Culture is fundamental to the success of the deal, so it’s top of mind for bank leadership teams working with Richard Hall, managing director for banking and financial services at BKM Marketing. In this video, he explains why transparent, candid communication is key to retaining customers and employees, and shares his advice for post-pandemic strategic planning.
The bank industry is no stranger to change. In just the past few decades, deregulation, telephone banking, ATMs, the internet and mobile phones have all caused banks and bankers to adjust how they approach their trade. But while the fundamentals of banking have remained the same throughout all of this, with the changes confined largely to the way banking products are delivered, one gets a palatable sense from attendees at Bank Director’s Acquire or Be Acquired conference this year that the industry is on the verge of a more transformational realignment.
In the short-term, bankers are upbeat about last year’s historic tax cut. You have to go back to World War II to find the last time the corporate income tax rate was as low as 21 percent. Few industries will benefit more than banks from this reduction, as three out of the four biggest taxpayers on the S&P 500 are banks. The net result is that profitability in the industry, measured by return on assets, is expected to increase by 20 basis points in one fell swoop.
The benefit to banks from the tax cut won’t just be on the expense side. In an audience poll on the second day of the conference, 84 percent of attendees said that they expect small businesses to recycle tax savings into new investments, be it better technology or higher wages for their employees. If this comes to fruition, it would pour fuel on the economy, pushing up wages and accelerating inflation. The desire to keep price increases in check, would incentivize the Federal Reserve to raise rates more aggressively, thereby pushing up net interest margins and thus revenue and profits throughout the bank industry.
This is one of the reasons that bankers are so optimistic about 2018. Bank stocks have soared over the past 14 months, pushing valuations up to the highest level in a decade. Bankers who own stock in their banks have seen their balance sheets respond in kind. For banks that have considered a sale, this presents a previously unexpected opportunity to cash in by drawing a markedly higher price for their shareholders from a merger or acquisition.
Yet, there are two underlying currents of concern. The first is that the improved outlook will lull bankers into complacency. With profits up and shareholders feeling rich, investors fear that bankers will feel less urgency to change. But as Tom Brown, CEO of hedge fund Second Curve Capital, reminded attendees earlier in the conference, bankers should be careful not to confuse a bull market with brains.
Banks have survived countless innovations that have washed over the industry in the past by adapting to them and incorporating them into their existing business models, but the changes afoot now, be it big data or mobile banking, strike at the very heart of those business models themselves. In a separate poll of audience members at this year’s conference, 83.5 percent of attendees said that big data is the new oil. The implication is that it could usher in changes as significant as the industrial revolution.
This is a point that Dennis Hudson III, the chairman and CEO of Seacoast Bank, a $5.8 billion bank based in Stuart, Florida, drove home in an interview with Bank Director. Customers are becoming less sticky. Many customers no longer walk into branches and younger generations in particular now value banks less for the ability to store money and more as the means to facilitate secure, real-time payments. Banks that don’t adapt to these realities could find themselves in the same situation as horse buggy drivers who dismissed the automobile as a toy for hobbyists.
When you also factor in the maturity of the consolidation cycle, which could leave under-performing banks with few suitors and competing against bigger and more sophisticated rivals, this may be one of the worst times in the history of banking to grow complacent. Consistently throughout the conference there was talk of the haves and have nots. The haves are banks that earn industry-leading returns and thereby serve as attractive acquisition targets or are in a position to be serial acquirers in their own right. The have nots, on the other hand, are banks that lag the performance of their peers, lack the resources to devote to innovation and could thus find themselves standing alone when the proverbial music stops playing.
Further underlining this point is that, for the first time, the nation’s biggest banks are growing customers organically, attracting them with simple and sophisticated mobile banking offerings and competing aggressively for consumer deposits as they comply with new liquidity requirements. This is a meaningful inflection point. Previously, community and regional banks benefited from the acquisitive ways of the biggest players in the industry, which shed customers as the banking behemoths worked to digest their acquisition targets. But now, with the three biggest banks in the country locked out of the acquisition game as a result of the 10 percent cap on deposits, they are focused inward, bringing them into more direct competition with smaller banks.
