How Banks Charge Fees Without Jeopardizing Customer Satisfaction

*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.

 

Hefty ATM Fees Add to Consumers’ Dissatisfaction

Bank Transfer Day may have passed, but consumers are still feeling the sting from a variety of bank fees. Most consumers are accustomed to paying ATM fees when withdrawing money at a bank other than their own, but in recent years withdrawal fees have gone up leaving consumers with hefty ATM fees.

Ally Bank recently conducted a survey to see if consumers are aware of how much they pay in ATM fees yearly, and only nine percent of respondents chose the correct answer. To benchmark these numbers, Ally Bank cited research from consulting firm Oliver Wyman. The firm found that Americans spent $7.1 billion in ATM fees in 2010. Ally Bank survey respondents chose answers ranging from $100 million to $2 billion.

Survey respondents were also asked to identify what type of banking fees they feel are acceptable. Here are the top line results:

  • 84 percent of respondents do not believe it is acceptable to charge a fee for checking accounts
  • 79 percent do not believe it is fair to charge a monthly maintenance fee
  • 77 percent do not think it is appropriate to charge an ATM fee

Does your financial institution charge ATM fees, and if so, how do you communicate with customers or members about the fees? Let us know in the comments section below, or Tweet @bankingdotcom.

 

Will Bank Transfer Day Prevail?

As news rolls in regarding rising debit fees, numerous consumers across the country are voicing their opinions and putting their money where their mouth is. Encouraged by movements such as Occupy Wall Street and Bank Transfer Day on November 5th, bank customers are re-evaluating how and where they manage their money. So how are consumers really reacting? Intuit Financial Services’ 4th Annual Financial Management Survey polled 1,000 consumers in October to get a pulse on consumer’s attitudes. Below is a graphic outlining the findings:

Are you a loyal FI member, or do you plan to switch due to new fees? If you work at an FI, what are you doing to deepen relationships? Are you planning to charge new service fees?  Let us know by Tweeting @bankingdotcom or leaving a comment below.

IDC Poll: Which Banking Services Customers Will Pay For

IDC recently released a poll which investigates how consumers prioritize their banking services.  Through LinkedIn, the global intelligence firm polled 45 individuals on what single service that financial institutions offer deserved their hard-earned money.

The poll found that 39 percent found check writing to be the most important feature with the highest willingness to pay. The use of debit cards came in at a close second with 36 percent mindshare.

As the economy is stabilizing and the current consumer climate constantly wants free services, financial institutions will have to decide where they fall with respect to fees. However, the increasing ease and benefits of online banking may encourage more people to want to pay for banking services.

Which fees do you think make the most sense for consumers and FIs? Let us know in the comments below.