep it! money-saving benefits such as Everywhere
Cash Savings or Everyday Rebate Rewards
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23. Consumers Willing To Accept Change
Likely behavior acceptance to keep free checking
% Definitely/Very Likely To Do In Order To Keep Free Checking…
Consumers are willing to
maintain certain behaviors
to keep their account free
Responses Based on a 5 Point Scale –
Top2 Box = Definitely Likely/Very Likely
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24. Addition of Relevant Benefits Drives Acquisition
Individual Appeal Likely to Switch or Open an Account with… (Compared to 2010 Research)
% 1.5x
% 1.3x
% 1.4x
% 1.5x
% 1.6x
% 1.5x
% 1.4x
% 1.1x
% 1.1x
Responses Based on a 5 Point Scale –
Top2 Box = Definitely Would
% N/A
Switch/Open and Likely Would
Switch/Open 24

25. Top Three Categories of Interest
Consumers continue to want/expect certain benefits from their financial institution
Consumer Interest Index*
ID Fraud
Benefits
Savings
Benefits
Credit Management
Benefits
*Function of (% Def/VL to Switch) x (Mean Score Rating) – Perfect Score = 500 (100% D/VL x 5.0 Mean Score)
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26. Best “3-Benefit” Bundle
Everywhere Cash Everyday Rebate Payment Card
SavingsSM Rewards Protection
Nearly 1/3 of U.S. adults would select
this bundle if offered as part of
checking account
Discrete Choice Conjoint Analysis determined best “3-benefit” bundle
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27. Best “5-Benefit” Bundle
Everywhere Cash Everyday Rebate Payment Card Daily Credit Credit Reports
SavingsSM Rewards Protection Monitoring and Scores
Over 1/3 of U.S. adults would select this
bundle if offered as part of checking
account
Discrete Choice Conjoint Analysis determined best “5-benefit” bundle
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28. Optimal Account Design
Everywhere Everyday Payment Daily Credit Credit Bill Pay or Online
Cash Rebate Card Monitoring Reports and Direct Deposit Banking
SavingsSM Rewards Protection Scores
Acceptance
Five of the best value‐added benefits bundled with the best two financial
benefits will realize the highest consumer acceptance level nationwide
44% of U.S. adults would select the account above and pay a monthly fee if
offered those account features
Discrete Choice Conjoint Analysis determined the best optimal bundle
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29. Benefits Increase Revenue Potential
Value‐added Benefits Deliver Increased Revenue Potential
Benefits Bundle Includes:
Value‐added benefits deliver 63%
• Everywhere Cash SavingsSM
• Everyday Rebate Rewards more revenue than a flat monthly
• Payment Card Protection fee. Plus the optimal account
• Daily Credit Monitoring design encourages cost savings by
• Credit Reports and Scores offering benefits with discount
coupons, cash back and rebates. It
also provides Identity Theft
protection benefits
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30. Research Summary
• Members are willing to pay for value, but increased fees must equal increased
value
• Members are accepting of certain behaviors in order to keep their account free
• Members prefer fees they can control
• Introduction of fees does not equal increased attrition
On average, FIs could expect ~13%* attrition when changing the core account
structure; primarily driven by closing shell accounts
• It is essential to understand which combination of services drives purchase
interest and satisfaction
*Attrition rate varies based on brand affinity to the institution. Attrition rate is a combination of: normal account attrition, FI closed the account (shell or
unprofitable account), consumer closed the account or converted to another account
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31. Sample Fee-Based Program Options
Examples where the account has a nominal monthly fee,
which is defined by the Institution
“Value Plus Checking”
“Value Plus Checking” “Secure Checking”
“Secure Checking” “Established Checking”
“Established Checking”
Everywhere Cash Savings – with Daily Credit Monitoring Companion Airfare
mobile coupon delivery Identity Theft Insurance Concierge Service
Internet Monitoring of Identity Fraud Support Service Elite Travel Services
Credit/Debit Cards Free Debit Card Free Mobile Banking
Purchase Protection/Extended Free Mobile Banking Preferred Rates on CDs
Warranty Free Online Banking/Bill Pay Wealth Management Services
