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To Fee or Not to Fee: The Millennial Question

Shakespeare’s Hamlet sets the stage for an important discussion around the millennial generation’s views on traditional banking fees. A few months ago I posted about millennial bank switching behavior and the role of fees. Here are a few of those key insights fees and switching behavior:

  • Millennials are 5x more likely to close all accounts with their primary bank, compared with consumers age 50+.
  • One-third of the millennials surveyed cited excessive service fees (real or perceived) as the single main reason they switched banks. This was closely followed by a negative experience with a bank representative and ATM-related issues (too few, inconveniently located, or fees too high).
More recently, FICO also spoke to a number of Millennials about fees and here is a sample of what they had to say.

So the question is, to fee or not to fee? Which customers does it make sense to waive fees for – the customers that present profitable relationships and are a high attrition risk – and which customers should be charged appropriate fees-- since they are less profitable and their attrition is lower risk?

FICO® TRIAD Customer Manager helps institutions answer the “to fee or not to fee?” question. At the most basic level, TRIAD can matrix a customer’s probability of attrition against the probability (and degree) of profitability to pre-determine whether a fee-waive request should be met with a “Yes,” “No” or “Partial Yes” in the form of a fee reduction, typically 25% or 50%. These parameters can be run against portfolios on a daily batch basis, providing agents with a definitive response when customers inquire.  Automating and applying traditional test and learn practices allow banks to both retain fee revenue and reduce operational costs

Analytics expertise is a game-changer.

Some institutions use black box solutions or outsource these decisions vs. actively controlling the strategies. FICO feels that institutions need to be driving those decisions themselves, helping to answer deep questions like:

  • “How do I know if a customer will be profitable, and what is that potential profitability?”
  • “How likely is a customer to attrite, and what will be the business impact?”
FICO’s expertise in predictive analytics and decades of experience in developing analytic models to assess the nuances of financial behavior, and implement them within TRIAD is a smart way forward.

Importantly, TRIAD is designed to incorporate a holistic customer view, factoring in information from across an individual’s relationship with a financial institution. This includes patterns and behaviors in checking and savings accounts, loans and mortgages, and other credit products and savings instruments.

Don’t equivocate like Hamlet. Take action and build the right Millennial customer base.

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