Mastering the Revenue Maximization Formula
Like a lot of people, I’m a sucker for big-budget summer action movies. And while the reason I enjoy them so much (pointing out plot holes to anyone silly enough to agree to watch them with me) is different than most, one of my favorites is “Armageddon.” The movie has a lot of great lines in it, but one of my favorites — and one that is oddly appropriate for this subject — is an exchange between Bruce Willis and Billy Bob Thornton. Thornton has just explained how it’s up to Bruce Willis to help save the world, and Willis asks about NASA’s back-up plan. Thornton says the agency doesn’t have one.
And Willis goes on a rant that I can’t quote here because of some naughty language, but to paraphrase, Willis says something like, “This is the best that the U.S. government could come up with? You’re NASA for crying out loud, you put a man on the moon, you’re geniuses. You’re the guys that’re thinking (stuff) up! I’m sure you got a team of men sitting around somewhere right now just thinking (stuff) up and somebody backing them up.”
The exchange fits as an introduction for a couple of articles I read recently about banking and how financial institutions make their money.
The first article highlights how banks are padding their bottom lines thanks to convenience fees and other surcharges placed on products aimed at low-income customers.
The other article — which is extremely long and a great read — recounts the mortgage foreclosure crisis using the story of a Florida woman who benefited from multiple refinancings before ultimately losing her house and who now lives in a tent in Hawaii.
In that article, the author discusses how mortgage servicers boosted their revenue totals by charging additional fees when borrowers made payments late or missed payments altogether.
Much like most people need a bank account these days, most people need a vehicle. And that means an auto loan of some form or another. Is it just a matter of time before banks look to their auto loan operations to see what other types of revenue can be generated through additional fees and charges? Or are banks already maximizing fee revenue from their auto finance operations?
Consumer advocates complain because these are the very people who can ill afford to pay higher fees because they don’t the money to do so.
It appears as though no fee is too small and no service worth giving away for free. Wells Fargo, for example, charges $1 for the opportunity to speak on the phone with a customer service agent (if you do so more than twice a month). Banks have long offered incentives to attract people to use certain services such as online banking, but now it appears as though rather than use carrots, banks are moving more toward employing the stick as a motivational tool.
Are we likely to see subprime borrowers having to pay application fees because the underwriting process is more labor-intensive than for prime borrowers? What about charging for every time a collector has to make a call to try and get a monthly payment?
I’m sure there are people smarter than me in a room somewhere thinking stuff up. I’m very anxious to see what they come up with.
