The Price of Alienating Customers Through Excessive Fees
For the past 18 months the monthly statement arrived like clockwork. I had grown accustomed to promptly filing it without even opening it. I chose this money market account because, like millions of other Americans, I wanted to keep some cash "accessible," but not lose value. I opened this one by chance and was surprised by something new: a fee -- for inactivity.
Given I am a 10-year customer with multiple accounts, I made what should have been a no-brainer request: please reverse the fee. Nevertheless, the bank refused. The dreaded fee monster had reared its ugly head. I was now at the forefront of the industy's well-documented shift toward more fees.
Although it was a relatively small fee, I became angrier the more I thought about it. I just needed a place to park money without incurring a CD's "substantial interest penalty for early withdrawal." Yet here I was -- the bank had a lot of my money and was hitting me with fees. Whether they realized it or not, this clearly issued a call to action for me.
A recent assault on the Andrick family finances made the decision to begin shopping elsewhere even easier: In addition to a 66 percent "temporary" increase in state taxes and higher healthcare costs, my oldest child is now a college freshman and two are following closely behind. I really need my money to work harder for me. Then again, would banks not only be interested in me as a "consolidated" customer, but make it worth my while? The travel industry certainly uses that model with their package deals.
Several experts say a significant amount of consumers are receptive to consolidating all of their banking business to one institution. I've also heard a range from 15-25 percent for a bank's "average wallet share," meaning as much as 85 percent of a customer's potential is lost to the competition.
I reckoned it was time to test whether offering to engage in a multi-account relationship would be enough to secure a good deal. According to a September 2009 report from analyst firm Forrester Research, adults own an average of 8.2 financial products, but generally have no more than two or three at any one institution. Like many Americans I selectively opened new accounts based on need and best price at the time. In fact, I have a dozen banking relationships and my "main" accounts (e.g. mortgage, checking, car loan, credit cards, brokerage) are each with different banks.
How enticing would it be for a bank to land, right up front, such a large share of my "wallet"? There are numerous published articles and studies that note by increasing the amount of products a customer owns, the relationship period lengthens significantly. But are banks able to assemble the right bundle of products and services, at the right price, to entice my defection?
In an April 2010 article from Bank Systems & Technology, Terry Moore from Accenture notes, "If you look at the market today, there isn't a wave of [organic] growth for banks to ride anywhere on the horizon, so they have to ... bring innovation to how they go after new customer acquisition and cross-sales. " Additionally, Moore said, "Half of all searches for financial products start on the web."
Citizens Bank/Charter One Bank seems to accomplish this. "Banking Packages" are listed on its website with a tagline, "Isn't it time an entire bank revolved around you?" Their package touts low/no fees, preferred rates, priority service and loan discounts. I'm sure other banks have similar offerings, but it's actually difficult to see in practice at most other sites. Customers are typically forced down a single product line (e.g. deposit, lending or investment) up front, and "bundles" are usually limited to a couple deposit products.
My challenge to bankers and their IT staff: Are you ready? Have you worked across silos on attractive packages of products? Are your people trained? Do you have the right technology? Can I do this in the channel I choose? Does the prospect of losing me as an existing customer make any difference? (I'll visit several local branches to investigate soon.) The accounts in play, served up on a silver platter, should be enough to pique some interest: checking (with debit and bill pay), savings, money market, investment, first mortgage and HELOC.
To succeed, you will need to excel in four key areas:
- Customer focus: Do you seek first to understand me as a "whole customer" or does your staff just push the "deal of the month"? Do you grasp my fiscal goals and objectives?
- Competitive edge: Do you provide compelling product "bundles" or just individual products that require me find the "value"? How do they compare?
- Interaction experience: Will someone shepherd me through the process or will I be passed around? How easy is it to do business with you?
- Offer clarity: Are fees, rates and features easily understood, or do I need a lawyer? Can I validate them in another channel?
Banks need to better reward customers who bring them more business. This not only lets them deepen relationships; customers feel more valued and in some cases, privileged. Perhaps just as importantly, will you waive the occasional fee to keep my wallet share?
So I say to all bankers listening, "Come on down, you're the next contestant on The Price Is Right!"
Scott Andrick is a senior industry consultant in financial services for Pegasystems.
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