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Fee to Free: The Importance of Understanding Consumer Perspective

November 6, 2019

The importance of staying ahead to not be left behind

Being a consumer today certainly has its perks. Thanks to the internet there are more options than ever with greater transparency thanks to social platforms and reviews. This has dramatically altered the way that people think, shop and consider brands. This has been an ever-present fact in the retail wars that are always simmering and tend to reach a fever pitch during the holiday shopping season.

One small feature that has got a lot of attention lately is fees – invoicing fees, shipping fees, convenience fees – the list of fees can be long but thanks to consumer demand they may become shorter. And it seems that these fees have gotten a much closer look in the world of financial services – from banking to investing the backlash against fees is real with more and more providers altering their approach or pulling the plug on fees all together.

1. Banking Comes with a Price

With recent news indicating that the average ATM fee is reaching upwards of $5.00, there seems to be more involved with accessing one’s own money. That represents a 33% climb over the past decade, as a result of limited branch options and more noncustomer ATM that may be present. And ATMs are not the whole story…

It is likely that if you have a bank account, you are paying some sort of fee. Recent research indicates that U.S households paid more than $1 billion in monthly maintenance fees in 2018 at the top 5 banks. This amounts to a whopping $83.8 million in monthly fees for each of the leading banks that include JPMorgan, Bank of America, Wells Fargo, Citigroup and U.S. Bancorp.

This increase of fees became a ripe area for fintech firms to target and ultimately offer no-fee or low-fee alternatives. Recent research conducted by EY indicates that fintech options are increasingly the norm with 64% of global consumers that have adopted fintech options. Most interesting 27% of consumers say that competitive rates are an important consideration – that is an increase from 13% in 2017. Armed with more and more information, consumers are turning to fee-free alternatives to make free, or nearly free, options possible.

2. Fee-free Trading is all the Rage

Where banks are currently enjoying the funds that fees have to offer, investment firms are acting swiftly to stay ahead of new, and increasing, competition. The elimination of trading fees started with Charles Schwab and was quickly picked up by E-Trade and TD Ameritrade. The reason? To compete with start-ups like Robinhood Markets and get ahead of the ultimate race to the bottom.

In the short-term this represents a big win for investors, but the provider firms could be set to take a hit. Charles Schwab which was the first to jump ahead of the race to the bottom estimated it would lose $360 – $400 million in annual revenue, since commissions make up nearly 8% of the firm’s overall revenue. In terms of the bottom line this is certainly an impact but firms like Charles Schwab are pointing toward the long-term gains and ability to compete with emerging competition in the future.

3. No Fee can Mean a Win with Millennials

In the long-term, this could represent a win for Charles Schwab and the like as the growing Millennial generation looks to get the most from their money. Our own research through CASSANDRA indicates that 7 in 10 Millennials across the US and UK are often stressed about their finances. This could mean that the way to win their hearts (and wallets) is by lowering fees that may prove to be a barrier to investing and even accessing funds.

In an age of many alternatives, fees (or lack thereof) can be a differentiator to garner loyalty and avoid having a customer explore their options.

4. The Need to Stay Ahead

In a world where fees are increasingly under a microscope, it is important to assess the right options for consumers to help future-proof products and build future innovation. At Big Village, we work to bring customer perspectives to life through custom research programs and strategy consultation. The world of financial services continues to evolve, and market players are tasked with staying one step ahead of the trends, to not be left behind.