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Meta Software Study Identifies Key Banking Industry Trends Related to Declining Check Volumes CAMBRIDGE, Mass. --(Business Wire)-- April 7, 2004 --E-Model Simulation Studies of Check Processing Operations Suggest that 50 percent of Existing Fixed Capacity will need to be Consolidated by 2010 to Maintain Current Profitability Meta Software Corporation, a leading provider of capacity analysis, workforce management and enterprise modeling solutions for the financial industry, today announced publication of its white paper study entitled The Economics of Check in a Declining Volume Environment, which details key industry findings such as a significant increase in unit costs over the next two years, especially as annual volume decline reaches double digits. The major finding of this study is that, due to the nature of the volume decline, the industry cannot rely solely on variable expense reduction or new technology to manage down but rather industry consolidation will be required, leading to at least a 50 percent reduction of fixed expenses to maintain current profitability. To conduct this study, a prototypical check processing site was created in Meta's Payment Enterprise Model (E-Model) and then was populated with workflow and operational specifics to represent the industry average and above average productivity. The E-Model, which replicates the complex, deadline-driven environment of check processing, then simulated the impact of check volume declines on capacity requirements and unit costs for the period 2004 through 2010. The future volume forecasts were taken from Global Concepts, the Atlanta-based payment systems research and consulting firm. In summary the major conclusions of the study include: -- Variable expense reduction completely in line with the volume decline will be insufficient to maintain unit costs, resulting in at least a 40 percent unit cost increase as fixed expenses, principally occupancy and transportation costs, assume a growing share in the cost structure. -- Historically, banks have had very different success rates of matching variable capacity to volume and the gap between the high performers (85th percentile) versus the average performers (Median) is large. Therefore, the industry most likely will need to remove at least 50 percent of fixed expenses to maintain current profitability. -- The changing check product mix, resulting in growth in the more expensive products will aggravate cost pressures. Efforts on adopting new technologies will need to focus on ways to specifically address the high cost components. The results of our E-Model simulations provide an extremely disturbing peek into the near term impact of volume decline on the economics of check processing operations, said Bob Seltzer, president and CEO of Meta Software. By 2006, check volume decline will exert a significant pressure on unit costs. In light of these developments, the industry will undergo changes in market share as some banks opt to outsource their operations while others elect to aggressively acquire new sources for increased check volumes to maintain their economy of scale. The beneficiaries of this consolidation will be the efficient core processors that can acquire new volume from less efficient participants and, thereby, reduce the impact of the industry-wide volume decline on their unit costs. Subsequent E-Model simulation studies will explore the impact of new initiatives such as Check 21, Image Exchange and ARC on unit costs. Though these new techniques have the potential to mitigate unit cost pressures given the magnitude of the volume-driven cost increase as documented in the current study, they will undoubtedly not obviate the industry's need to consolidate. To receive a complementary copy of the The Economics of Check in a Declining Volume Environment, which includes a detailed simulation analysis of expense trends and check costs, contact Bob Seltzer at 617-576-1203 or email [email protected]. About Meta Software Meta Software, headquartered in Cambridge, Mass., is a leading provider of capacity analysis, workforce management and enterprise modeling solutions for the financial industry. For over a decade, Meta's solutions have helped leading banks find the optimum balance between profitability and customer service in their payment operations. For more information, visit Meta Software's web site at http://www.metasoft.com. |