The overarching takeaways from this year’s gathering of over 1,000 bankers are accordingly twofold. The near-term looks promising for banks, with more money hitting the bottom line from the recent historic tax cut. But banks should use this to accelerate their transformation into the financial institutions of the future, not as an excuse to rest on their laurels and buy back stock.
Armed with cost and process efficiency, greater transparency, and innovative underwriting processes, alternative lenders are determined to take the lending space by storm. Alternative small business lenders only originated $5 billion and had a 4.3 percent share of the small business lending market in the U.S. in 2015. By 2020, the market share of alternative lenders in small business lending in the U.S. is expected to reach 20.7 percent, according to Business Insider Intelligence, a research arm of the business publication.
Being able to understand customer-associated risk by relying on alternative data and sophisticated algorithms allowed alternative lenders to expand the borders of eligibility, whether for private clients or small businesses. In fact, a Federal Reserve survey of banks in 2015 suggests that online lenders approved a little over 70 percent of loan applications they received from small-business borrowers—the second-highest rate after small banks, which approved 76 percent, and much higher than the 58 percent approved by big banks.
Coming so close in approval rates to banks and having lent billions employing a different, more efficient business model inevitably created an interest from banks. Some of the largest institutions have been taking advantage of the online lenders’ technology, but community and regional banks are still in the early stages of exploring partnership opportunities. While concerns over those types of partnerships are understandable, there are also important positive implications, which we will explore further.
Cost-Efficient Capital Distribution Channel Online marketplaces represent an additional, cost-efficient channel for capital distribution, expanding the potential customer base. An opportunity to grow loan portfolios with minimal overhead and without the need for adoption or development of resource-consuming technology, led to a partnership between Lending Club and BancAlliance, a nationwide network of about 200 community banks. The partnership allowed banks to have a chance at purchasing the loans originated by Lending Club, and, in case those loans did not meet the requirements, they were offered to a larger pool of investors. Banks also have an opportunity to finance loans from a wider Lending Club portfolio.
Examples of partnerships also include Prosper and the Western Independent Bankers. These partnerships give more banks an opportunity to offer credit to their customers, and more consumers access to affordable loans.
Portfolio Diversification and Customer Base Expansion Alternatives lenders can offer an easy application process, a quick decision and rapid availability of funds due to an alternative approach to the underwriting process. Use of alternative data to assess creditworthiness is an inclusive approach to loan distribution. In 2015, in the U.S., there were 26 million credit invisible consumers. Moreover, the Consumer Financial Protection Bureau suggests that 8 percent of the adult population has credit records that you can’t score using a widely-used credit scoring model. Those records are almost evenly split between the 9.9 million that have an insufficient credit history and the 9.6 million that lack a recent credit history.
Paul Christensen, a clinical professor of finance at Northwestern University’s Kellogg School of Management, believes there are positive implications for companies leveraging alternative data to make a credit decision.
“For companies, alternative credit rating is about reducing transaction costs. It’s about figuring out how to make profitable loans that are also affordable for most people—not just business owners,” he said in a September 2015 article.
For community banks, as regulated institutions, partnerships with alternative lenders that extend credit to parts of the population perceived as not creditworthy is an opportunity to reach new consumer segments and contribute to inclusive growth and resilience of disadvantaged households.
Customer Loyalty Two Federal Reserve researchers noted in a 2015 paper that community banks can increase customer loyalty by referring customers to alternative lenders when banks cannot offer a product that meets the customer’s needs. “By providing customers with viable alternatives? it is more likely that these customers will maintain deposit and other banking relationships with the bank and return to the bank for future lending needs,” the researchers emphasized.
Access to Knowledge, Expertise and Technology While the extent of integration may vary, one of the most important elements of partnerships that carry long-term organizational and industry benefits is mutual access to knowledge, expertise and technology. The combination of banks’ and alternative lenders’ different business models with an understanding of mutual strengths allows the whole industry to transform and provide the most efficient, consumer-facing model.
