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Marketing strategy: should banks charge customers more?

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The boss of the National Bank of Belgium suggested that banks change their tariffs and charge customers for services like cash withdrawal, payments made by bank cards, yearly fees charged to have a bank account, … Is it a good marketing strategy ?

Why were such proposals made when, at the same time, consumers keep losing purchase power each and every year ? If such proposals were to be implemented, what would be the consequences on the market ?

Let’s use the usual market research tools and techniques to anticipate what may happen.

Why would banks need to charge customers more ?

The reason why the governor of the National Bank of Belgium suggested that banks increase their fees is very simple. The governor wants to have more robust banks in the country and to avoid the risk of contamination in case of new crisis. On the last 9 months, Belgian banks achieved a return on equity of 8,6%, up from 3% only 3 years ago. That’s obviously a very positive sign. Yet, the issue is that there are huge amounts of money on savings accounts in Belgium and, in spite of a continuous decrease of interest rates, they still need to be remunerated. The risk is therefore that the return on equity may be negatively impacted and the solidity of banks influenced.

Which services would banks make more expensive ?

The heart of the problem is actually there. The National Bank of Belgium suggests to increase the fees on the most usual services, those that consumers used not to pay for : cash withdrawals, yearly fee for having an account, fees to pay by card.

What may happen on the market if banks change their tariffs ?

There are two possible interpretations. One that follows strategy tools like the 5 Forces of Porter (see our slideshare presentation here) and one that follows behavioral theory.

According to the strategic interpretation of Porter, an increase of fees on the most usual services would lead to a sudden distortion of the market conditions. Customers would lose bargaining power in a first step, and would regain it with the emergence of new offerings. Those new offerings would be put on the market by smaller banks which would, by so-doing, try to exploit the market shift.

The other interpretation is a behavioral one. The switching costs are actually pretty high for a normal consumer to change bank. Of course it doesn’t cost anything in monetary terms; but there are psychological switching costs like changing all your permanent orders, doing all formalities, getting used to a new home-banking environment, … for that reason, many consumers don’t actually change anything.

Our conclusion

The B2C banking market is already full of cheap offers. It’s not the oligopoly of 20 years ago. Online-only banks propose very interesting packages and have attracted already a solid market share. What we think will most probably happen (if price increases would actually take place) is that banks would be better off and would lose only a tiny portion of their clientele. Only angry and dissatisfied customers would be likely to actually switch to a competitor but we guess most customers wouldn’t.

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Author: Pierre-Nicolas Schwab

Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)

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