Fees are an important and often misunderstood part of checking accounts. Management of checking account fees is often scrutinized by regulatory agencies and the public. A review of the CFPB's Complaint Database and the CFPB’s 2015 Consumer Response Annual Report shows the impact of poorly managed fee programs on consumers and the banking industry.
How do you know if you are effectively managing fees? Ask yourself these questions:
- Are your policies easy to understand and consistently implemented by your front-line personnel?
- Is your fee waiver approach based on relationship and risk, or do you have a one-size-fits all approach to fee waivers and fee reversals?
Let’s discuss the “easy to understand” part of this question first. The fee policies in place must be easy to understand for your customers as well as your staff. Your front-line employees should understand the fees that differentiate your products and how they compare with your competitors. This piece of the equation is easily managed through education and training of all levels of staff.
Consistently implementing fee policies is where the challenges often arise. In a perfect world, fee waiver and fee reversal policies would be well-documented with defined qualification criteria based on risk, profitability and other data-driven metrics. Any exceptions to the fee policy would be documented and tracked for future policy management and re-development.
Unfortunately, many organizations are not managing in this perfect world. The decision whether or not to waive a fee is often made arbitrarily, and can be based on personal relationships and biases, rather than customer risk, value and the banking relationship. These decisions introduce risks – reputational, regulatory and relationship – to your organization. Risks that need to be mitigated.
Although consistent fee management can be challenging, the perfect world is achievable with the introduction of analytically driven strategic decisions – decisions that can be automated for consistent implementation, and still allow for exception processing and tracking. The perfect world – managing the customer holistically and valuing the customer relationship – will lay the foundation for effective and consistently implemented fee management policies.
Do you have a one-size-fits-all approach to fee waivers and fee reversals?
Let’s start by describing the difference between a fee waiver and a fee reversal program.
Fee waiver programs are often product-driven. For example, Checking Account A allows for two overdraft fee waivers annually. In a best-in-class solution, a customer would be notified each time a fee was waived as part of the program, and the fee would not post to the account because it was waived prior to being assessed. A consumer would be educated to understand that any overdraft incurred after the two waived fees would be charged to their account. Fee waivers represent a proactive management of fees. The opposite of this approach is the fee reversal.
In a fee reversal, the fee is assessed to the customer and reversed as part of a bank-initiated or customer-initiated request. One of the most common types of fee reversals occur when a customer calls up and requests that a fee be removed, and the organization makes the determination and either reverses the fee or lets it stand. This is a reactive approach to fee management.
Developing an approach that is consistent, repeatable and analytically driven can enhance a one-size-fits-all approach across fee waivers and fee reversals. This can be managed in an automated manner and still provide the flexibility needed in today’s environment.
Fees are a critical revenue driver for checking accounts. They can also be a major cause of dissatisfaction and attrition. FICO is here to help you balance these conflicting goals and manage fees effectively, read more here on FICO.com.