What do some of the great companies that have disrupted entire industries have in common? Think about companies such as Zappos.com, an online shoe retailer that has grown to be one of the world’s largest shoe retailers, now owned by Amazon. How about Uber and Lyft? They’ve crushed the taxi business. How about Apple, with its legions of customers more than happy to pay two or three times what competitors charge for their products? Not only have these companies simplified the buying process, but they have generated something many companies lack: customer loyalty.
As part of his speech last week at Bank Director’s Growing the Bank conference, Joseph Bartolotta, an executive vice president at $9.6 billion asset Eastern Bank in Boston, Massachusetts, talked about these companies and the importance of loyalty. Loyalty will generate increased spending from your customers, make them less sensitive to price and more likely to refer other customers. Loyalty will also lower your costs and reduce customer turnover, he said.
What have companies like Uber and Zappos done to generate loyalty? Zappos has a 365-day return policy and will pay the costs of return shipping. Not only are Uber and Lyft generally cheaper to use than taxis, they have a payments experience that is extremely smooth precisely because there is no payments experience, Bartolotta pointed out. The companies send you a receipt via email after your ride is over, and there is nothing to sign or approve. Apple creates products that are expensive, but their loyal customers swear they are better than anything else.
Banking, with a few exceptions, doesn’t necessarily generate a lot of loyalty. In a Gallup poll in 2015, only 25 percent rated the honesty and ethics of bankers high or very high—behind funeral directors, accountants and journalists. (But don’t despair, bankers rated higher than real estate agents, stockbrokers and members of Congress.)
Bartolotta listed a couple of practices that he thinks have hurt the customer experience in banking. A common industry practice of ordering check and debit transactions from the highest dollar amount to the lowest generated a high level of overdraft fees in the years leading up to the financial crisis, but it led to widespread customer dissatisfaction. Customers revolted and filed class action lawsuits. Another is the practice of a continuous overdraft fee that occurs until the customer comes out of a negative balance.
Bartolotta also tries to steer away from the use of asterisks and fine print in company marketing materials and brochures. Bankers may say, for example, “Yes sir, we disclosed this to you at the time of the account opening. It was in the document you received.” Communication, including in such documents, should be in plain language, avoiding acronyms and industry lingo, such as “RDC” for “remote deposit capture.”
In addition, banks should do everything they can to avoid making customers jump through hoops. If you are contemplating a new product or service, bring a literal chair into the room where the discussion is taking place and label it “customer,” he said. Make sure, in other words, the customer is always a part of the discussions about any products and services you provide.
What banks generate loyalty as described? Columbus, Ohio-based Huntington Bancshares does with its bank’s asterisk-free checking account. The checking account for The Huntington National Bank is free with no minimum balances. Anyone who overdrafts the account gets a notice and a 24-hour grace period to right the error before being charged a fee.
Bartolotta used his own mutual as another example. Eastern Bank had been sending emails to customers who closed accounts asking them why they were leaving. They got back several responses from customers who said, ‘I didn’t close my account. You did.’” It turned out that Eastern Bank, like a lot of banks, was charging a recurring fee on inactive accounts and then closing those accounts when they ran a zero balance. Many customers never opened their account statements and didn’t know what was going on. To change this, Eastern Bank began warning customers when they were about to be charged an inactivity fee, and giving them options to avoid the fee and even close the account, if they chose. The helpfulness was a huge improvement.
There’s room for improvement in the reputation that the banking industry enjoys. A lot of small, community banks already follow these customer-friendly practices. It would helpful if the entire industry did.
As I was driving to a meeting the other week listening to the radio, I heard back-to-back commercials from two different banks about checking accounts. The first was a super-regional bank promoting that they would pay me $250 to move my checking account to them. The second, one of the mega banks (a top five bank in asset size) promoted a similar message but upped the incentive to $300 to switch.
