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Board Issues : Retail

Getting Bank Customers to Happily Pay Fees

June 12th, 2012 |

giving-money.jpgIt seems hard to believe after years of customers not paying for basic bank services due to free checking accounts, there are actually some services many are willing to pay for.

Nearly all bank customers feel basic banking services typically found in checking accounts should be free due to providing the financial institution with low cost funding from account balances. Free checking, the dominate consumer checking strategy over the last decade, has successfully reinforced this feeling.

This sentiment may be changing for a new type of bank services. According to the Integrated Study on Service Fees, which was conducted by San Anselmo, California-based Market Rates Insight in April 2012, and included responses from 1,500 current bank customers and credit union members 18 years old and over, an average of 67 percent of consumers are likely to use and pay for what was identified as “lifestyle financial services” (see table below).

Lifestyle Financial Services

Overall likelihood of use (%)

Identity Theft Alerts

82.5

Credit Score Reporting

73.7

Personalized Couponing

69.2

Overdraft Transfer Service

67.9

Personal Money Transfer

66.2

Mobile Remote Deposit Capture*

63.4

Prepaid Reloadable Cards

47.1

Average All Services

67.1

* Per deposit

 

 

The study states that consumers feel differently about lifestyle financial services. These services have emerged as technology has advanced and personal lifestyle behaviors have changed. The result is a much more acceptable value proposition due to the services embracing increased consumer mobility, personal financial management, informed purchasing, time efficiency, digital identity protection and media connectivity.

So how much are consumers willing to pay for these lifestyle financial services? The study respondents state they are willing to pay an average fee of $3.63 per month for each of these financial lifestyle services.

There is market validation for some of the study’s results already. StrategyCorps, which provides consumer checking account solutions that incorporate some of these lifestyle financial services, has found a material percentage of consumer checking customers do indeed pay for them happily. The most popular services are personalized couponing and identity monitoring/alerts (along with cell phone protection and insurance programs), which are all mainstays of our best performing fee-based checking solution.

Our experience is that the price point customers will pay for these popular lifestyle financial services bundled in the checking account (rather than sold separately) are averaging nearly $6 per month. The typical sell rate is about 30 percent of new accounts (when unconditionally free checking continues to be offered and 60 percent+ when not offered) and 40 percent of existing accounts, when these services are properly designed in the checking account, the account is smartly positioned in the overall consumer checking lineup and product merchandising is aligned with customers’ purchasing behavior.

While customers acknowledge the value in these types of services, our experience is that product design, lineup positioning, and aligned merchandising play a critical role in a customer’s willingness to pay. In other words, these services, despite their inherent value, don’t easily sell themselves like free checking. However, when properly offered to customers, the sales rate is very high.

This means a lot of new customer-friendly fee income at a time when non-interest income at U.S. banks generated from fees on deposit accounts decreased $2.1 billion or 5.8 percent in 2011, the continuation of a five-year trend. Pile on top of this trend line the continuing regulatory pressure on overdrafts and a full year’s impact of the Durbin amendment not captured in the 2011 numbers, and the challenge of getting more fee income without ticking off customers gets even more difficult.

It‘s clear that trying to generate new fee income from just basic banking services is a proposition that customers will not accept. The market has definitively spoken on this strategy.

The good news from the results of this study and StrategyCorps’ proven market experience is that there are fee income based checking solutions that do work in addressing the fee income challenges faced by every financial institution.

mbranton

Mike Branton is the managing partner of StrategyCorps, which works with financial institutions to improve financial performance and make checking accounts connect better with consumers. 

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