At a recent discussion among industry experts about the future of mobile banking, fees were a controversial topic. These experts offered several potential business models that could drive the digital banking industry, including a few that would cost consumers.
The Digital Management, Inc. (DMI) VIP Think Tank, as the discussion was called, took place at Worldwide Business Research’s NetFinance 2013 conference among 17 executives from a variety of banks and financial services companies. A report about the discussion summarizes some ideas the executives kicked around, however there are no policy changes to worry about yet. Notably, the paper highlighted a divide, in which there was no consensus about whether fees for mobile banking would lead to success or backlash.
1. Pay As You Go
One of the possibilities include a revenue structure in which consumers would pay for the mobile banking services as they use them, much like the fees adopted by airlines.
Here’s how one participant phrased it (the report identifies members of the VIP Think Tank but does not directly attribute quotes):
“When an airline does something that creates revenue, rather than pointing at that airline and bringing it down, the other airlines say, ‘This is smart, let’s do the same thing,’” stated one participant. “In the ﬁnancial services business, we need to take the same approach.”
This concept turns a banking service into a transaction: paying to deposit a check, transfer money or set up a bill payment, for example. The think tank debated whether such fee structures would include all mobile banking actions or a combination of fee and free services.
2. Flat Fees
Think of it as the Netflix approach to banking: You could pay a monthly fee to be able to use mobile banking services, or you forgo those options and commit to going out to a video rental store every time you want to watch a movie or TV show. In other words, Netflix is to mobile banking as the video rental store is to bank branches.
In the words of an executive:
“We did a survey a few years ago with bill pay. Instead of paying per transaction, we asked, ‘What if we had a ﬂat rate to pay and customers would never be late on bills. We will do same day bill pay, $9.95 per month.’ Almost everyone who was surveyed said yes because that solved a problem they had and is a fair value and means they don’t have to worry about same day payment, or whether they’ve scheduled it properly, etc.”
While something like that could help consumers who struggle to pay bills on time, consumers who have no trouble paying their bills on time and enjoy the convenience of doing so using their mobile device would likely not enjoy having to pay for that habit.
3. Rewards for the Loyal
Loyalty programs are everywhere, including banks. Consumers see it in checking and savings accounts which may include monthly fees, unless the consumer has a direct deposit or monthly transfer into the account.
There weren’t many specifics in the paper about models for rewards programs, but you can think of it in terms of airline and coffee shop loyalty programs: If you primarily use one company for all your flying/caffeine needs, they will give you discounts and free things:
“One thing that is pretty reasonable that we came up with is when you have fees, it becomes valuable to be a loyal customer,” added another. “With [my airline] I see the value I get as a member. When I fly, my bags are free vs. on other airlines where I pay. Like a flat rate, you are a premier customer; you don’t pay for any of this. Likewise, it’s worth bringing the rest of my money to my bank so I can be a premier customer.”
The paper pointed out several challenges beyond fees as the industry looks toward its future on mobile devices, including overall mobile strategy, other revenue models, customer loyalty and multi-platform functionality.
As far as fees are concerned, the think tank participants voiced their opinions in a poll. The question: “How soon will the market and consumer be ready for institutions to initiate charging premiums for value-added digital services?”
Three-quarters of the participants saw fees in the future of mobile banking: 37% said the market and consumers would be ready in 6 months, 19% said 12 months, 19% said two years or more and 25% said never.