U.S. regulators have passed the Dodd-Frank Wall Street Reform & Consumer Protection Act and the detailed rules have been drawn up, promising to change the landscape for financial services firms. Included are new rules around the reporting of management fees for asset managers, explanation of interest rate changes for credit cards, reporting best execution channels and enabling end customers to understand the fine print of how firms handle their financial transactions.
And the result? Already, banks and financial firms are experiencing an increase in calls and online inquiries from customers frustrated or angry because of unexpected fees and unexplained charges. The industry is being called to account like never before. Why?
Fees, Fees and more Fees
The number-one reason customers call is to question fees. Often, they threaten to cancel accounts when unexpected fees are levied. Many times call center personnel do not have a full understanding of or insight into all the contract terms across multiple, siloed product groups to give an adequate response. When this happens, the bank will often "waive" a fee even when it is a legitimate charge.
Sometimes multiple product groups charge a fee for the same service, but because the bank does not have an enterprise fee management system, the customer gets double-billed. The customer calls the bank to waive the charge, but even if the bank does so, the customer will not trust the bank going forward. By not having an enterprise-wide fee management system, wide-spread revenue leakage and costs to service customers and financial institutions is often the result.
New Product Bundles
Banks create new product packages on a regular basis and proactively send mailers to customers to let them know that their banking service has some "new and improved features." In addition, banks often repackage the consumer's existing accounts with these new bundles of products. In the bundle, the bank defines new thresholds and penalty fees, but many of the fees were not in the old package. The result: customer confusion and an increase in calls to customer service.
According to a recent report by independent analyst firm Innovation Observatory, Designing IT Systems for Changing Business Models, Wells Fargo has been a leader in creating strong and profitable customer relationships through product bundles, averaging over six products per customer. Its strategy involves the provision of offering multiple different financial products to its customers -- something the bank calls "needs-based selling." With this tactic, Wells Fargo has to meet a certain requirement to view customer information across accounts and to provide consistent information to its clients. To achieve this, they have adopted a service-level IT architecture that provides employees with customer information independently of databases or access channels.
The Future Promises More Fees, More Calls
The economic downturn has meant less lending and less interest revenue -- requiring banks to make up for the revenue via fee income. Now banks face a loss of $10 billion a year from lower debit card interchange fees in the Durbin Amendment. New debit transaction fees will be capped with an expected resulting decrease in revenue of over $10 billion. Banks are looking to make up for this revenue by finding new fee areas, including annual rates and higher penalties for late payments. If consumers make a misstep, such as a late payment -- interest rates go up, triggering more calls to inquire the sudden changes.
A Fleet Approach
How can financial services firms navigate this new landscape severely constrained by macro-economic conditions and decreases in interest revenue where banks need to look to higher fees to make up for revenue losses? One thing is certain -- the implementation and enforcement of the new rules and regulations will be a serious long-term challenge. It will be one that only a fully functional and flexible pricing and fee management system can resolve by matching up customers' account terms with charges on the monthly statement, something many legacy systems in use struggle with to meet the required standards. Getting these equations right isn't optional, either.
Financial firms would be well advised to take a "fleet" approach to their pricing and fee management systems, by having all of their financial products and customer care solutions carefully coordinated as a fleet of systems, but with ultimate flexibility to change course quickly -- all systems in tandem. Essential to the success of this strategy is the following:
1. Enterprise-wide view of the customer (CRM) for call center personnel and online customer service so they can see all products and charges (across all product silos) for a single customer.
2. An enterprise-wide product catalogue, pricing and fee management system.
3. A consistent strategy and method for implementation of a relationship pricing system, such as at Wells Fargo.
4. A method of operationalizing the terms of a customer's account with fees across the back-office fee system.
By using innovation and operations efficiency, firms can successfully co-exist with the new Reform Bill.
Phillip Faulkner, director of financial services for MetraTech, an innovative fee management, billing, settlement and customer care product provider, leads in the creation and delivery of revenue generating solutions to the global financial services market.