Santander recently announced that monthly charges on its popular 123 account would more than double. This move illustrates how the retail banking industry is changing, in response to the European Union capping interchange fees, and the UK Financial Conduct Authority considering whether to end the era of free bank accounts.

At first glance, the idea of paying for our banking seems a shock but at Collinson Group, we believe this may be a good thing for consumers. If we pay for something then our expectation of a service becomes much higher, we compare our options more carefully and brands need to offer something we genuinely value in order to attract our custom.

The interchange fee levied on merchants for the processing of credit and debit card transactions, has traditionally been the main source of income that banks use to fund their loyalty programmes. Loyalty to financial services companies has been driven by rewards, whether through cashback on credit cards, travel incentives like air miles and airport lounge access, or discounts on products. From the 9th December 2015, interchange fees have been capped at 0.3% for credit cards and 0.2% for debit cards – in total, a reduction of up to 1.85%. Visa has reduced its debit card fees, and MasterCard is also in the midst of reducing fees on their credit cards, both with the aim of reaching the E.U. regulated levels by mid-2016. In the UK alone merchants stand to be £480 million better off, with banks and card issuers losing out.

Where banks have charged for their accounts, they found that their customers value the product and service much more. Previous research by Opinium found Sixty-eight percent of charge account holders believe their account offers value for money, and this is often because of included benefits such as car breakdown cover and travel and mobile phone insurance. 77 percent stated that as they use these benefits and rewards, they did not mind paying for them.

The trick for banks is focusing on rewards and value-added services which an individual customer will genuinely appreciate. Providers need to think beyond traditional demographics such as age groups, and consider what individuals perceive as valuable to them.  For example, the Co-operative bank offers a donation to charities which reflects more altruistic motivations for some audiences. Other groups of consumers will want more unique, money can’t buy experiences and exclusivity rather than standard products and services.

The demand on financial service providers is increasing as consumers become more and more aware of the value of their custom. It is simply too risky to stand still, and not offer valued, differentiated, personalised experiences and rewards, that start to move beyond the traditional transactional loyalty programmes. Providers need to get to the heart of what motivates a customer to join, spend and stay with them. This could be through lifestyle experiences, things that benefit the whole family, new technology or travel opportunities, and start to define a customer loyalty strategy that protects patronage and increases engagement.

By focusing on tailored offerings and customers’ motivations and aspirations, it is still possible to run effective loyalty programmes at an affordable cost to the business. This new approach will encourage the right behaviours and the long term loyalty and engagement of new and existing customers.