February 29 2012|06.00 AM PDT

Are Bank Fees Always Bad?

Category: Financial InstitutionsTags: , , , ,

by Alex Gutow on February 29, 2012

Towards the end of 2011, many larger banks tried to implement new monthly fees on some of their banking products. However, customers weren’t thrilled with this and protested with both their voice and their money as some moved their funds to credit unions and community banks that offered fee-less accounts. It is clear that the implementation and education about these fees was done poorly; however, that doesn’t mean banks should always shy away from fees. For future fees, it is important to understand the need for fees and the best way to approach a fee increase to avoid losing a loyal customer base.

The Need for Bank Fees
According to the Motley Fool, banks are losing up to $300 each year on basic checking accounts. Combine this with the revenue loss from recent legislation and banks need to find a way to start bringing in more revenue and fees are one way to do so. However, if fees drive away potentially profitable bank customers, no amount of fees can help make that up. When looking to add or increase fees, it is important to remain focused on the goal for these fees. Basic checking accounts only lose money if those bank customers never open another account or use any other services. Bank fees need to help direct customers towards a desired action to ensure fewer fees in the future.

One way to help guide behavior is to let customers avoid fees based on specific criteria. Low-balance checking accounts on their own cost a lot of money, especially if the customer manages their account in person. Allowing customers to avoid fees by switching to online banking, maintaining a minimum balance or opening other accounts within the bank can help encourage customers towards more profitable behaviors.

Announcing and Handling Your Fee Changes
When it’s decided to launch new fees, it’s also important to consider how these will be communicated to customers to avoid confusion and backlash. You should inform customers through various communications to make sure fewer customers are caught off-guard. Additionally, in-branch employees can be a great tool to help educate customers about these fees. Employees should be trained on how to answer questions about the fee changes, especially why the changes were necessary. Letting your customers know what the fees are and what they cover will help consumers understand and accept the fees as part of the expense of having an account. Additionally, make sure to emphasize the value they are getting from the bank and the account to help further justify the cost. (Source)

The backlash from 2011 debit card fees will not be a deterrent for bank fees in 2012. As long as banks can appropriately educate and inform their customers of these fees, they should be able to avoid the protests from 2011. However, fees can’t be the solution to all problems as there is a limited to what customers will pay. Banks should experiment with various value-add services such as merchant-funded rewards or PFM to give their customers more reasons to stay. Merchant-funded rewards also lets banks generate some extra revenue to keep fees to a minimum as well, making this a win-win for banks and their customers.

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