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JPMorgan Sees Clients With Less Than $100,000 Unprofitable
- wtvanhest 15y agoI know the gut reaction is that it is unbelievable that someone with $50,000 isn't "worth" having as a customer, but there are 2 things to consider: 1) JPMorgan is saying that future regulation is what is driving those customers to be unprofitable. More importantly: 2) For someone making business decisions, it is important to really look at your customers to determine which are profitable. There is a consistent flow of stories from startup founders about the dangers of trying to satisfy every customer. This should be an example of a calculated way a company looks at their profitability and customer mix responsibly and with careful analysis rather than gut feel. *As a caveat, we don't really know whether those customers would be unprofitable or not, and JPMorgan may be making a political statement about future regulation through their financial documents.
- schraeds 15y agoThe gut reaction is that no one wants to hand over money to someone who isn't appreciative of it.
- wtvanhest 15y agoYeah, but it is mutual. They don't want the money either which is often the case for customers. You/I work with them because you meet them, not because you/I should.
- ahi 15y agoJPMorgan hasn't had to figure out how to make those customers profitable because they've been able to load them up with fees. New regulations are giving them the option of pushing customers away, or figuring out how to make them profitable. Raise your hand if you think there's no efficiency gains to be had in banking services? They have been through this before when credit unions started offering free checking. Somehow they managed. JPMorgan execs are saying they can't or won't adapt to the changing market. "We're a dinosaur. Save us Washington! Save us!" This article is part of their lobbying efforts. Entrepreneurs should see it as an opportunity.
- gaius 15y agoSave us Washington! Save us! But they are asking Washington to NOT do anything. This isn't a bailout.
- mrj 15y agoThese banks have grown incredibly large in part by leveraging fees for otherwise "unprofitable" accounts. What they're saying is they can't maintain their current size without the extra billions of income. They feel entitled to that additional money. Of course, from the outside it sounds just fine if they have to shrink to match their actual deposits.
- tsotha 15y agoWhat do you mean by "incredibly large"? Revenue? Market cap? Profit? And why do you put quotes around the word "unprofitable"? If you have a buck fifty in your account you're an unprofitable customer, no quotes needed, unless you manage to overdraw your account on a regular basis. Banks are not going to lose money on customers, with the narrow exception of young people they want to develop a relationship with. What will happen if the government doesn't allow high overdraft charges and such is the banks will charge big monthly fees for the privilege of having an account. If the government doesn't allow that they'll simply jettison people without a lot of money.
- ahi 15y agoThe marginal cost for servicing an account should be roughly 0. There's no reason accounts with 1.50 should be unprofitable if you have updated your tech and business processes. Plenty of services survive with customer values in the fractions of pennies.
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- JumpCrisscross 15y agoThere is a fair amount of regulatory posturing happening here; the Durbin Amendment to Dodd-Frank, that regulates various consumer fees, is still being written into implementation. What is not being said is: 1. We are in an abnormally low and compressed rate environment. As those numbers go back up smaller deposits will become profitable. 2. Small deposits turn into big deposits as customers age - this is the rationale behind college checking accounts. 3. The banking infrastructure is a largely fixed cost. I don't know how they accounted to $100k, but I'd you wanted to inflate the number one could ignore the fact that the variable cost of most customers is virtually non-existent at the margin. 4. You can just charge fees to customers below $100k to make them profitable. Checking accounts are historically cheap, in real terms.
- orijing 15y ago4. is one of the points that's being addressed by the amendment you're mentioning. In particular, it'll limit the fees that can be charged for things like debit cards, checking accounts, etc--the fees that made unprofitable customers profitable.
- dman 15y agoWhat happens when its no longer economically rational to service clients with small deposits - people forced to put money under their mattresses ?
- adrianparsons 15y agoMaybe smaller online banks (Banksimple, ING Direct) pick up the slack? Without physical branches to operate, maybe these kind of operations are more likely to make money off of checking accounts.
- JumpCrisscross 15y agoThere are lots of other fees to be had - "consultation fees" for coming in-branch, fees for new checks, fees for depositing checks, ATM fees, fees for lost debit cards, or requiring a customer post collateral to have a checking account in the first place (essentially go away).
- gaius 15y agoWe see this in the UK too, people getting upset about overdraft fees pressuring politicians to change the rules. The thing is, I like overdraft fees. I like this idea that the irresponsible fund free banking for the others - one of the very few occasions in economic or political life that this happens. The alternative is a monthly fee for everyone.
- peteretep 15y agoFining someone £30 for an 'overdraft' that they didn't want, because you've explicitly set up the functionality to allow that to happen is predatory. The idea that that 'funds' free banking for other people - rather than being money gouging - is naive at best.
