Banks have a long history of inventing self-serving buzz words to describe their products and services. Terms like "customer centric" and "trusted adviser" are ubiquitous, yet it is almost impossible for a consumer to make an informed choice based on product names. (What do green, gold, executive or platinum tell you about a product?) Bank pricing disclosures and product descriptions are opaque at best, and they leave customers frustrated and confused.
In the current economic environment Congress is edgy, consumers think that banking should be free and the press is looking for a villain. Put it all together and you have an area ripe for re-regulation.
Historically banks have benefited from ambiguity and ignorance surrounding spread income and fee income. Banks know that consumers establish strong behavior patterns and they count on customer inertia as part of their retention strategy. Current pricing models depend heavily on a relatively small percentage of customers who continually bump into user fees.
But, most customers don't understand the unbundling of bank services and won't take monthly maintenance fees lightly.
Can you blame them? Can customers trust a bank to give them the best deal? How many banks actively advise customers on the best rates, best deals and the trade-offs of various fee arrangements? How many advise customers to invest idle funds?
The explosion of interest rates in the 1970s provided a good lesson. Banks didn't encourage customers to move non-interest-bearing direct deposit accounts. The result: nonbank money market funds siphoned off billions of dollars from customers' accounts. We left ourselves wide open for that frontal attack.
Existing bank pricing models will collapse under the weight of consumer choice. For now, customers tolerate historic pricing structures because most don't research alternatives on the Internet. But behaviors are shifting quickly, and CDs and mortgages already reflect the impact of transparency and choice. We have pushed customers toward wonderfully sticky bill-pay accounts without weighing the law of unintended consequences — bill pay exists on a device that makes shopping the competition only a click away.
Smart marketing and product executives realize that the game is changing. Some have even posited that the most compelling customer value proposition is this: "We will take you by the hand and show you what is in your best interest." Large money-center banks understand how far the consumer pendulum has swung and a handful have already responded with differentiated pricing and bundled product solutions.
Banks want the entire customer wallet and sticky relationships. Customers want a fair deal, good service and no hassle.
As an industry, we would be wise to create a win-win solution that serves both the banks' and the customers' interests before the regulators do it for us.
