The market analysis by Celent indicated that the upward trend is due to the rising cost of health care and theincreased adoption of HSA-qualified consumer directed health plans (CDHP).
For the six-month period from January to July 2008, accounts grew by 22%, while total balances grew by 40%. “Given the financial industry’s current liquidity crisis, such balance gains should come as very welcome news,” Celent commented in the report.
Celent admitted, however, that continuing widespread weakness in the financial services sector will translate into the need for continued investments to fund customer service improvements. ” Banks’ declining revenues and need for ongoing resource allocation indicates that the fate of many HSA programs is still uncertain, and as such, the market continues to await a shakeout,” Celent asserted.
The researchers contended that the HSA market represents a way for bank providers to grow deposit bases and to remain relevant in a future where health care banking products will increasingly be in demand.
Pressure on Fee Income
A significant problem is that there continues to be considerable pressure on fee structures, Celent said. Although some banks are charging higher fees as a disincentive for paper applications, more than half of all banks surveyed do not charge set-up fees.
The researchers said monthly service fees may be weakening. 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 mark.
Average revenue per account ranges widely, from $21 to $100 in July 2008, Celent said. Revenue per account is in decline because of a drop in interest rates, which is squeezing spreads, and the softening of set-up and monthly fees.
Celent found that debit cards are only used for 66% of disbursement volumes, representing a revenue opportunity for banks. Checks are holding onto about a quarter of all disbursement volumes, a result of an ingrained consumer payment process in the health care space, the Celent researcher found.
The Celent report is available here .