- gaius 15y agoIt is very easy to avoid these fees - don't spend money you don't have!
- TylerE 15y agoYes, that works great until some server you subscribe to has accidentally charges you for some huge amount due to a bug on their end, which overdrafts you, and you incur another overdraft for every transaction that posts on the same day. Through no fault of your own.
- gaius 15y agoThere are means for recompense in this scenario. But this "server" is not one of the bank's, is it? No way for them to tell that this isn't a legitimate purchase that you have authorized.
- TylerE 15y agoWell yes, but then, you're the one who's screwed, through no fault of your own, and have fun talking to the bank getting them to reverse those fees. This is not a hypothetical scenario - here's one recent event: http://www.tomshardware.com/news/Warhammer-Online-MMORPG,10142.html http://www.tomshardware.com/news/Warhammer-Online-MMORPG,101...
- dman 15y agoMy first instinct was that 100k is a ridiculously high number, but then I checked http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield http://www.treasury.gov/resource-center/data-chart-center/in... - rates for three year treasuries are only 0.41%. That would yield ~ $410 not including significant interest rate risk. Fun times.
- 3am 15y agoBut consider that tier 1 capital ratios are on the order of 10%, so they're leveraging the deposits many times over. Further, they're probably not reinvesting the deposits in treasuries, but rather making commercial or personal loans at more than 4% (minus what they pay out in interest on the checking, which if it's anything like mine is more of an insult than an incentive). So it would probably yield closer to $40K before taking into account loan default risks and other costs. The other post saying this is about the Durbin amendment to the Dodd-Frank bill is probably much closer to the truth. You also have to take into account (JPM-Chase's CEO) Jamie Dimon's extremely vocal position on the bill.
- JumpCrisscross 15y agoAs of FYE 2011 US banks with more than $1B in deposits had a net loans/leases to total deposits ratio of 71% [1]. Tier 1 capital is less a measure of leverage from a systemic level as it is of bank stability. Your basic point, that we must account for leverage, is correct in its assertion but not intensity. (No worries - there is no pride in having spent years learning to pry apart financial institutions). [1] http://www2.fdic.gov/sdi/main.asp http://www2.fdic.gov/sdi/main.asp (A&L)
- mathattack 15y agoIt does make sense to me. How much do they make on small transactions and how much does human intervention cost? These firms have tons of internal overhead too. A customer with 100mm is possibly only 10x as hard to serve as one with 100k. I suspect the endgame is 100 pct automated services for most of the market. This won't be provided by the big firms who struggle to get my credit card and checking account on the same screen.
- ahi 15y agoI can video chat with someone on the other side of the globe, but it takes Megabank a couple days to "wire" (what the fuck does that even mean?) my money to Hugebank a couple blocks away. I am sure we all have plenty examples of our banks' inefficiency. With fees and free money from the Fed, banks haven't felt any pressure to improve their business processes. With congress kicking fees away from them, they might have to learn how to not suck at their jobs.
- JumpCrisscross 15y agoThere is also a huge regulatory burden. There is still a lot of federal infrastructure that requires "hard copies" or T+3, i.e. 3 days to settle transactions. Innovation in commercial banking is very slow.
- mathattack 15y agoOn many cases they are top cumbersome to change. Classic Innovators Dilemna. It has to be someone new without top of the market profits to protect. That entrant will serve you and me.
- iterationx 15y agoEverytime a debit card is swiped they get a cut, so its hard to take this seriously.
- gaius 15y agoThe new regulations mean that this revenue will be severely reduced.
- bickfordb 15y agoOne thing I've been struggling to understand: unless you're using JPMorgan to manage your money, why would you leave more than $5-10K in a bank checking/savings account over a discount brokerage account (Fidelity, Scottrade)?
- rdl 15y agoYeah, one of the best hacks I've found is to [ab]use a brokerage account for general banking use. E-Trade, Fidelity, Schwab, etc. all give banking accounts with very minimal (if any) minimum balance requirements, great policies (E-Trade refunds all foreign ATM fees, unlimited number of times (at least more than 200 or so times per month, which is the most I ever did), good money market balances, etc. Their only weakness is no decent online wire sending capability. Basically, it's even better than a good credit union, because their brokerage accounts are so high margin/high revenue that they'll subsidize the banking operations. It's like a cheap hotel room at a Vegas casino -- a win if you don't gamble.
- Drbble 15y agoTaking them up on an offer is not abuse. They do fine (ab)using the money you park with them.
- rdl 15y agoAs an underpaid startup founder, I keep a tiny balance with them, and run large amounts of transactions through them (not transactions they earn fees from); I'm a horribly unprofitable customer for them.