Retail banking profitability remains in a funk and incoming clouds of technology and millennial-led expectations aren't improving the outlook.
With these undercurrents, many bankers have written off their ability to move from punitive to proactively billed consumer banking fees. But that's a fatal mistake. Today's tech-friendly consumer is very willing to pay dearly for services they deem to be convenient, vital and relevant. So we need to answer this essential question: How can bankers get consumers to once again willingly pay recurring fees in order to move the industry further away from relationship-killing income such as overdraft fees? The answer lies in helping consumers gain wealth, regardless of their financial starting points.
Let's talk about where consumers are willing to spend on fees, which is the same area bankers are increasingly spending on: technology and related services. Consumer tech-sector service providers — such as Amazon, Apple, AT&T, Comcast, Netflix, The New York Times Digital and Spotify — are getting fee-based consumer revenue on a monthly basis more than ever before.
While these companies are a very mixed bag in terms of trust and customer service, they prove that people will pay in advance for valued services, month in and month out, and sometimes on an ever-increasing basis. Apple, in particular, offers a lesson of how to get customers to pay a premium, with a multi-channel approach toward delivering solutions to core and emerging needs. Netflix continues to drop content while raising fees in double-digit percentages.
Sure, I've heard bankers frequently say they don't want to become "utilities" or "just pipes." Yet this misses the point that consumers want to feel empowered by paying for something that they deem to be essential to their lives. They are willing to pay to be pleasantly surprised by a service that proves to be essential and practical. Most important, they want to have convenient and safe solutions for some of life's most complex challenges. Financial services are a paramount need for everyone, and consumers need what bankers are in a unique position to offer.
Consumers, of course, won't pay for everything. Just as with the advent of digital banking access (ATM, online, mobile, etc.) people won't pay for digitally connecting to a bank any more than they will for the privilege of walking into a physical branch. Furthermore, most incremental fee-for-a-widget schemes will backfire spectacularly. Don't expect to get fee revenue for a marketed service that is really just a rebranding effort.
But before getting too discouraged, let's shift focus to the fact that regulated bankers are uniquely positioned to help several consumer categories that are in need of user-friendly financial services.
Consumers have financial challenges like never before. From record levels of student loan debt to uncertain investment decisions at retirement age, a financially hard-hit and undereducated population could benefit so much from the knowledge possessed by bankers.
Debt or investments expertise is just the start. Consumers are also worried about fraud or confused about new payments methods. With the long-term backdrop of a shrinking middle class, people need help more than ever to navigate the myriad new financial choices available.
However, the importance of trust cannot be overstated. In order for bankers to profit from providing consumer-friendly services, consumers have to believe the bank is truly looking after their interests. The millennial-focused fintech movement and a restoration of trust go hand in hand. Banks must bet their entire retail operation on the ability to improve customers' overall financial lives with integrated service and technology that is founded on trust and transparency.
But right now, transparent and recurring bank fees are too low for providing the services meant to better consumers' financial well-being.
Partly as a result, bankers are scrambling to charge punitive fees to recoup the rising cost of the very technology that is demanded in retail financial services. We must move away from this vicious free-banking-with-punitive-fees model.
Leaders in retail banking need to work from a deeper and more holistic understanding of how today's financially challenged consumers operate. That means embracing a counterintuitive reality about consumer bank fees. After the unsustainable "free-checking" era, customers will and must pay for essential and transparently marketed financial needs in order to thrive.
Jim Van Dyke is an independent consultant and consumer advisory board member for the Consumer Financial Protection Bureau. He can be reached on Twitter @JimVanDyke.