There is nothing so unjust as when you have to pay for something that you think should be free or if you have to pay far more than the value that you perceive. News on the Internet, credit card annual fees, tomato ketchup sachets to go with your sandwich,
credit card surcharges or ticket booking fees for example. In many parts of the Western world, people have become used to certain goods and services being free, such as a new mobile or day to day banking.
Banks are struggling in the current climate of higher capital requirements and higher funding costs, so many of them are seriously thinking about introducing charges for services which have traditionally been free up until now. In the recent past, big banks
have introduced charges for banking services only to have to perform a U-turn when faced with the furore of a public opinion outcry. So in this world of reverse brinkmanship, who will be brave enough to be first to introduce charging in a big way and how will
they do it? And more importantly - will they be successful.
In the airline industry, low cost carriers were the first to experiment with the model of charging for items and services that used to be free. Some of these have been successful; not many people expect a full meal on a short haul flight any more unless they
pay more money for example. Some of them have been less so - the aforementioned ticket booking fee springs to mind - why should I pay £12.50 per ticket. So perception is the key - people don't mind paying as long as the charge is proportionate to the value
they receive and it is considered "fair".
So how are they going to pull it off? I think that we are going to see the introduction of thresholds for various types of transactions. As they are brought in, there will be little angst because the limits below which no charge is levied will start off as
generous and reasonable. No-one will bat an eyelid if a bank introduces a 10% charge on debit card transactions of less than £2 say or a charge for more than 250 transactions per month. From there - once people have got used to the idea and other vendors have
started to follow suit, they will slowly ratchet the threshold so that more and more transactions are caught in the net.
We will start to see more imaginative schemes where customers can save on these charges. For example - I would hazard a guess that any large retail bank can apply the 80:20 rule to the payees of payments from their customers' accounts. Rather than every individual
customer having a different payment date, how about offering an incentive to sign up to a group payment on a given date, thus reducing the number of payments a bank makes to external systems.
Clever banks will link their charging regime to the level of service offered to the customer. Will we ever see a charge for an appointment with the bank in the same way that you pay for an appointment with your dentist or solicitor - I don't think so, but we
will see charges for expensive services increase. When was the last time you wrote out a cheque for example - would you change banks if they introduced a £5 or even £10 fee per cheque ?
However it comes to pass - it will be a minefield and many will get it wrong, before someone gets it right. I feel duty bound to say that There is an alternative to all this which is that banks could cut their costs by replacing their expensive bespoke core
banking system with a nice shiny package - but I'm obviously biased!
Since I still write cheques, I tend to endorse your alternative - albeit biased - suggestion to banks for cutting costs! Standard ROI calculations might work for greenfield technologies but, for something like CBS, I think it might take novel business models
to persuade banks to take the risk of replacing their legacy CBS with an integrated suite.
<< So perception is the key - people don't mind paying as long as the charge is proportionate to the value they receive and it is considered "fair". >>
I would argue that people are not happy enough - to take the example of air fares, it's really annoying lal the extar charges that pop up along the way and what people want is the final cost (to ocmpare and decide if the flights are worth it or possible
etc). It's only when the charges are really outrageous that *some* people will complain or perhaps even do somethign like it. However, considering the "power" of facebook protests and the like, companies have to be careful about how they do this.
"Nickel and diming" is somethign that has increased over the years - although if a bank were to publish in a clear way what they charge for a certain service, than fair enough.
I think airlines went too far and started to charge for things that you couldn't actually use the service without - so they were bound to fail the "fairness" test!
© Finextra Research 2015