When I got home later that day, I found a direct mail offer from another mega bank upping the incentive to $500.
I looked closer at the conditions of these incentives and found a similar nuanced strategic objective. These banks (and a few others I found online making similar offers) are clearly not returning to the days of “open a free account, get a free gift.” They aren’t looking for just consumers willing to switch their account to a free account with no commitment other than the minimum balance to open requirement (usually less than $50).
Rather, they are looking for those willing to switch their relationships that require a certain level of funding and banking activity (direct deposit, mobile banking activation, etc.) to earn part or all of the cash incentive. And these banks aren’t offering a totally free checking account.
Recognizing this as the objective, I perused a major online marketing research company to look for competitive responses from community financial institutions and found hardly any similar monetary offers. Those that were similar were mainly promoted just on their respective websites.
So what do these large banks know about these types of offers that community financial institutions don’t know (or deem important enough) to mount a credible competitive response? Reading and listening to presentations made to stock analysts by big bank management reveal that they know they can simply out market smaller community financial institutions, which don’t have or want to devote the financial resources for incentives at these levels.
They also know these smaller institutions’ customers, namely millennials, have grown disenchanted with inferior mobile banking products, and are looking for superior mobile products that the larger banks typically have. They are capitalizing on a growing attitude taking place in the market regarding consumers who switch accounts — 65 percent of switchers say mobile banking was extremely important or important to their switching decision, according to a survey by Alix Partners.
So by out-marketing and out-innovating retail products, larger banks know the battle is on to attract profitable or quick to be profitable customers, traditional ones right down to millennials who never set foot in a branch, by offering an attractive “earned” incentive to move and providing better mobile products along with a wider variety of other retail products and services.
Now community bankers reading this may be thinking, “That’s not happening at my bank.” Well, you better double-check. Last year, 78 percent of account switchers nationally were picked off by the 10 largest U.S. banks (and 82 percent of younger switchers) at the expense of community banks. Community banks lost 5 percent of switcher market share and credit unions lost 6 percent, according to Alix Partners.
And once these larger banks get these relationships, they aren’t losing them. Take a look at JPMorgan Chase & Co. Chase Bank has driven down its attrition rate from over 14 percent in 2011 to just 9 percent in 2014 (an industry benchmark attrition rate is 18 percent). Also from 2010 to 2014, it has increased its cross-sell ratio by nearly 10 percent and average checking account balances have doubled.
With this kind of financial performance (not only by Chase but nearly all the top 10 largest banks), a negligible competitive marketing response from community institutions and a tentativeness to prioritize enhancing mobile checking related products, their cash offers from $250 to $500 to get consumers to switch accounts is a small price to pay.
Combining this with well-financed and marketing savvy fintech competitors also joining the battle to get customers to switch, the competitive heat will only get hotter as they attack the retail checking market share held by community institutions slow to respond or unwilling to do so.
So community banks and credit unions, what’s your next move?
For many community banks, continuously communicating with their customer base can be challenging given limited resources and rising compliance requirements. In this video, Michael Tipton of emfluence discusses how using an automated messaging platform for new accounts can help banks cultivate and grow customer relationships.
Thanks to e-commerce stars like Amazon and Zappos, consumers expect exceptional, real-time customer service every time—whether they’re buying books, boots or a mortgage.
Do it right and your customers will come back again and again, even trumpet you on social media. Disappoint them or move too slowly, and they’ll rant about you to their 10,000 Twitter followers. Even if they like you, they can be quick to abandon you to sample your competitor’s cool new app.
How can you respond to customer needs at both ends of the urgency spectrum: instantly, with transactions conducted 24/7 on mobile devices, and over the long haul, ready to respond as a customer moves from college, to home buying to retirement?
Creating Loyalty for Life Keeping customers engaged for years and less susceptible to competitors’ pitches means offering products that sync with key milestones. Those include savings and checking accounts, student loans, debit and credit cards, auto loans, mortgages, insurance, home-equity loans, child-focused savings plans for their kids, college savings plans and retirement planning.