Free Debit Card Foreign ATM Fee Waivers Personal Financial Management
Free Mobile Banking
Discounted Safety Deposit Box
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32. Illustrative Program: Fee-Based
New Core Account Design
New Core Account Design Monthly Account
Monthly Account
Requirements
Requirements
NEW Value-Added Non-Financial Benefits:
“X” number of debit transactions/month
Everywhere Cash SavingsSM
Minimum daily balance requirement
Internet Credit/Debit Card Monitoring
Enroll in online banking
Identity Fraud Support Service
Enroll in direct deposit
Extended Warranty
Enroll in eStatements
Purchase Price Protection
Enroll in online bill pay
Plus the Core Bank Benefits: member Receives
member Receives
Free Checks / Debit Card Statement Credit
Statement Credit
Based on Monthly
Based on Monthly
Free Safety Deposit Box
Behavior
Behavior
Free Online Banking and Bill Pay
Free Cashiers & Travelers Checks and
Free Notary Services
Monthly Fee for Core Checking Account is $4‐7/mo
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33. Behavior Change
Members have the opportunity to earn down their
monthly fee by exhibiting these value based behaviors
that are convenient for them and cost effective for you:
Drive Positive
Maintaining a minimum Going paperless with
daily balance of $X electronic statements
Having “X” signature- Enrolling in
based transactions online bill pay
Enrolling in Signing up for
online banking direct deposit
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Simple Member Behavior Changes = Highly Engaged Members = Increased Retention & Profitability

34. Sample Account Behavior Scenarios
Scenario A: $6.00 monthly account fee, must meet all Scenario B: $8.00 monthly account fee, must meet all
5 account qualifiers, then all debit transactions are 4 account qualifiers and entire monthly fee is credited
rewarded with a $0.25/swipe credit
Signing up for Going paperless with Enrolling in Going paperless with
direct deposit electronic statements online bill pay electronic statements
Maintaining a minimum Enrolling in Signing up for Minimum of 15 debit
daily balance of $100 online bill pay direct deposit card transactions
Enrolling in $0.25 credit for every
online banking debit card swipe
Example Outcomes
• 24 debit transactions = Full $6.00 credit to account
(member paid nothing!)
• 15 debit transactions = $3.75 credit to account
= qualifier behaviors = buy down behaviors
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35. More Sample Scenarios
Scenario C: $8.00 monthly account fee, must meet all Scenario D: $7.00 monthly account fee, must meet all
3 account qualifiers, then all debit transactions OVER 4 account qualifiers and fee is reduced to $3.95 (partial
$10 are rewarded with a $0.50/swipe credit reward vs. full fee waiver)
Signing up for Going paperless with Maintaining a minimum Going paperless with
direct deposit electronic statements daily balance of $250 electronic statements
$0.50 credit for every
Maintaining a minimum Signing up for Enrolling in
debit card swipe OVER
daily balance of $100 direct deposit online bill pay
$10
Example Outcomes
• 17 total debit transactions for the month, but only 8 of
those were over $10 = $4.00 credit to account
• 15 total debit transactions for the month, but only 3 of
those were over $10 = $1.50 credit to account
= qualifier behaviors = buy down behaviors
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36. Case Studies
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37. Real Value to the Bottom Line
In addition to extensive revenue to our clients, Affinion services deliver increased tenure,
deposits and overall lifetime value
Average difference between free checking account and an enhanced,
fee-based checking account with Affinion benefits
Average Balance
Tenure
Lifetime Value
Up to
2.5x
1.7x higher
longer 2.3x
higher
Fee Account, with Affinion Benefits
Free Checking
$600 -
3 years
$900
$480 per
year
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38. Case Study: White Label
Identity Theft Solution Generates Incremental Income; Addresses Bank’s Movement
away from free checking; Adds more value in the core account
– Partner currently has over 310,000 customers in the identity theft program
– Bank will generate $10 Million in net new revenue in 2011
– Bank cross-sells 29%+ of all new accounts into the identity theft program
