|FAVORABLE FEES Pay-by-transaction model gains acceptance|
Almost half of bank customers would consider paying a set fee of 25 cents to 75 cents for each transaction, as opposed to the traditional flat-monthly-fee models that many banks currently use, according to a Deloitte Center for Financial Services survey.
A surprising plurality, 48%, prefer this a la carte approach, more than double the second-place option, a fixed monthly fee set between $15 and $30, according to the survey. Respondents say this choice reflects their preferences for total transparency in account and service pricing. Four other potential pricing models drew between 5% and 12% of consumers' interest.
"Retail banks' free checking model has been withering away since 2009, and margins continue to erode," says Jim Eckenrode, the executive director of the Deloitte Center for Financial Services. "The basic economics of retail banking are under substantial pressure, given reduced noninterest income from traditional sources like debit interchange and overdraft fees. The question now becomes how banks move away from the free model, which a number of other industries have struggled with and often to the detriment of customer relationships."
The survey finds that there is considerable aversion to price increases, with many consumers believing that banks are not being fair in raising fees. What's more, consumers intend to switch banks if fees are increased on existing services. Almost one in four consumers surveyed (22%) say that a $5 fee increase would definitely cause them to switch banks, and another 36% said that such a move would probably cause them to do the same. Of those on the fence, even more might switch in response to a $10 fee increase.
Among other findings:
• Customers also seemed open to a variety of options when asked to rate the appeal of a range of new pricing and service models in exchange for reduced fees. For example, 40% of survey respondents expressed interest in a digital banking plan that would offer reduced fees while providing a limited level of in-person services, suggesting a significant appetite for primarily electronic account services.
• There were also some notable differences across age groups. For example, high balance requirements were relatively more popular among older respondents, and a discount for favorable social media activity was the most popular option among the youngest respondents.
• While nearly two-thirds of the respondents (65%) believe that all banks are only looking out for their own benefit, most consumers are satisfied with their primary bank.
• Interestingly, differences in price sensitivity and industry perceptions appear not to be driven by demographics, but largely by individual experiences and beliefs. Through statistical cluster analysis of the data, it is possible to identify three distinct groups of bank customers classifiable along the two broad axes of willingness to pay and perceptions of banks: the "Loyalists," the "Frugalists," and the "Distrusters."
"Banks should account for differences in perceptions and price sensitivity among their customer base by rethinking their approach to customer segmentation," says Brian Johnston , a principal and the banking and securities leader for Deloitte Consulting LLP, as well as a co-author of the survey. "How you treat a 'Loyalist' versus a 'Frugalist'-two of the bank customer types we identified-is going to be one big challenge. But effectively responding to those in the third category, the 'Distrusters,' is critically important. Organizations that invest the time and resources to understand how their customers feel about the bank, as well as their willingness to pay for services, can achieve their desired results as they make adjustments to their pricing methods."
There is perhaps some light at the end of the tunnel, however, according to the report.
"The more important piece for retail banks is going to be communication and transparency," says Eckenrode. "The lack of easy demographic identifiers for pricing preferences means that banks' insight into their customers will be key, and re-working pricing models will require engagement across multiple dimensions. The aim, of course, should be to build loyalty and satisfaction through better-tailored, high-quality services and offerings, the combination of which can help to drive customers' willingness to pay for products and services. After these steps, banks will likely receive 'permission' from their customers to make significant changes to their pricing policy."
The report can be found online at www.deloitte.com/us/retailbankpricing.
[This article was posted on February 20, 2013, on the website of ABA Banking Journal, www.ababj.com.]
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