ATM charges if not in-network: $2-$6. Checking a bag on a plane: $30. Medical specialist visit: $100 in balance billing. For institutions this is revenue – for customers it’s just plain annoying and a strong incentive to leave the institution.
Surprise, in their desperation, banks are beginning to focus more on fee income. This highlights something that I think needs to change in the banking industry (and more broadly in the services sector as well): the win-lose revenue model. Banks win when customers lose. For example, the higher the ATM fee, the better it is for the bank and the worse it is for the customer.
As banks desperately search for top line revenue growth, increasing fee income is an enticing proposition. However, some studies show that a reliance on fee income actually increases volatility of earnings streams (DeYoung and Rice 2004). In addition, customers are angry enough banks right now – banks don’t need to stoke the fire by adding yet more annoying fees.
Banks should focus on creating value through revenue model innovation, such as relationship-based pricing strategies, that lets companies win when customers win.
3 responses so far ↓
1 Rick DeLotto // Nov 13, 2008 at 9:07 pm
Kristin–
I think the incessant nickel-and-diming is going to drive consumers directly to credit unions. Some of the local ones around here are getting fairly aggressive in their advertising. Something about “no golden parachutes or zillion-dollar bonuses”…
2 Mary Knox // Nov 14, 2008 at 4:01 pm
Just as it is driving some of us away from airlines charging for bag check — I find I am gravitating to the few remaining airline alternatives that do not charge — even if I am not planning to check luggage. Fees may be raised, but if it results in fewer customers, higher fees mean banks, just like airlines, lose money.
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