ABN Amro adds fee pressure to get clients to go digital

ABN Amro plans to levy fees for some clients that don’t use digital payment processes, an aggressive tactic that’s had mixed results for the companies, retailers, and governments that choose to make intentionally harder to use manual payment processes.

At ABN Amro, a new fees will go into effect on Jan 1 with higher charges for services such as accepting hand-delivered deposits in a sealed bag. The bank said most payment fees will remain the same, and the higher fees are meant to “encourage” online services.

Though it may seem heavy-handed, there's an opportunity for ABN Amro's approach to work.

Jasper Juinen/Bloomberg

"There are definitely cases where the carrot and stick approach can work. The best situation is one like in the ABN-Amro PR, where it’s a single provider that is in control of both options, and where that single provider gains financial advantage by steering customers from one option to the other," said Rick Oglesby, founder of AZ Payments Group. "To do so, that provider can impose penalty fees on customers that use the more extension option and create an incentive to use the less expensive options.

Punishing people for not using technology is a bold move in a market that generally favors rewarding people for using technology, such as Apple Pay discount promotions to boost mobile payments at specified retailers. Yanking the pacifier of older processing directly through penalties, or simply not accepting paper money at all, is more unusual move, though it's picking up steam. ABN Amro did not respond to a request for comment by deadline.

One of more notorious examples is the Indian government, which in 2016 took most of the country’s money out of circulation. There’s no fine for using paper money in India; it's just that much of it is now gone.

While security was a primary reason given in India, the government’s plan was also to push people to automated payments by positioning traditional transactions as negative rather than innovation as positive. Even if people wanted to use paper money, they probably could not.

It worked in India, as the country has become a bastion of digital payment competition that will likely influence other countries. Foreign companies like Amazon and Walmart are pouring money into India, while local and regional companies such as Paytm and Grab have used the national push away from paper money to build a fast growing network of financial services.

Overall, Indian mobile wallet adoption has jumped, making India one of the world's top three mobile wallet markets in about two years.

Amazon and Disney have also shed cash in their own ecosystems. Disney's Magic Band functions as a payment device, a hotel key and a theme park admission ticket, and has been a success in a closed environment. Amazon Go's no-cashier model is still relatively rare, but is rapidly expanding to more cities.

But not all such dramatic moves work. Shake Shack abandoned its no-cash model in New York earlier this year, folding the option into self-serve kiosks following reports of pushback from customers who wanted to keep using cash.

Starbucks opened a no-cash store in Seattle earlier in 2018, but the location in a high net worth area faced criticism, as did the policy of refusing cash in general. Starbucks said that one store is still open, but did not comment on future plans.

In the case of ABN Amro, where the higher fees will mostly likely impact small to medium sized businesses, there's a chance the extra fees could actually be taken as an incentive.

“Paper statements can be a value add for small businesses that actually want a paper statement—and in a digital age, there’s space for banks to charge fees to willing businesses," said Richard Crone, a payments consultant, adding it can work the other way, where businesses may jump to digital payments or services to avoid the fees.

“It’s similar to bill payment and presentment,” Crone said. “For years banks sent out paper bills with the electronic, and only recently have started charging for them.”

Steering existing customers from one behavior to another can work, while buying new customers with financial incentives is a frequently a desperate and unsuccessful strategy, Oglesby said.

"No-cash, however, is and should be controversial because not all customers have cashless options available so it can create friction and can cause loss of business," Oglesby said.