Consider the loyalty created with first-time homebuyer programs. One example is the First Home ClubSM, a matched savings program administered by the Federal Home Loan Bank of New York. For every dollar a pre-qualified customer saves over a 10- to 24-month period, participating lenders match $4 for a one-time payment of up to $7,500 in matching funds that may be applied toward the down payment or closing costs on a home.
Technology-Driven Competitiveness But technology is forcing banks to do much more. Those lifestyle-sensitive products must be personalized and delivered quickly and easily, says Joseph J. Buggy, senior vice president and chief strategist at Sutherland Global Services.
Witness digital-wallet and virtual-currency solutions like Isis, Bitcoin, Square, PayPal and Google Wallet. Tech-savvy young people are quicker to snap a smartphone photo of a paper check for deposit than to visit a branch.
Banks are struggling to embrace customer expectations for mobile self-help solutions, Buggy says. And yet they must move quickly, with customers adopting mobile banking five times faster than they adopted online banking back in the 1980s.
Customers want the same experience when accessing their bank, whether via personal computer or smartphone, Buggy says, and the technology is there to allow banks to offer that. Many banks, though, immersed in replacing core systems, have hesitated to invest in syncing Internet- and mobile-based platforms into a single interaction channel.
Leveraging Social Media With Facebook boasting a billion users and Twitter many millions, engaging with new and existing customers means moving into those spaces effectively. Banks large and small are using social media to promote services, respond to customers, recruit employees and even supplement crediting decisions. Soon, customers may check balances and conduct bank transactions via social media.
Buggy advises banks to take a clear position on social media and commit only to the channel(s) the bank can staff 24/7. A static account with outbound-only communication, where you are promoting your bank but not interacting with customers, is worse than none, he says.
“It’s more forgivable, from the customer’s perspective,” Buggy adds, “to not have a Twitter handle at all than to have one and not respond quickly to it.” Particularly with Twitter, “the demographic using it expects the interaction to be close to real-time.”
Must-Have Customer Service Qualities Banks have little choice but to meet customer demand for:
24/7 mobile access Banks not “open” around the clock will lose market share to whatever entities allow customers to transact business from their devices at 3 a.m.
Single dashboard/single login interfaces that show the breadth of a customer’s interactions Credit cards, mortgages and insurance may be separate operations inside your organization, but the customer doesn’t care. She wants to reach all of her accounts from one screen.
Inquiry resolution that’s quick, accurate and painless When communicating with you, do your customers prefer live chat, mobile apps, online self-help or social media? Are you using traditional interactive voice response (IVR), which requires the customer to type in lots of numbers when calling you on the phone, or have you moved to voice-enabled IVR, which is easier on the customer? How do your customers prefer to have complex questions or complaints resolved? Do snail mail and personal visits still have a place in your customer service strategy?
In a follow-up article, we’ll focus on finding the best ways to listen to your customers to ensure you’re serving them expertly—both in the moment and over the long term. For more information on this topic, see Sutherland’s white paper “The New Age in Customer Service.”
If you think about the people in your life that you are closest to, chances are they’re the ones that you’ve shared the most experiences with. Those experiences build the involvement needed to grow relationships—between people and also between people and brands. Because there are few things as personal as money, banking is an industry that has a huge opportunity to engage people in experiences that build lasting and mutually rewarding relationships. Yet it’s a segment that has low satisfaction rates (44 percent were extremely or very satisfied with their bank in an October 2011 Harris Poll).
To better understand the opportunity, we commissioned a study on people’s attitudes toward their bank and most importantly, how they felt their bank felt about them.
One big discovery is the difference between the way people feel about their bank and how they perceive their bank feels about them. About 39 percent of people surveyed feel indifferent toward their bank—they neither like, love nor loathe it. But when asked how they feel their bank feels about them, 54 percent feel their bank is indifferent toward them and another 6 percent feel their bank loathes them. I doubt there are many human relationships that could survive under that scenario.
