It has been almost 9 months since the implementation of Reg E, and the government has again created legislation that will have unintended consequences for a majority of bank customers. The still debated, but most likely to be implemented, Durbin Amendment to the Dodd-Frank banking bill will significantly lower the interchange income that banks can earn from debit transactions. In fact, many believe the impact could cause a reduction of 60-80% or more to this important non-interest income source.
Banks can't absorb this massive of a reduction in revenue without passing the costs on to the consumer in some form. On January 20 in an interview with the Los Angeles Times, Wells Fargo's Chairman, John Stumpf stated that new fees will need to replace those that are being eliminated. "We've begun to implement some changes," Stumpf said, apparently referring to a $5 monthly checking fee, imposed last July on new customers. "And there are more to come."
On the following day, Richard Davis from U.S. Bancorp echoed the sentiments of Wells Fargo, stating that they will soon will eliminate free checking and debit card rewards without strings attached, like minimum balances. At the same time, Chase and Bank of America are testing fees including a monthly fee for having a debit card, increased monthly checking fees and the elimination of rewards programs and free ATM usage.
So, how can bank marketers soften the impact of these fee adjustments and position new checking options in a more positive light?
- Know Your Customers: Take time to evaluate your customer database and understand which accounts are profitable to your bank and which are under water. But don't stop there. You also need to understand the customer's entire relationship to evaluate the potential impact of your repricing decisions.
- Look Out for Your Customers: Instead of converting a whole class of customers to a new pricing structure, you should determine which customers are no longer in the best account type based on balances, activity, relationship, etc. Over the past ten years, almost every customer was encouraged to open a Free Checking. Many of these customers will hold balances or conduct business in a manner that could retain their free status. For those who don't, provide clear guidance as to how they could retain a free or low cost alternative. Put yourself in the shoes of the customer and consult them as to the best way to bank with your institution.
- Communicate With Your Customer: In the past, most checking pricing changes were communicated using a statement insert. Since most banks will be implementing significant changes to their checking product portfolio, it is better to leverage the segmentation and targeting potential of more direct media such as direct mail, email and phone calls. These channels provide the opportunity to build custom messages for customers to guide them to the best product in your new continuum. In addition, leverage as many channels as possible to reinforce the best strategy for the customer going forward.
- Reward Your Customer: In almost every instance, there is the ability to structure your communication in a way that can reward positive customer behavior. While you may be eliminating the waiver of foreign ATM fees, can you reward the use of your ATMs? While you may be increasing the balances required to maintain minimal fees, can you reward the customer for selecting electronic statements? Finally, while you may be either charging for your rewards program going forward or eliminating the program for some categories of accounts, can you use points as a currency if the customer moves to a different category of account?
How are you planning to communicate your changes to customers? Will there be unintended consequences from your communication? I'd love to hear from you.