Fees make customers twice as likely to switch banks, study finds

Diving Brief:

  • Retail bank customers are more than twice as likely to switch banks if they’ve been charged any fees in the previous three months, JD Power found in a January study.
  • Banks, however, may be able to attract new customers by providing enhanced financial advisory services, according to the study, which indicates that 81% of retail banking customers believe it is at least somewhat important. that banks make an effort to improve the financial health of users.
  • The trend towards lower fees in banking can be seen as “the tipping point when retail banks managed to avoid the threat of ‘fintech’ disruption by putting the needs of their customers ahead of short-term revenues. term,” the article states.

Overview of the dive:

A growing number of banks are reducing fees and introducing alternatives to overdraft fees, which amounts to a sea change in retail banking.

Increased regulatory scrutiny — combined with growing competition from fintechs and growing negative sentiment among consumers — is prompting some of the country’s largest and most important banks to revise their fee models.

JD Power researchers draw a parallel between the demise of Blockbuster — the former movie rental business that generated about 16% of its annual revenue in late fees — and the decline in popularity of fees in the banking industry.

Netflix challenged the Blockbuster model by giving customers direct access to DVDs and streaming services with no late fees. Similar competition is underway in the banking industry, as traditional banks compete with neobanks for customers.

But instead of going the Blockbuster way, many incumbent retail banks are opting to drastically cut commission income.

Bank of America, for example, said last month it would cut its standard overdraft fee from $35 to $10 starting in May and stop charging insufficient funds (NSF) fees this month. . Wells Fargo announced the same day that it would eliminate NSF fees and extend its overdraft grace period.

US Bank and Truist, meanwhile, the two announced their intention to walk away from the fee. Capital one and Ally abolished overdraft fees in 2021.

“The decision to move from a punitive carrot-and-stick approach suggests that retail banks recognize that the role they play in the lives of their customers needs to evolve beyond the service provider and become more of a center of financial advice and guidance,” JD Power Seekers wrote.

Customer satisfaction with retail banks has increased during the COVID-19 pandemic, according to the study – 63% of customers saying their bank fully supported them during the pandemic. In particular, customers highlighted specific banking actions such as waiving fees, offering late payment cancellations and providing financial advice as welcome support.

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