When asked how open to switching banks people were, 30 percent said they are very likely or indifferent/open to switching—that means nearly a third of customers are vulnerable on any given day. A Harris Poll looked even worse for the bigger banks: 46 percent of JP Morgan Chase & Co., 40 percent of Bank of America Corp. and 54 percent of Wells Fargo & Co. customers are extremely or very likely to change their bank. When you consider an American Bankers Association study found that it’s seven times more expensive to replace a customer than to keep them, it seems that the opportunity and the need to build stronger relationships is very real.
Here are five ways banks can build mutually rewarding customer relationships and become a champion for them:
Champion customer needs by focusing conversations on “what they want to do” rather than “what we have to sell you” which just furthers the feeling that the customer doesn’t matter. Banks can rewrite the language used by everyone in the bank to reflect the needs and the power of their customers. One example is Opus Bank. The bank was founded on the belief that strong businesses build strong communities and everything they do supports people with the vision to drive job growth, including their tagline, which is a call to “Build Your Masterpiece.”
Give people credit for knowing how they like to use their money by creating a culture of choice that allows people to customize their accounts and services. While many aspects of financial products are regulated, banks could let people choose the other services they value. Where one person might value free wire transfers, another might prefer something entirely different.
Be a valuable resource that champions people’s desire to do something with their money. Think Nike+ for money. Offer financial management tools that help people set goals, track their progress using their account data, and get rewarded for their achievement. This could be a great opportunity to tie in commercial banking partners like retailers and restaurants in each geographic area. We are beginning to see new banks (e.g., Simple) emerge that leverage technology to not just make transactions easier but to actually empower the consumer.
Create communities for customers to share financial advice with each other and with the bank. Banks can show that they embrace customers as people (not just their money) by adopting the behaviors of sociable people, i.e. by being accessible, interested in what people have to say, and providing inspiration to help them achieve what they want to with their money. Regional banks like Umpqua Bank have done a great job of using technology to create a personal touch outside the bank. In contrast to the 98 percent of social media commentary about banks that is negative, theirs is 99 percent positive and almost to the point of fostering a “my bank is better than your bank” pride.
Empower employees to act in the best interest of their customers and reward them based on their personal contributions to the relationships they have. This is particularly important as customers switch to online banking and each interaction takes on more importance.
While creating these kinds of experiences may not directly sell more banking products, they have real business value. They build involvement with your customers and that involvement will lead to deeper relationships that are more mutually rewarding and profitable.
Customer satisfaction has become a hot topic in banking. Recent studies have concluded: “Delivering a positive customer experience is one of the few levers banks can use to stand out in today’s market (Capgemini 2011 World Retail Banking Report)” and“organic growth rooted in strong customer relationships, and the economic rewards they deliver, will be the best path forward for retail banks in the years ahead (Bain & Company Customer Loyalty in Retail Banking: North America 2010)” and from J.D. Power and Novantas, 2009: “Across all driving factors, satisfaction provides the most sustainable competitive advantage.”
With all of the advantages that come with high levels of customer satisfaction, it is no wonder that most banks and credit unions want to measure their customer satisfaction. According to the Capgemini World Retail Banking Report: “Banks are taking a closer look at the ways in which they incent and reward branch employees. Increasingly, they are using customer satisfaction as a key measure of employee performance. This process requires more frequent measurement of customer satisfaction and clear communication of the results to branch staffers.”Many banks today will claim that they measure customer satisfaction through mystery shops. While mystery shopping can play a role in improving the customer experience, it does not measure customer satisfaction. To help banks and credit unions understand the limitations of mystery shopping, Prime Performance has published a white paper entitled “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions.”
Mystery Shoppers Do Not Represent Typical Customers
Mystery Shoppers are Not Representative of the Entire Customer Base
Mystery Shops Do Not Reflect Variations in Service Based on Time of Day or Day of Week or Month
Mystery Shops Do Not Reflect Levels of Service Provided by Different Employees
Substantial Variation between Shops Diminishes Value of Results
Mystery Shops Do Not Provide Enough Observations to Draw Accurate Conclusions
The white paper discusses other challenges with mystery shopping including mystery shoppers being identified by bank employees and the unintended consequences of a mystery shop program. The paper also describes when mystery shopping makes sense, such as when customer contact information is not available or when it is used to supplement a robust customer satisfaction survey program.
