Community Service with the Personal Touch

September 23, 2014
/   Insights

Question: Community branch, personal service, mobile banking—which is the odd one out? Answer: None. Otherwise, the industry is in trouble. For some time now, there have been discussions about the future of community banks...

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Mobile Banking Engagement: Data from Digital Insight

June 24, 2013
/   Spotlight

Intuit Financial Services has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several...

Financial Literacy Month: How are you celebrating?

March 22, 2013
/   Insights

With April approaching, it’s almost time to kick off Financial Literacy Month! Strongly supported by the United States Congress and the Financial Literacy and Education Commission, Financial Literacy Month aims to promote the importance...

*Guest post by Karen Licker, Social Banker & Content Contributor (Independent) at J.D. Power and Associates

As banks continue to explore ways to manage the sensitivity around charging fees while minimizing the impact associated with charging those fees, it’s important to focus on the following three areas:

1. Stability
The data from our 2012 U.S. Retail Banking Satisfaction Study shows that fee structure changes not only have a significant impact on customer satisfaction, but they also lead to an increase in problem incidence and intended attrition. The following are some best practices banks should consider when making changes to fee structures:

  • When changes are necessary, focus on limiting the number of changes customers are forces to accept. For example, making two or three changes to fee structures per year may be more confusing and less satisfying than making multiple changes at one time.
  • When fee changes are necessary, it is critical to communicate the changes well in advance so that customers are not caught by surprise.
  • While communication of fees is mandatory, there are some other ways for financial institutions to help ensure customers are aware of changes—e.g., communicating changes more than once and preferably via multiple channels, such as mailed letter and online notification.

 

Source: J.D. Power and Associates 2012 U.S. Banking Satisfaction Study

2. Communication

The impact of communication on the fee experience goes far beyond simply providing advance notice of any changes to the fee structure. There are other best practices that banks can follow to provide their customers with more information regarding fees or information on other product pricing options available:

Account initiation: Starting with account initiation, it’s vital that representatives perform a detailed needs assessment and identify the products that meets customers’ needs. Performing a detailed needs assessment during account initiation provides a big lift in fee understanding (22 percentage point difference for “completely” identified needs) , while also providing a significant lift in satisfaction.

Online account information: It goes without saying that providing customers with clear and concise access to account information and other pertinent information via the bank’s website is crucial. Clarity of account information and Clarity of information provided on the website provide considerable lifts in Fees satisfaction, while also improving fee understanding by 16 percentage points.

Outbound communication: Proactively contacting customers three or four times per year regarding banking products and services enhances satisfaction and understanding of both fees and product offerings, without creating information overload. Study findings show that satisfaction and understanding both begin to decline when customers receive five or more proactive contacts per year. This also includes performing account reviews to ensure customers have the right products. Empowering branch tellers and call center representatives to proactively review customer accounts and make recommendations for alternative products and pricing options provides lifts in Fees satisfaction and understanding and significantly improves the bank’s Brand Image rating for being Customer driven.

3. Value-Based Pricing

Despite the current level of price sensitivity related to service charges, such as maintenance fees and minimum balance requirements, there is still an opportunity for banks to generate revenue through maintenance fee charges by creating a clear value proposition aligned with the differing needs of their customer base. It’s also important to review the options that banks currently provide their customers with respect to maintenance fee charges.

Many banks have installed a minimum balance requirement so that customers are able to avoid maintenance fee charges, but it has created various levels of dissatisfaction. At the same time, customers indicated that discounts for students, senior citizens, military personnel, or multiple products are not widely offered, which may be related to poor communication of the discounts by the institution and, thereby, low customer awareness. But most importantly, many banks do not clearly communicate the benefits customers will receive in exchange for the maintenance fees they pay, nor are banks providing different pricing options based on channel and product usage.

By understanding the key drivers of high fee/above-average satisfaction across segments, as depicted above, banks should consider the following strategies:

Explain the value proposition—When considering how to roll out a new monthly maintenance fee structure for customers in a particular segment, banks should emphasize the offerings most important to that specific segment. For example, in their explanations to customers in the Affluent segment, banks should promote their mobile banking applications/improvements; their ability to provide proactive advice on accounts; their focus on an efficient and courteous branch experience; and their product offerings, such as debit card with rewards and mortgage discounts.

Develop unique pricing options—By understanding channel preference and usage, banks may potentially create unique pricing strategies. For example, since data shows that customers in the Affluent/Emerging Affluent segment tend to have lower levels of branch usage and preference than do other customers, banks may potentially offer these customers a special rate for low branch usage, such as visiting a branch once every 4 months. From the perspective of customers, they are getting a special deal for something that relates directly to them, and from the bank’s perspective, they tend to benefit by minimizing branch traffic and staffing needs.

The Bottom Line:
There are a few banks across the industry that are able to charge customers maintenance fees without jeopardizing satisfaction, including Frost National Bank, Woodforest Bank, Hancock Bank, and S&T Bank. Customers of these institutions are more likely to be charged maintenance fees, compared with industry average, yet Fees satisfaction remains significantly above average.

 

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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp