Raising the Bar | By Mike Sobba
Banking services have become expensive over the past decade, and fee income to offset the high-quality services that banks provide has eroded in recent years. For most banks, checking account customers in the late 1980s and early ’90s received a checking account, a monthly statement and maybe a debit card if they qualified for one.
One by one, financial institutions began adding services their customers wanted, including online banking, bill pay, free ATM transactions, mobile banking and now being able to make deposits by taking a picture of the check with your smartphone. We have enhanced the services we provide without charging fees to cover the cost.
Service charge income in community banks has dropped dramatically since the peak in 2007, in part due to changes to overdraft payment programs and reduced interchange income due to changes associated with the Durbin Amendment to the Dodd-Frank Act. Tremendous overdraft fees and debit card interchange revenue masked the real problem that our industry is facing: Where are we going to get the money to pay for the technological and compliance changes our customers and the regulators are demanding?
Increased costs associated with compliance have dramatically increased since 2010. Who has to pay for replacing debit cards and credit cards for the recent security breach at Target? Who will pay to update ATMs to allow them to read the EMV “chip” that is required by October 2015? Who will pay for replacing debit and credit cards that have the more secure chip embedded? What other expenses will the banking industry have to endure from a regulatory perspective that we aren’t aware of?
It is imperative that we quickly learn what our costs are associated with the services we provide. Checking account costs and the services that are provided to consumers are not going to go down. What industry that serves consumers gives their services away for free? Would a bank loan money to a commercial business that didn’t know what their cost of goods sold were? Quality service comes at a cost. Quality products come with a cost. Our industry has prided itself on providing the best customer service and products that money can buy. The problem is no one “buys” them. If someone wants all of the expensive services, then they should pay for them. Free checking should only be provided to customers who want a basic checking account and don’t want to pay a fee. We all have customers like that.
A bigger problem is that we have trained our customers that they should get all of these services for free. So should you just start charging a paper statement fee for those customers who don’t want to sign up for e-statements? No. Just charging fees for the same things that customers previously received for free is not the way to go. The airline industry did this with baggage fees and the backlash was big at first. That is why the bins are always full when you get on the plane. Add value to the customer’s checking account with things they want and need. The Consumer Financial Protection Bureau recently said that all credit card companies should provide credit scores to their clients – for free. But what if a consumer’s credit score is too low? What is the credit card company going to do about it?
Providing highly sought after services, such as ID theft protection, credit score, credit bureau monitoring with alerts, and other resolution services is great, but who will buy them? You have to have a strategy to provide these value added services to all consumer accounts, rather than just selling them one by one. If you have the right products, the right strategy, and the right training of your employees, the end product will result in much happier customers and tremendous fee income for your bank. The right strategy will keep customers from closing their account and they will bring additional deposits to your bank.■