Bank of America’s new $5 monthly debit fee is flawed, but not for the reasons that most people believe it is.
As credit union leaders prepare for Board planning sessions, they need to craft a well-thought-out response to the hike in and addition of checking fees by institutions such as Bank of America, Wells Fargo, Chase, and SunTrust. The strategy must go beyond just railing against these fees, however, and look at the core reasoning behind their existence.
In the upcoming years, credit unions need to more elegantly price service. When the spread carried the day, credit unions did not necessarily need to closely monitor the expense of superior service or consider what the member service trade-off would be if a credit union had to reduce expenses.
In today’s economy, though, credit unions need to look at member service as a value-add, a member expense, a cost of doing business. And the money to cover this cost must come from somewhere.
The introduction of fees in the banking industry gives credit unions the opportunity to do several things. In the short term, credit unions can capture and secure market share as consumers strike back against it all. But – and this is important – the industry must do so without painting itself into the "free" corner.
In the midterm, credit unions need to implement more creative strategies for click fees, relationship as well as à la carte pricing, and value expressions that convince the consumer to support the credit union’s products and services through supplying the revenue to continue them. Credit unions can do this in several ways:
- Build in abuse barriers and eliminate “out of norm” expenses on services while continuing to serve out-of-norm needs for direct revenue. Members appear to be gaming credit union pricing on everything from ATM, to debit, to ACH payment schemas. Bill pay comes to mind as an example.
- Get serious about self-service drivers and introduce freemiums. Freemiumns are those member-designed fees and service concepts that the member elects to pay, such as fees that support multiple statement options.
- Elect to be the best deal. Then explain it. Eliminate the convenient processes that equate one member to another, where everybody gets the same thing and everything is included. Build more revenue sources on and off the balance sheet and delve into non-spread business lines.
In the long term? Who knows. Stop thinking long term for this stuff because the industry already has too many entrenched pricing concepts. The industry needs to be flexible and explore all options. Volunteer Boards need to accept that holding onto sacred cows could end up costing the farm.
What should you change about your pricing mindset? Get creative. Don’t follow Band of America down this path, not because it is charging a fee but because it is charging an “all of you pay, regardless” fee. Credit unions are more elegant than that.