The question is not ‘to fee or no fee’ but rather what model and how to move ahead

Banks charge a fee for transactions on your accounts. However, these fee models vary from one financial institution to another. The traditional model used by institutions for a long time now has been a monthly flat fee. Off-late, banks’ customers have shown an inclination towards the pay-by-transaction model.

Retail bank fee and pricing modelAs we look at the consumers, a growing number constitutes the Gen-Y who is gradually outnumbering the baby boomers. This Gen-Y is accustomed to the concepts of ‘Pay per use’ or ‘Pay-as-you-Go’. It is time our banks move away from the traditional model of flat monthly fee and look at other models to suit the trends of the Gen-Y.

Based on a recent survey by Deloitte Center of Financial Services surprisingly, 48 percent of the respondents of the survey prefer a la carte approach; more than double the second-place option that was a fixed monthly fee set between $15 and $30. Respondents say that this choice reflects their preferences for total transparency in account and service pricing.

Financial institutions are in overdrive mode to offer new cutting edge features to their customers, be it – Internet Banking, Mobile or Tablet Banking, Bill Payment service offerings. With the dynamic Gen-Y being more open to exploring new models as compared to those in the older generations, it is high time banks explore and set forth new models for pricing their services and continue to captivate their new breed clientele.

More easily said than done, financial institutions are already treading on razor thin margins added to the ever growing regulatory compliance; it would not be easy for them to just change from the traditional model to any new model. Also, they cannot overlook the consumers’ expectations.

As a step forward, financial Institutions will now have to devise products targeted to specific segments of consumers. These could range from no-frills products to basic ones with limited features; mid segment products and value-add products. Though the initial process would be time-taking and cumbersome, but efficient use of IT systems and collaborative efforts with IT partners can assist them to come up with offerings in order to satisfy their majority segments.

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[1] As used in this article, “Deloitte” means Deloitte LLP and its subsidiaries.
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