– Bank was rated #1 Overall FI Solution for Assisting Customers in Resolving Identity Fraud (Javelin)
– Ranked #2 Overall Best-in-Class Identity Protection Solution for FIs (Javelin)
BENEFIT CONFIGURATION
BENEFIT CONFIGURATION
Credit reports and scores
Credit reports and scores
Credit monitoring
Credit monitoring
Credit information hotline
Credit information hotline
Internet Surveillance
Internet Surveillance
Identity Theft Insurance
Identity Theft Insurance
Identity Fraud Support Service
Identity Fraud Support Service
Credit Card Registration
Credit Card Registration
Lost / /stolen assistance
Lost stolen assistance

39. Credit Union Success Story – Fee Income / Acquisition
Western CU
• $620 Million in Assets
Business Result:
• Branches 20
• Members 56,000 20% cross-sale ratio in the first two months
(account launched in April)
Need:
To develop a brand new checking account designed Nearly 20% of all new checking accounts
to create a competitive advantage, drive non-interest have at least one value-added package
income, and attract new members/accounts - all (year-end goal 50%)
while providing a valuable product that members
want and can design themselves.
Solution: Program is trending 100 brand new
Create 6 different “Packages” ranging from credit checking accounts / week
and identity theft services to travel and shopping
discounts and services.
“Credit Package” as been the most chosen
of all package options
Let members design their own account by choosing
the package(s) they want, for a nominal fee, to add
to their account.
National media exposure: Forbes, Yahoo
Finance, CNBC
Leverage CU’s strong sales culture as an opportunity
to maximize revenue and program penetration.
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40. Credit Union Success Story –
Incremental Fee Income and Protection for Members
Credit Union in SE
• $1.9B in assets
• 205,000 members
Business Result:
Client Need: • Credit Union launched the program with
Concerned about the ongoing threat of identity an initial direct mail campaign to 128,927
theft and wanted a comprehensive solution to offer members
to members.
• Initial mailing achieved a 1.84%
Find alternative methods for incremental revenue response rate, equating to approximately
by generating a predictable, recurring fee income $151,000+ in annual incremental
stream. revenue for the Credit Union
Solution:
Create a comprehensive, robust identity theft solution • Follow-up mailing was sent to 106,809
designed to proactive mitigate fraud risk for members. Also members achieving a 1.03% response
provide personalized resolution and insurance to members rate
in the unlikely event fraud does occur.
• Approximate current monthly revenue to
Offer the solution in multiple distribution channels; in- the Credit Union based on all channels is
branch, online and via direct mail, so members can interact $21,000/mo = $252,000+ in annual
with the product in their preferred communication channels. incremental revenue for the Credit Union
Give members the opportunity to try the product at no
charge for 30 days and then just $9.95/mo
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41. Credit Union Success Story – Upgrading Benefits
Client - Credit Union in Midwest Business Result:
• 10K Checking Accounts • Since launch 30% growth rate in the
• 19,000 members program to date
• Currently:
Client Need: • 1882 enrolled in CheckMax/CheckMax
Value added checking strategy since 2001 and Plus Account
program was strong but growth slowed in 2008. • 19% penetration rate
Leveraging member/.consumer insights on our
CheckMax checking account program and
recommended changing the benefits and
upgrading to newer benefits
Solution:
In August 2009 we launched the revamped checking
account program utilizing our “Best Practices” including
newer benefits, training, incentives, goal setting.
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42. Re-designing accounts and acquiring profitable members can…
Deeper and more profitable member relationships
(Increased ROI and LTV)
Heightened frequency of member interaction
Reduced operating expenses
Generate incremental fee income
Increased member acquisition
Improved member satisfaction
Greater tenured member relationships
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43. Thank You
Todd Werner
Todd.Werner@affiniongroup.com
(615) 764-2573
www.affiniongroup.com
www.nafcu.org/affinion
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