Celent

In June 2008, Celent published its inaugural report (“HSA Benchmarking Analysis: Market Trends and Economics 2008, Volume I”), benchmarking the performance of health savings accounts (HSAs) offered by a wide range of custodial banks. Since that report, the banking industry has undergone a momentous shift, resulting in numerous banks going bankrupt, being acquired by other banks or becoming partially-owned (via equity purchases) by the U.S. Federal Government.

However, woven throughout the financial service industry’s turmoil there are threads of continuity and consistency. One of these is the growth of HSAs. As the banking sector lurches from one crisis to the next, the need to compete in the HSA market is intensifying, as a way to grow deposit bases and to remain relevant in a future where health care banking products will increasingly be in demand.

Because of this increased competitiveness, banks require ever more detailed information by which to gauge their performance. Celent’s 2008 Volume I report was ground breaking for its quantitative assessment of banks, penetrating beyond the commonly-employed measurement of metrics.  Upon publishing Volume I, Celent learned that financial institutions were in fact hungry for even more detailed information about the industry and their peers. Based on participant feedback, Celent’s 2008 Volume II HSA benchmarking contains an expanded scope, including disbursement methods, customer service levels and organizational levels.  15 banks representing roughly one-half of the entire HSA market participated in the benchmarking exercise.

Finding highlights include the following:

·       There continues to be considerable pressure on fee structures. Although some banks are charging higher fees as a disincentive for paper applications, more than half of all banks surveyed do not charge setup fees. Although not indicated in banks’ reported set-up fees, it appears that many banks are beginning to waive those fees.

·       Monthly fees may be on the verge of softening. Average monthly fees for the group market increased from $2.80 in January 2008 to $2.85 in July 2008, but this was largely due to the addition of a new participant bank. In the individual market, the average monthly fee dropped from $2.93 in January to $2.84 in July. Additionally, a few banks’ weighted monthly fees dropped below the $2.00 mark.

·         Average revenue per account ranges widely, from $21 to $100 in July 2008. Revenue per account is in decline for all but two participant banks. This decline is due to a drop in interest rates which is squeezing DDA spreads and to the softening of set-up and monthly fees.

·     Debit cards are only used for 66% of disbursement volumes, representing a foregone (interchange) revenue opportunity for banks. Checks are stubbornly holding onto about a quarter of all disbursement volumes, a result of an ingrained consumer payment process in the health care space.

·         The Specialist segment has a fundamentally different customer service philosophy from the Top 25 and Other segments. Whereas Specialists consciously route nearly 80% of their customer service calls to live customer service reps, the Top 25 banks route less than 40% of such calls and the Other segment routes less than 30%.

“HSA customer service is beginning to be an industry subject of concern”, says Red Gillen senior analyst with Celent’s banking group and author of the report. Gillen adds, “as fees converge and consumers become increasingly aware of HSA custodial options other than those spoon-fed by employers, a positive customer experience will be critical to bank success”.   

Celent is currently inviting banks to participate in the next round of the semi-annual HSA Benchmarking Analysis, to take place in February 2009.  Participants will benefit by receiving extensive analysis at the individual bank level, delivered via a “give back” session with Celent analysts. If interested, please contact Steve Nawrocki (snawrocki@celent.com) for more information.

This report measures bank categories’ most relevant HSA performance criteria and provides an analysis of underlying factors and trends. The report contains 37 pages and 23 figures.  A table of contents is available online.