We recently completed a market survey for a client, and learned:

  • What would make customers switch to another institution? The top-rated answer was “Lower fees.”
  • When looking for a checking account, most (46%) responders said “No/low fees” is most important.
  • When people are looking for a new bank or credit union, rates and fees ranked as the 2nd most important criteria (behind location)
  • Rates and fess ranked as the 3rd biggest reason people chose a PFI (behind locations and relationship)

Your fee structure is clearly vital to your growth. Those lil’ asterisks can make or break your income, customer and account growth.

Any fee you have should serve one of two purposes:

  1. Offset costs to your bank or credit union: This fee pays for manual or third party resources.
  2. Encourage preferred behavior: You receive this fee unless you do what we want you to.

The key is perceived value to the customer:

  1. Offset costs to your bank or credit union: “Is what I’m getting from the bank, worth the fee I’m paying?”
  2. Encourage preferred behavior: “Is the hurdle that the bank is asking me to jump through worth not paying the fee?” Or, “I understand that this fee is a penalty for late payment, I won’t do that again.”

The research shows that, if you’re not carefully considering your customer’s perceptions of your fee, you may be losing business.

When evaluating your fee schedule:

  1. Offset costs to your bank or credit union: Create a competitive fee chart. Does your local competition charge the same fees? Are they charging more or less?
  2. Encourage preferred behavior: For penalty fees like late payment or overdraft, go back to the competitive fee chart. For fees meant to encourage behavior (You get a fee unless you have direct deposit, for example), consider:
    • What are your competitors doing?
    • Does the fee, in fact, generate the desired behavior?
    • Do you lose business from the fee? If so, how much (look at all lost products, balances and opportunity)?
    • Rather than beating customers with the “fee stick,” is there a “carrot” or reward that you can offer for the behavior that may provide better results?

If your analysis shows that you have a troublesome fee:

  • What is the financial impact of losing it?
  • What financial opportunities arise from losing it?
  • Can you offset the income loss from one fee by increasing another to match market trends?
  • Do you need to better communicate and/or train your staff to explain any fees?

Fees are a necessary evil in any financial institution. But, remember, fee income is only about 21-25% that of interest income. Don’t let your fee structure allow you to lose bigger opportunities.

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