By  Tue Jan 31, 2012

Shaping an ‘A la Carte’ Digital Banking Experience will Determine Future Profits

The conversation around banks and fees is destined to gain more attention as consumers are more aware of their banking habits and grow more unwilling to be Wall Street’s whipping boy for generating profits. As the restructuring of existing accounts and fees continues, what is becoming apparent is traditional banking has hit a wall, with digital banking ramping up, poised to shape a stream of new relationships, experiences, and profits.

If we look at how consumers interact with their banks, it’s easy to see that every new touch point was driven from some form of digital enhancement.

Research firms like eMarketer are projecting that online banking will reach 100 million users by 2015 and 35 percent of these users will be accessing their account through a mobile phone; banks now have a massive opportunity to use technology to shape our digital banking habits.

Why shouldn’t fees be included in the mix?

A recent survey of more than 3,000 consumers around the world, performed by consulting firm PwC, found a willingness among banking customers to pay for digital banking services that offer new forms of convenience. Although this was not reflected when consumers jumped at the chance to sign petitions against the now-retracted debit card usage fee and switch banks with the introduction of other fees.

Maybe banks are aware of something they took for granted before; customers are willing to pay for services that they consider to improve their daily lives.

Whenever I think about how consumers view banks, I always think of my wife’s comment, “Just because a bank allows you to access your money when you need it, doesn’t mean they’re doing a quality job.”

Essentially, our perspective of banks is so low that maybe technology is the first true opportunity for banks to convince consumers they offer a level of value. Though they better hurry, not having a mobile app is already a big deterrent as seen in our bank reviews for online banks such as PerkStreet and Ally.

Customers Willing To Pay Fees For Convenience

We know that digital banking offers are the future in banks profits and a leading factor in shaping our banking experience. But what are some examples that we can expect to see?

In a recent Your Money column, Ron Lieber of the New York Times wrote about his search for an app that monitors your account balances to notify you if there is a threat of missing the account requirement needed to avoid that $8 – $12 monthly maintenance fee. Would you pay $2 per month to avoid $12?

Consumers are already paying Mercantile Bank of Michigan $4 per month to view pending transactions the day before the charges are applied to their accounts. The same goes for U.S. Bank and First Tennessee customers who choose to pay anywhere from 50 to 99 cents to use their mobile check deposit tools.

An other digital banking offer that scored high among respondents of the PwC survey was the ability to receive account alerts via Twitter/Facebook. I guess the free text alerts aren’t enough. This finding is actually in line with what a study from Javelin Strategy & Research reported early this year; 10 percent of consumers are comfortable with using social media sites to review or check account balances.

The spending analysis tool is another favorite. Pretty much what Mint.com offers you for free, but at only 6 million users (Bank of America has 20 million alone), the rest of the banking community seems to prefer to have this service with their bank. This could be the case with Chase Blueprint which is already helping millions of Chase credit card members each month, says a Chase representative. New bank start-up Simple flaunts this as a key reason to drop your bank for them.

One of the most interesting features to score high in the survey was the ability to store loyalty cards and convert them to points or cash. Google Wallet currently attempts to fill this need by allowing you to sync loyalty cards in their app, but the second part of converting points to cash is a strong selling point. To do this, it would involve the bank forming relationships with retailers, which shouldn’t be too hard with their credit card and debit merchant-funded reward programs.

At MyBankTracker.com, we truly believe the winning digital feature that will make serious bank for the banks, no pun intended, is text chat with a customer representative. If you have ever tried to call your bank to reach a live representative you know how difficult this can be. Today’s largest banks already try to solve this by offering a live chat option with a representative on their website. Why not move this to a mobile device? Banks could charge mobile customers a $2 fee in the months that this communication feature is used.

Paying these fees may seem ludicrous, but so many of us are comfortable paying foreign ATM fees, the digital banking era of future fees just seems to make sense.

Banks Adapt a Common Pricing Model

Knowing that banks are slowly pushing us to do all of our banking online with studies indicating consumers are okay with forking over as much as $15 per month for certain features (PwC); the key to success is how these new experiences are introduced.

A quick glance at your average monthly mobile phone statement may show a way for banks to introduce these new fees. What we see is a statement broken down by minutes, texts, data, etc. all options we as the customer chose and in the process accepted to pay. This model is also commonly used by airlines, with checked bags, seating, and in-flight snacks.

For bank technology, there is an opportunity to set a digital banking platform that takes the pressure of finding ways to apply traditional fees and puts it back on us the consumers. Leaving us to decided what is more important: convenience or fees.

Obviously there are downsides to this model beyond added fees, including the need to keep track of our banking habits as we engage with our banks. Hopefully it doesn’t get so out of hand that we need an app for that. Some banks will attempt to be different, marketing convenience through technology as value — much like online banks which promote no ATM fees.

For the rest of the industry, they will use technology to capture their future customers who prefer to be with a technology driven bank.

While the older demographic may look at this and think it’s crazy, this new form of banking doesn’t necessarily cater to them. Instead, banks seem to have their focus on the Gen Y audience, born in the mid-1980s and early-90s — a generation that grew up with the Internet, expecting things for free, i.e has no problem bootlegging their favorite artists’ albums. But, this same target group is also projected to spend billions on virtual gifts with Facebook games and in-app purchases on their smartphones. Give it to them instantly and, all of sudden, paying a fee doesn’t look too bad.

At least that is the hope as we shape the digital banking experience.

 

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