Deloitte Survey: Almost Half of Bank Customers Interested in Pay-by-Transaction Banking Fee Model, Surprisingly Retail banks may want to communicate and be transparent with fee changes — and take a more nuanced view of bank customers
NEW YORK, Feb. 7, 2013 /PRNewswire/ -- A new Deloitte Center for Financial Services survey released today finds that almost half of bank customers would consider paying a set fee of 25 to 75 cents for each transaction, as opposed to the traditional flat-monthly-fee models that many banks currently utilize.
A surprising plurality, 48 percent, 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 that this choice reflects their preferences for total transparency in account and service pricing. Four other potential pricing models drew between 5 and 12 percent of consumers' interest.
"Retail banks' free checking model has been withering away since 2009, and margins continue to erode," said Jim Eckenrode, the executive director of the Deloitte Center for Financial Services. "The basic economics of retail banking are under substantial pressure, given reduced non-interest 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 – unveiled as part of a report titled, "Retail Bank Pricing: Resetting Customer Expectations" – 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 percent) say that a $5 fee increase would definitely cause them to switch banks, and another 36 percent 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 percent 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 percent) believe that all banks are only looking out for their own benefit, most consumers are satisfied with their primary bank.
- More than one-third of consumers surveyed had no estimate of the cost that banks incur to service their accounts, with 87 percent thinking it costs $10 or less per month — while the industry average is estimated at double that amount, between $250 and $300 a year.
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," said 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 wiliness 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," said 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 survey of 4,271 U.S. individuals was conducted online by Harris Interactive on behalf of the Deloitte Center for Financial Services in August. For the complete survey methodology, please see the full report.
About the Deloitte Center for Financial Services
The Deloitte Center for Financial Services, launched in 2008, provides insight and research to help improve the business performance of banks and capital markets firms, private equity firms, hedge funds, mutual funds, insurance providers and real estate organizations operating globally. Headquartered in New York City, the Center is staffed by a group of professionals with a wide array of in-depth industry experience, as well as cutting-edge research and analytical skills. Former American Bankers Association leader Don Ogilvie serves as the independent chairman of the Center and also includes Howard Mills, a director with Deloitte Services LP, as a chief advisor.
As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
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