How Banks Can Generate Non-Interest Income

Banks are constantly exploring ways to enhance profitability beyond traditional lending practices, and in today’s competitive environment, developing client relations and generating non-interest income have become crucial differentiators for the top competitors. 

There are several options that have been around forever, but digital trends and evolving customer needs have made many banks look for more innovative ways to unlock new revenue streams. Relationship banking strategies are at the core, and by providing more tailored services that promote customer longevity and multi-generational ties, banks are able to make longer-range investments in their future security and stability. 

At the end of the day, non-interest income streams and client services are all part of the picture that every financial institution needs to paint to connect with tomorrow’s clients. Understanding which ones to pursue and how to develop them will define success in the industry for years to come. 

How Banks Typically Generate Income

Making money through interest is one of the oldest economic equations in human history, and it works just as well for banks today as it ever has. Simply put, time is money: you lend or invest capital in the hopes that you will get back more than you had in a few days, months, or years.

Most of the money banks make is generated from income through interest earned on loans, bank accounts, credit cards, trading and investments, and a variety of other activities.These diverse income streams allow banks to maintain profitability and continue serving their customers.

The Trap of Interest

The only problem with operating a business model on interest is that it requires everything to go according to plan, and often for decades on end. Poor and over-leveraged investments can collapse entire banking sectors, like the global collapse surrounding the 2008 subprime mortgage crisis.

For better or for worse, markets, cultures, and people are changing faster than ever, and the financial world that makes sense today will probably be long gone when the last few pennies on a 15-year mortgage are finally paid off. That’s why every financial institution needs to invest in non-interest income and service innovations that connect with emerging client needs, harness new technology, and keep pace with an evolving sense of what banking means to people. 

If banks don’t follow their clients into the future, all the interest they generate today won’t matter; nobody will be waiting for them when those loans finally mature. Relationship banking is all about investing in your value to your clients as an institution, and if you get it right, the payoff down the road is profound.

Exploring Opportunities for Non-Interest Income

Fortunately, the time-tested non-interest income sources banks rely on tend to go hand-in-hand with developing new services for their clients. For instance, a bank that develops a digital payment app could profit in a variety of ways. They could charge businesses a small fee for each translation, for example, or give users an option to pay for an instant transfer instead of waiting. 

There are also indirect effects on value that are nonetheless ultimately measured in dollar signs. Online banking, for instance, creates opportunities for marketing new services, saves on overhead, and dramatically expands brand and product exposure, all while making banking easier and more accessible to your clients. Everyone wins, and that’s what multigenerational banking is all above. 

There are many areas banks can look to generation non-interest income by developing relationship banking services, and here are a few industry-leading trends:

Data as a Product

As everyone in business knows, the ability to map and predict patterns and connect people with what they’re looking for is a hugely profitable exercise. By analyzing customer needs and preferences, banks can introduce value-added services, market more effectively, and monitor usage and engagement with digital content to optimize efficiency and troubleshoot problems. Throw in some AI and machine learning to grease all the gears, and you’ve got a fine-tuned machine for maximizing revenue while cutting costs. 

Wealth Management 

Today, the internet has made the vast majority of investment possibilities accessible to the average person, and it’s completely upended the world of finance. Literally anyone with a computer and some capital can play the stock market, trade currencies, invest in real estate, and become a part-time venture capitalist.

The fact is, people don’t need banks to make their money work for them, but they’re clamoring for professional expertise and insight. As a result, there’s a lot of profit to be made in wealth management services, and savvy banks know that developing meaningful relationships is not necessarily about being part of the transaction.

It’s about being part of the success, and that’s never going to go out of style.  

Foreign Exchange Services

Youtube and TikTok are opening the world up for all to see, and people are traveling, working, manufacturing, and trading overseas more than ever. International transactions and currency exchange services are big business, and they’re a golden opportunity for generating non-interest income. Banks can earn fees and commissions on foreign exchange transactions, including currency conversions, wire transfers, and trade finance services. 

Life Organization and Legacy Planning Services

These are exciting and game-changing services in the financial industry that offer the possibility of truly groundbreaking innovations in relationship banking. Historically, they’ve been left up to private individuals and their lawyers, but the digital revolution has put things like will creation and estate management at the tips of everyone’s fingers. 

Banks have always been involved in this stuff to some degree because they’ve got the safes and deposit boxes, but today, people don’t want to just put in grandma’s wedding ring and a birth certificate in there. They want to store and protect the video of their daughter’s first step, securely curate gigabytes of family photos, organize business succession plans, and make it easy for loved ones to access their passwords and insurance information should something go wrong. 

Banks are traditionally the cornerstone of their clients’ wellbeing and security, and they can no longer afford to take a historical or one-dimensional view of the role they play in that journey. 

Redefining Non-Interest Income and Relationship Banking

Banking clients will continue to pursue deeper, more lasting bonds with the institutions they share their lives with, and providing them with value-added services that bridge generations and increase non-interest income will be critical to securing tomorrow’s success.  

The Postage’s digital life organization platform is empowering banks and other financial institutions to meet clients where they are, and create a picture of the future together of security, longevity, and peace of mind.  

Connect with us today to learn more about how a partnership with The Postage can provide life organization and succession planning services for your retail and small business customers.