Transitioning customers from a free-to-fee service is never easy.

Case in point, the popular savings app Digit announced earlier this year it was going to start charging a monthly fee to help users save. The move offended some of the fintech company’s customers who took to social media to express their displeasure over the new $2.99 per month charge. Banks have also encountered this reputational challenge over the years. In 2011, Bank of America announced it was going to charge customers a monthly fee of $5 for debit card purchases, for instance. Customers revolted. Less than two months later, the bank retreated and abandoned its debit card fee plan.

But charging customers for services doesn’t have to end in customers getting angry. To successfully move from a free to a fee model, let’s learn these four lessons from Digit and B of A’s experiences.

A Bank of America branch.
In 2011, Bank of America announced it was going to charge customers a monthly fee of $5 for debit card purchases. Customers revolted. Less than two months later, the bank retreated and abandoned its debit card fee plan. Bloomberg News

Banks must accompany new fees with benefits of equal or higher value

When companies impose a fee on a previously free service, customers experience this event as a loss. It does not matter that they never had to pay for the service; there is still a mental perception of loss. To make matters worse, economics and decision theory tells us that humans feel the pain of loss more acutely than the pleasure of gain.

To overcome this phenomenon, companies have to add new benefits when they add any new fees or fee increases. B of A’s debit card fee, for instance, might have been more palatable if the bank included attractive new add-ons like cash rewards or free overdraft protection when it announced the new charge. Similarly, if Digit had made a stronger communications campaign that articulated the value of its new higher savings bonus and the addition of other exciting perks because of the new fee, customers may have felt less angry.

For nonpaying customers, provide an option to stay

It is not enough just to add new features along with a new fee. Companies must also provide nonpaying customers with an option to stay for free. In both the Digit and B of A examples, a fee was “imposed” and customers had two options: stay and pay the fee or close the account. Many people said online that they chose the latter. Again, this decision is rooted in human psychology. It feels good when we have choices and it feels bad when our ability to choose is taken away. Instead of a mandatory fee, Digit could have added a premium option where users could enjoy higher savings bonuses, rewards and other attractive perks for $2.99 per month. Meanwhile, nonpaying users could continue with a free basic level. Then, the company could nudge clients toward the paying option by making it increasingly uncomfortable to stay at the basic level of service. New features and innovative updates can be walled off and reserved for paying customers, which lets the consumer retain the power to choose.

Tread lightly — especially when free alternatives are widely available

Both Digit and B of A also overlooked the highly competitive nature of their businesses where free alternatives abounded. Soon after Digit’s fee announcement, rivals including BoostUp, Chime, Clarity Money and Qapital took to social media to emphasize the free nature of their savings apps. Similarly, unhappy customers at B of A did not have to look far to find a free alternative. There was a long list of banks — including Wells Fargo and JPMorgan Chase — that were offering fee-free debit card purchases.

Consider monetization options early in product development

Before financial institutions charge fees, they must develop an understanding of their customers’ willingness and ability to pay. This is arguably the most important first step; it cannot wait until the end of the product development process, or worse, after a bank has launched a new feature or service. By that point, it is too late for corrections, adjustments and alternative approaches.

Wei Ke

Wei Ke

Wei Ke is a partner with Simon-Kucher & Partners.

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BankThink is American Banker's platform for informed opinion about the ideas, trends and events reshaping financial services. View our detailed submission criteria and instructions.
David Chung

David Chung

David Chung is a director in the New York office of Simon-Kucher & Partners.

BankThink submission guidelines

BankThink is American Banker's platform for informed opinion about the ideas, trends and events reshaping financial services. View our detailed submission criteria and instructions.