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Manage Transition: For Banks 0-5 Years

New Product Implementation


Minority and de novo banks need to consider how and when to introduce new products. This consideration will be even more important if the bank operates in areas where there is a large unbanked population or a large concentration of ethnic consumers.

Due Diligence/Feasibility

Since new products require time and expense to implement, the first step is to ensure that the product is viable. This process entails developing a clear description of the product and determining its competitive advantage.

Banking products generally require high levels of customer interaction and advertising. Marketing requirements associated with the product should also be considered. Existing customers are likely to be the first to become aware of and use a new product. This could actually have a negative impact on earnings, depending on the relative profitability of each product and the number of existing customers who merely substitute the new product offering for an older one.

Financial Projections/Risk Analysis

A risk/reward analysis is important for evaluating the long-term benefit of a new product. Financial projections are a starting point, but intangible benefits must also be considered. The recent financial crisis has reinforced the importance of gaining extensive knowledge of financial products and their potential impact on an institution's risk profile before implementation.

Liquidity Considerations

New loan products need to be funded, and fee-based services often require capital investment. Therefore, it is important to consider how new products will be supported both initially and on a continuing basis.

Legal Opinions

Since banking is a regulated industry, banking powers are prescribed by state and federal law. Laws and regulations have evolved over time and present a complex framework for determining the permissibility of new products and services. Banks should ensure that new products are reviewed by legal counsel prior to implementation and are in compliance with laws and regulations.

Although the Financial Modernization Act of 1999 opened the door for banking organizations to offer a full range of financial products, many banks continue to offer such services through third-party networking arrangements. Under these arrangements, banks refer customers to securities and insurance entities in return for a fee. This enables banks to offer a full range of financial services while avoiding the additional regulatory burden and infrastructure expense inherent in other industries. This is a viable option for de novo banks and minority-owned institutions (MOIs) that do not have the economies of scale to offer a full range of services.

Compliance Considerations

Banks should also conduct a review to ensure that new products are in compliance with consumer laws and regulations. This would include making required disclosures and safeguarding customer information. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) will have the ability to determine the suitability of financial products and their costs for groups of consumers. Review Consumer Compliance for additional information.