Nearly all bank customers feel basic banking services typically found in checking accounts should be free because they provide their financial institution with low cost funding from account balances. Free checking, the dominate consumer checking strategy over the last decade, has very successfully reinforced this feeling.
But these attitudes may be changing. According to the Integrated Study on Service Fees, which was conducted by Market Rates Insight, an average of 67% of consumers say they are likely to use and pay for what was identified as “lifestyle financial services” (see table below).
|Lifestyle Financial Services||Overall
Likelihood of Use
|Identity Theft Alerts||82.5%|
|Credit Score Reporting||73.7%|
|Overdraft Transfer Service||67.9%|
|Personal Money Transfer||66.2%|
|Mobile Remote Deposit Capture||63.4%|
|Prepaid Reloadable Cards||47.1%|
|Average All Services||67.1%|
The study, which included responses from 1,500 current bank customers and credit union members 18 years old and over, states that consumers feel differently about lifestyle financial services. These services have emerged as technology has advanced and personal lifestyle behaviors have changed. The result is a much more acceptable value proposition due to the services embracing increased consumer mobility, personal financial management, informed purchasing, time efficiency, digital identity protection and media connectivity.
So how much are consumers willing to pay for these lifestyle financial services? The study respondents state they are willing to pay an average fee of $3.63 per month for each of these financial lifestyle services.
There is market validation for some of the study’s results already. StrategyCorps, which helps banks and credit unions build consumer checking account solutions around consumer lifestyle preferences, has found a substantial percentage of consumer checking customers do indeed pay for them happily. The most popular services are personalized couponing and identity monitoring/alerts (along with cell phone protection and insurance programs), which are all mainstays of StrategyCorps’ best performing fee-based checking solution.
StrategyCorps’ experience is that the price point customers will pay for these popular lifestyle financial services bundled in the checking account (rather than sold separately) are averaging nearly $6 per month. The typical sell-through rate is around 30% of new accounts when unconditionally free checking continues to be offered, and 60%+ when free checking is not an option. Financial institutions can also expect 40% uptake from existing checking customers when these services are properly designed in the checking account, the account is smartly positioned in the overall consumer checking lineup and product merchandising is aligned with customers’ purchasing behavior.
While customers acknowledge the value in these types of services, the product’s design, positioning in the checking lineup, and its merchandising relationship all play a critical role in a customer’s willingness to pay. In other words, these services, despite their inherent value, don’t sell themselves as easily as free checking. However, when properly built, managed and offered to customers, the sales rate can be very high.
This can mean a lot of new desperately-needed fee income at a time when non-interest income at U.S. banks generated from fees on deposit accounts decreased $2.1 billion or 5.8 percent in 2011, the continuation of a five-year trend. Pile on top of this trend line the continuing regulatory pressure on overdrafts and a full year’s impact of the Durbin amendment not captured in the 2011 numbers, and the challenge of getting more fee income without ticking off customers gets even more difficult.
It‘s clear that trying to generate new fee income from just basic banking services is a proposition that customers will not accept. The market has definitively spoken on this strategy.
The good news is the studies by firms like Market Rates Insight and the experience of companies like StrategyCorps’ suggest that there are indeed fee-based checking solutions that will address the income challenges facing every financial institution.