Charging for Lifestyle Financial Services
Consumers’ lifestyle changes are going to redefine the role financial institutions play in the future. Although the main role of financial institutions will continue to be a source of funding and savings for personal and business use, an auxiliary role is emerging that is gaining in importance and could become a deciding factor for consumers when selecting their financial institution.
This new role centers around “lifestyle financial services.” These are financially-oriented services that have gradually emerged over the last two decades due to advancements in technology and changes in personal lifestyle such as increased mobility, time efficiency, digital identity, media connectivity and the like. This major trend emerges from the Integrated Study on Service Fees , which was conducted by Market Rates Insight in April and included responses from 1,500 current bank customers and credit union members 18 years old and over.
Traditionally, consumers have viewed basic banking services, such as free checking accounts, as part of the service to which they are entitled because they provide the financial institution with funding in the form of deposits. Consumers view such services as “grandfathered” and are thereby resistant to new or increased fees on these services.
However, our study found, consumers feel differently about lifestyle financial services, which they view as enhancements and are willing to pay for the convenience and efficiency they provide. Our study found that 67% of consumers are likely to use such services as credit score reporting, identity theft alerts, mobile deposit, person-to-person payments, personalized couponing, overdraft transfers and prepaid reloadable cards if offered by their financial institution. Moreover, contrary to traditional services, such as maintenance fees on checking accounts, consumers are willing to pay an average fee of $3.63 per month for each of these financial lifestyle services.
The most appealing service in this category, according to our study, was identity theft alerts, for which 82% of respondents said they are willing to pay an average monthly fee of $4.07. Ranking second was credit score reporting, for which 73% indicated they are willing to pay $3.39 per month.
There are two major reasons why financial institutions should adapt to this transformation in the services they offer to consumers. The first is the sharp decline in fees on traditional services due to behavioral and regulatory changes. The amount of non-interest income U.S. banks generate from fees on deposit accounts, for example, decreased from $36.2 billion in January of 2011 to $34.1 billion by year end, a drop of $2.1 billion or 5.8%. This is not an isolated trend, since it started five years ago; income from service fees on deposit accounts fell from $39.2 billion in December of 2007 to $34.1 billion in December of 2011, a fall of $5.1 billion or 13%. It is very unlikely that this trend will reverse itself based on the current types of services that financial institutions provide.
A second factor for banks to consider is the growing importance these lifestyle services have in consumers’ lives – perhaps gradually become a deciding factor when they select a financial institution. Thus, the more these auxiliary services become part of everyday life, the greater the importance consumers will place on them when selecting a financial institution for their lending and/or savings needs. When nearly seven out of ten of your bank customers or credit union members desire these services and are willing to pay for them, the writing on the wall is very clear.
Mr. Geller is the executive vice president of San Anselmo, Calif.-based Market Rates Insight , where he oversees the research and analytics services of the company. He can be reached at [email protected].