The banking industry is adjusting to a new reality. The Fed Fund rate continues to hold steady at 4.25%–4.50%, a sharp contrast to the near-zero environment that followed the 2008 crisis, and despite President Trump’s wish to have it reduced to just 1 percent.1&2 Inflation remains stubbornly above 2.7%, and although cuts are expected, interest rate volatility is here to stay. As banks continue to feel the pressure on revenues and growth, Earnings Credit (EC) and a modernized account analysis practice can prove to be key differentiators for them to retain their competitive edge.
Why EC is Valuable Even After Dodd Frank
Earnings credit is a “pseudo interest figure” that is used to offset specific fees that the corporate customer must pay instead of it being credited to their accounts. The 2010 Dodd- Frank Act lifted the long-standing Reg Q restrictions on interest-bearing demand deposits for corporate clients. At the time, this was expected to spell the end of EC, but it did not. This was primarily because EC did not impact the bank’s interest expense, while offering some tax advantages for customers. As rates remain relatively high with no drop expected soon, EC is a valuable revenue asset for banks. Customers want their balances to work for them, or in other words, they want to gain some benefits by way of optimal credit or interest.
Critical Variables in EC and Account Analysis
EC is a key component of the account analysis function. With ECR proving to be a key differentiator, banks must reconsider their account analysis statements as well. Once considered a basic tool for invoicing and reconciliation, a modernized account analysis function can provide significant strategic value. It ensures transparency, offering customers clear information on service consumption, fee offsets, and net cost to the bank. Banks can benefit from deep insights into product usage, fee profitability, and customer segmentation. To deliver true value, EC and account analysis must be highly tailored, tiered, and variable with multiple factors to consider:
- Account Types: Non-interest-bearing, interest-bearing, and hybrid accounts with EC thresholds
- Rate Structures: Adjusted by customer tier, relationship size, product usage, or benchmark spreads
- Balance Rules: Variations in how balances are defined—collected, positive, or investable—impact credit eligibility
- Reserve Deductions: Though no longer mandatory, some banks still apply them for legacy or internal reasons
- Frequency: EC calculations may be daily, weekly, monthly, or contract-defined, often needing mid-cycle updates
- Offset Logic: Not all services are compensated by EC; some are hard charged
- Carry-Forwards: Growing demand to apply excess ECs across billing periods to account for cash flow seasonality
Siloed Data, Slower Decisions: A Call for Platform Integration
A highly personalized EC strategy is a strong strategic differentiator in a market landscape marked by frequent interest rate fluctuations and rising customer expectations. But what must banks do to create and deliver an effective EC strategy? There are a few key factors they must consider. To begin with EC and hybrid account strategies must be flexible enough to adjust to volatile rate environments, and banks must be able to implement tiered pricing models that align with client profitability, size, and loyalty. They must be able to deliver customized account analysis statements with clear, drill-down billing, and offset details. They must also be operationally agile to ensure that EC logic can be updated seamlessly without delays or technical bottlenecks.
With ECR proving to be a key differentiator, banks must reconsider their account analysis statements as well. Unfortunately, many banks still haven’t modernized their account analysis processes and the data needed to generate accurate statements is often siloed and fragmented across legacy systems organized by product line. Without an integrated platform, this slows responsiveness, increases error risk, and impacts client satisfaction.
Modernizing Account Analysis
Here is where a robust solution like SunTec Xelerate Account Analysis can help banks. It can separate the system of engagement from the system of records to aggregate balance, pricing, and service data via APIs. It allows real-time data processing and EC computation, and tiered and customer-specific pricing rules. It simplifies hybrid interest logic and automates the account analysis statement generation to ensure accuracy. SunTec Xelerate Account Analysis provides a centralized hub for critical data and generates real-time data-driven insights for personalized pricing and billing. Most importantly, it is designed to support a bank’s evolving requirements and future expansion.
Rising rates, tightening spreads, and growing client expectations are forcing banks to modernize how they manage fee offsets and account analysis. With strong EC models, accurate AA statements, and a scalable, API-first platform in place, banks can better manage relationships, maximize fee revenue, and future-proof their operations.
