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The “Fee vs. Free” Controversy

By Jim Bruene on August 1, 2004 12:48 PM | Comments (0)

Free bill payment. It seems inevitable. With Bank of America and other U.S. mega-banks flogging free bill payment 24/7 , is it possible to still charge a fee and remain competitive?

We believe you can and should charge bill payment fees to at least a portion of your online banking base. But you need to expand the list of features and benefits for the fee-based option to distinguish it from free services offered by other banks.

Eventually, you will likely divide your online banking base into two or more segments. The FREE entry-level service receives the usual laundry list of online banking benefits. The premium level qualifies for an even longer list of benefits, most notably, pay-anyone bill payment. However, premium customers pay monthly fees ranging from $5 to $10 or annual fees in the $50 to $100 range

The key to making this work is to get away from calling the monthly charge a “bill payment fee.” That doesn’t stack up well with BofA and other major banks. Instead, position the premium service as something with MORE VALUE for online-savvy households. Make sure there are easily discernable differences between basic and premium, other than bill payment, for example more extensive archives or more security options. 

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If you are going to give up $60/yr in fee income, make sure you let visitors know. HSBC has two banners on its Personal Internet Banking page.

 

 

If you do find it necessary to match the big banks with a free pay-anyone offering, we recommend the Wells Fargo approach. Dole out free bill payment judiciously, as an incentive to encourage customers to increase balances, adopt e-statements, or add an overdraft line of credit. 

 

-- Jim Bruene, Editor & Founder
jim@netbanker.com

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