How does being a ‘low-cost’ bank impact outcome metrics?

Many banking institutions are evaluating their current fee structures and considering modifications in an attempt to drive bottom-line improvements, while also acknowledging the potential ‘fallout’ that can arise from a change to fee structures.

Using data from the U.S. Retail Banking Satisfaction Study, J.D. Power has analyzed the topic of fees from multiple angles. Among other things, prior analysis related to the topic of fees has found that:

  • The ‘negative impact’ of monthly maintenance fees has been decreasing within the retail banking industry, indicating that customers are becoming slightly more ‘accepting’ of monthly fees.
  • Many customers pay a higher-than-average fee, yet remain highly satisfied. This is driven by the delivery of a clear ‘value proposition’ from their bank (the customer feels that the benefits they receive from the bank outweighs the cost).
  • When implemented, fee changes represent a significant risk for banking institutions. Problem incidence will increase, driving an increase in labor costs associated with problem resolution. Intended attrition also increases, especially within the first month after a change.

When considering whether or not to increase/decrease monthly fees associated with checking accounts, it is important for banks to fully weigh the pro’s and con’s of the change. On one hand, an increase in the percentage of customers charged a fee (or an increase in actual fee amounts) can positively impact revenue.

However, as displayed in the chart below, data finds that banks who position themselves as a ‘low cost’ institution enjoy bottom-line benefits such as lower ‘cost-to-serve’, greater loyalty and greater share-of-deposits. Additionally, customers of ‘low-cost’ banks are significantly less likely to open additional accounts/products outside of the bank.

low cost

The decision to implement/increase/decrease fees should be unique for each and every banking institution depending on their overall strategic plans. It is critical, however, that they fully understand all potential ‘tradeoffs’ for any decision that is implemented. Analysis of consumer behavior and customer satisfaction data can be an extremely valuable tool to use when determining the appropriate cause of action.

 

Bookmark and Share

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>