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In brief
The EY-Parthenon US Payments and Bank Fees Consumer Survey¹ found that Americans annually pay an aggregate of nearly $82 billion in payments and banking fees, or $311 each on average. One in three consumers has or is ready to switch financial providers due to dissatisfaction with account and card fees. This insight, drawn from the responses of more than 2,000 US consumers, underscores the impact of fees on consumer retention and loyalty.
As fees are at the center of public attention, banks and payments providers need to consider the impact of fees on the thought process of consumers, necessitating a re-evaluation of how fees are assessed and communicated. The challenge extends beyond near-term revenue considerations as institutions must also think about the consumer experience and the value perceived by a younger, more fee-conscious demographic.
In redefining account and card fee structures, the primary objective for banks and payments companies must be to balance short-term revenue goals with the impact on customer lifecycle value.
Consumers recognize that fees are a necessary aspect of receiving financial services. Compared with other industries, account and card fees are even considered “better”: 80% of consumers surveyed consider the degree of account and card fees to be fair, and 81% believe that transparency is in line or better.
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Read moreHowever, consumers still seek reasonable and commensurate fee levels that reflect the service (and associated costs provided). In parallel, they increasingly seek clarity regarding the fees they are charged and detest fees that come as a surprise, even if they were noted in the fine print.
Overall, nearly half of the consumers surveyed by the EY-Parthenon team (45%) find payments and bank fees unreasonable. This number is even higher for younger populations or lower-income earners.
Similarly, these segments also are the most fee sensitive when choosing payments and banking partners. For example, 90% of consumers ages 36 to 45 consider fees to be a significant factor when they choose a new banking service or payment product, according to the survey.
Aligning fees with consumer expectations also means rethinking the value that these fees represent. Are consumers getting something worthwhile in return for what they pay?
Some fees seem “fair” to most consumers, especially where consumers understand that a service was provided, and where the fee was transparent. For example, a majority of consumers believe that an “over credit limit” fee is reasonable.
In contrast, other fees are considered unreasonable by many consumers. Typically, these are fees where the service is considered a “commodity,” or the price is typically seen as too high. Examples of this are ATM fees or paper statement fees.
At the same time, the perception of “reasonableness” changes between demographics and the frequency with which fees are levied. For example, most lower-income consumers would consider “returned payment” fees to be unreasonable, whereas higher-income consumers are more accepting of this fee.
This perception of payments and bank fees is now actively driving churn and shaping the selection of new financial service providers.
Although fees matter to every age group, consumers ages 26 to 45 are up to 50% more fee sensitive than 75+-year-olds when selecting a new financial services provider, according to the EY-Parthenon survey.
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And hitting these demographics with fees that they deem unreasonable is almost a surefire way to lose them. The survey found that nearly half of consumers who were charged a minimum balance/account fee stated that they have left – or are planning to leave – the provider due to this fee being charged.
Again, not all fees are the same. While fees for services rarely drive churn, almost every account penalty fee seems to result in a high churn risk (e.g., returned payment fees, insufficient fund fees).
Banks and payment providers face significant risks by not adapting to the changing fee environment as consumer attrition and revenue loss can result. The EY-Parthenon survey showed that 56% of consumers who left their provider due to fees attributed their decision to an account penalty fee. Consumer departure not only affects profits, but also diminishes trust and loyalty, vital for sustained relationships. Additionally, potential regulatory fee caps pose a threat; institutions that haven’t diversified revenue or revisited fee models may struggle to compensate for lost earnings. Hastily crafted strategies, such as introducing unregulated new fees, could further erode consumer trust.
Fred Tamarkin also contributed to the article.
In a financial world where fees have become a point of contention, banks and financial institutions must act. The willingness of consumers to change providers over fee dissatisfaction, coupled with the potential for regulatory caps, underscores the urgency for a strategic and thoughtful approach. Institutions that prioritize transparency, fairness and value in their fee strategies will not only safeguard their revenue, but also deepen consumer trust, ensuring a robust future in a competitive landscape.
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