Opting into Value-Based Fees

Lee Wetherington
June 10, 2010 | COMMENTS

In February, amidst looming regulatory changes and purported pressure by its customers, Bank of America Corporation announced a categorical end to overdraft protection of debit cards, surrendering an estimated $2 billion in annual fee revenue, earning praise from the U.S. Treasury Secretary and consumer watchdog groups, and unofficially inaugurating a new era of banking: punitive fees are out, to be replaced with … what?

That's the question so many bankers are grappling with today. How can they replace the fee income lost due to recent regulatory restrictions on overdraft fees linked to debit cards and ATM withdrawals?

The answer can be found in charging for services that consumers really need and want, such as expedited or “last minute” bill payments, person to person (P2P) payments and value-based custom checking. Additional revenue can be earned from specialized products for small business customers, such as improved cash management, asset-based lending on receivables and credit cards targeted to this segment.

Small fees for account alerts, easy-to-use personal financial management (PFM) tools, person-to-person (P2P) payments and expedited (“last-minute”) bill payments are, in fact, not only acceptable but desirable, as these services speak to consumer demands for financial security and control in uncertain times. Each represents a fee revenue opportunity.

A reasonable fee is easily justified by clear value and clear value is established by addressing current, pressing needs. For consumers, these are: security, personalized experiences and proactive communication regarding accounts. A value-based business model enables banks to capitalize on these top-of-mind concerns—in other words, generate fee income. However, modest recalibration of fees, especially OD fees, is a huge public relations opportunity for banks looking to reclaim reputation, incent OD opt-ins and find sustainable middle ground between no fees and punitive tolls on the poorest 10% of customers.

This is an executive summary from a much more detailed article by Lee Wetherington, director of strategic insight for ProfitStars. Read the full article in BAI's online publication Banking Strategies at http://www.bai.org/bankingstrategies. Reprinted with permission.