The Republic National Bank of Dallas is the leading lending institutes in the Dallas area and in all of Texas. In 1977 the current marketing director for RNBD was asked to assess the effect of offering a new type of account, an interesting paying account that allows for negotiable orders of withdrawal called a NOW account. The NOW account originated in the New England states in 1972 and have grown to be a sizable amount of all accounts held in the that area. With 50 months of data available to see how the NOW accounts have influence banking and the traditional checking accounts in the area, it was time for RNDB, a leader and innovator in retail bank accounts in the Dallas area, to consider the potential of offering…show more content… RNBD has historically been very retail customer friendly, making them the largest retail account base bank in the Dallas area. RNBD has been on the leading edge for products in the retail area including their Teller 24 Service and their Starpak Account, which is a complete package of banking services provided to customers.
NOW accounts came into being in 1972 in the New England area. By 1976 NOW accounts dominated the New England market with 72% of accounts in New Hampshire and 44% of accounts in Massachusetts are NOW accounts.
Evaluation & Discussion
Republic National Bank of Dallas needs some hard data to decide how to best proceed with the go, no-go on NOW accounts. One way to view this is to look at a 100% cannibalization of checking accounts into NOW accounts.
Table 1: Comparison of Expected Revenue with Checking accounts and NOW accounts at 100% cannibalization.
The expected yield on the loans is reduced by 5% to account for the interest paid out on the now account. The above table shows that at 100% conversion with the NOW account paid interest rate of 5%, RNBD would lose $5,962,500.
Massachusetts, which more resembles the Dallas area due to its urban concentration, experienced a 44% conversion rate
Table 2: Comparison of Expected Revenue with Checking accounts and NOW accounts at 44% cannibalization.