The paper goes on to explain why telephone customer surveys are a superior approach for banks and credit unions, “based on decades of experience, we believe strongly that phone surveys are vastly superior to mystery shopping as a way for banks to gauge the quality of their customer service. Phone surveys are fast, efficient, effective and relatively inexpensive. They deliver data that is reliable, consistent and actionable. Clients welcome phone surveys that allow them to praise – or criticize – companies they know well. In fact, greater customer loyalty is an unexpected benefit of phone surveys.”
Every consumer is intrigued by the offer of something for nothing. Retailers have depended on the positive, natural response of consumers to this marketing message for decades to generate purchasing interest.
So it is odd, strange and frankly confusing that mega banks (Bank of America, JPMorgan Chase and Wells Fargo), which claim to be retailers, are doing just the opposite by offering “nothing for something” when it comes to charging their customers for debit cards.
Sure, debit cards have inherent value. But financial institutions of all sizes have diluted that value by giving the cards away for many years. This has trained consumers to feel that banks can make money by providing them for free and are now being greedy by charging for them.
Three, four or five dollars per month for a debit card probably won’t put many more people in the poor house, but it sure feels unfair. Response has been overwhelmingly negative by customers, non-customers, consumer advovcates, politicians and even other financial institutions.
As a practicing amateur psychologist, it is easy to see why the reaction has been so negative. Nobody: rich/poor, male/female, black/white/brown, gay/straight, or city slicker/hayseed likes to get nothing for paying something. It violates what economists call the “fair exchange of value.” It violates what I call common sense.
And that’s what these big banks miscalculated here. It’s not the amount of the fee itself that is riling up the masses, nor is it the justification of why fees must be charged:—the government made us do it.
Rather, it’s the perception of the fee as unfair that’s causing the uproar. Earlier this year, Russell Herder, a Minnesota-based marketing research company, conducted a survey of more than 500 United States bank and credit union checking and savings account customers to ascertain if, and to what degree, loyalty to their financial institution is impacted by fees.
The bottom line, according to the survey: “The belief that a particular bank fee is unfair has a much stronger impact on consumer sentiment than the fee itself. In fact, as long as charges are perceived to be fairly assessed, theresearch showed no negative impact on consumer sentiment whatsoever.”
If you don’t believe these results, tell me how you feel about having to pay for your luggage when you fly.
It’s this miscalculation of the impact of these fees on the collective psyche that provides a fantastic opportunity for competing financial institutions. It offers a “bags fly free” type of marketing opportunity to gain market share and mind share of consumers just like Southwest Airlines has.
There are smarter ways to get more fee income from consumer checking customers than, in their minds, getting charged something and getting nothing. You have to be creative and not rely solely on traditional checking design and pricing, because these also face customer backlash given the value perception in customers’ minds anchored around “getting charged for using my money”.
But it can be done. Hundreds of banks are successfully doing this already and there are millions of checking customers gladly paying fees equal to or greater than what these big banks are requiring customers to pay for debit cards. Customers are willingly paying $5-$7 per month for benefits like local merchant discounts, identity theft protection and accidental death insurance (bundled with traditional checking benefits). These benefits provide tangible value to customers in terms of real savings and ample personal security. In other words, banks are simply asking customers to pay a modest fee for something that is perceived as and is valuable, instead of for paying something and getting nothing new for it in return.
Someone said “chaos creates opportunity”. And when it comes to consumer checking accounts, this is just the beginning of chaos that we’ll see as banks try to recapture lost fee income. For some of you reading this, it’ll be your “bags fly free” opportunity. For others that follow the lead of Bank of America, it’ll be just another reason for consumers to broadly brush banks as out of touch with their customers.