Dive Brief:
- Retail banking customers are more than twice as likely to switch banks if they’ve been charged any kind of fee in the previous three months, J.D. Power found in a January study.
- Banks, however, may be able to entice new clients by providing enhanced financial advisory services, according to the study, which indicated 81% of retail bank customers believe it is at least somewhat important that banks make an effort to improve users' financial health.
- The trend toward fee reduction in the banking industry may be seen as “the tipping point when retail banks successfully averted the threat of disruption” from fintechs “by putting their customers’ needs ahead of short-term revenue,” the article asserted.
Dive Insight:
A growing number of banks are reducing fees and introducing alternatives to overdraft charges, amounting to a sea change in retail banking.
Enhanced regulatory scrutiny — mixed with mounting competition from fintechs and growing negative sentiment among consumers — is spurring some of the largest and most important banks in the country to overhaul their fee models.
J.D. Power researchers draw a parallel between the demise of Blockbuster — the erstwhile movie-rental business that generated about 16% of its annual revenue in late fees — and the declining popularity of fees in the banking industry.
Netflix challenged Blockbuster’s model by offering customers direct access to DVDs and streaming services with no late fees. A similar competition is underway in the banking sector, as traditional brick-and-mortar banks vie with neobanks for customers.
But instead of going the way of Blockbuster, many incumbent retail banks are choosing to slash fee income.
Bank of America, for example, said last month it would reduce its standard overdraft charge from $35 to $10 beginning in May, and stop charging non-sufficient fund (NSF) fees this month. Wells Fargo announced the same day that it would eliminate NSF fees and lengthen its overdraft grace period.
U.S. Bank and Truist, meanwhile, both announced plans to pivot away from fees. Capital One and Ally eliminated overdraft fees in 2021.
“The decision to move from a punitive, carrot-and-stick approach suggests that retail banks are recognizing that the role they play in their customers’ lives needs to evolve beyond service provider and into more of a hub of financial advice and guidance," J.D. Power researchers wrote.
Customer satisfaction with retail banks has increased over the course of the COVID-19 pandemic, the study found — with 63% of customers reporting their bank completely supported them during the pandemic. In particular, customers pointed to specific bank actions such as waiving fees, offering late payment forgiveness and providing financial guidance as welcome support.
