Carrot or the Stick

23 November 2021

Carrot or Stick

A recent report by Reuters suggested that financial institutions in Europe are going to levy charges on customers who use their branches for “low value transactions.” When saying “low value”, presumably what is meant is those transactions that don’t generate much, if any revenue. If a customer wants to interact in the branch, doing something that they could do online, they will be charged.

In some ways this isn’t new. A number of banks already charge customers to withdraw cash in the branch if it is not a high value amount. It is in some ways, understandable. The banks that are taking these actions have seen a 2% decline in their revenues. This is mainly down to low interest rates that have dominated Europe in the last 10 years. But this for me, is a counter intuitive, and a short-term measure that could have a detrimental impact in the long term.

Punishing people for interacting with you in a way they chose too, can and most likely will, drive them away. The branch is there to serve customers, to meet their needs. Arguably it is the single biggest differentiator for traditional vs neo- digital-only banks. Most customers visit the branch with a purpose. It has been described as “purpose led banking”. That purpose is the end point of a customer journey. One which they have set out on and expect to be completed with ease. These purposes, according to the Harvard Business Review, are, “the intents, needs, questions or desired outcomes that might compel a customer to engage with your business.”

Consumers expect, and in many cases demand the choice of how they interact with their bank, whether they’re Gen-Z, Millennials, part of the baby boomer generation or Gen-Y. 

Consumers do not expect to be charged for interacting with the bank while in the branch. If a consumer has visited for a transaction that is considered high value by the bank, but wants to complete additional transactions that the bank may feel are low value, is the bank right to charge for the transaction in this instance? Would the bank make an exception for these people? Whatever the answer to these questions, I would argue it is going to be uncomfortable for the already beleaguered frontline, branch staff. 

Consumers have never had more choice. The provision of financial products as a business has never been more competitive or complex. Financial institutions that implement charges for in-branch transactions risk giving consumers a simple choice in this complex landscape. That choice is to go elsewhere, whether it is a traditional bank or a digital start-up that doesn’t differentiate between the high and low value transactions. One that doesn’t outwardly segment its customers, into, “the ones we value” and “those we charge.”

Creating bank branches where the low value transactions serve as opportunities is key to changing this. Enabling these low value transactions to become opportunities to engage with customers, to upsell and build relationships are, in terms of the customer experience more valuable. Indeed, in regard to the total lifetime value of the customer, they may in the long term become more profitable to the business.

 

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