Ask most bankers if fees matter, and the likely response is an emphatic, "Yes!" followed by an emotional diatribe about how regulation is strangling this important and long-standing source of revenues. The Durbin Amendment restrictions on debit card fees, along with other provisions of the Dodd-Frank Act and the generally anti-bank mood in Congress, seemingly have put significant restrictions on the ways banks can grow and meet their revenue goals.
But some banking insiders argue that a dependence on fees isn't healthy for banks. Just as one glass of wine may be good for one's health but the whole bottle creates problems, fees make sense up to a point but can't comprise the entire business model. It's essential for banks to balance their diets, so to speak, with alternative ways to drive revenues and growth.
I spoke recently with two executives who have been looking closely at the pressure on banking fees. Lee Kidder, group practice manager with CCG Catalyst Consulting Group, and Paul Schaus, CCG Catalyst's president, contend that banks need a new business model. "Banks are pushing for new fee revenue sources -- that's an imperative," Kidder notes. "But … while they are looking for additional fee revenues, they have to go about planning a change in their business models. The next decade will be what separates winners from losers in this process."
Not surprisingly amid today's focus on customer experience, this transformation requires banks to get more out of their interactions with customers than transaction fees. It involves "completing the conversion to a customer channel-centric model of business, and developing and monetizing the information in their databases," according to Kidder. "Banks need to be moving to a business model based more on information than on transactions. Those banks that are not actively planning that conversion will find themselves in a few years well behind the leaders."
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The challenge is not to eliminate fees altogether, but to take an approach that is "not based upon the client initiating a transaction and a fee getting charged; [rather], it's requesting a service from the bank, whether data or personalized service," Schauss stresses. "You've got to look at it from the standpoint of the service side. This is small now … but it's an area that is going to grow."
Changes in the banking business model are just part of the transformational technology, competitive and social forces shaping the bank of the future. It remains to be seen how many banks successfully make the transition, and how many are unable to kick the fee habit.