6. Branches are losing their historical role as transaction points. Consultant David Kerstein, president of Peak Performance Consulting Group, Austin, Texas, made this point in discussing a kind of paradox of branching today. On one hand, the decline of checks, the rise of remote capture technology and the continuing growth in online banking and bill pay all contribute to moving transactions out of the branch. At the same time, branches remain the critical driver in deposit growth, with 41% of all deposit growth coming from the 8% of branches open less than two years. “We need branches because consumers want them,” Kerstein said. Reconciling this paradox, and building branches that fit the new paradigm of declining transactions, is a key challenge facing retail banks today, he said.
How should financial institutions re-think their checking account product mix in light of new OD and NSF fee restrictions?
Over the past decade conventional wisdom suggested that the number of products offered to customers should be reduced. The rationale was that as product selection grew it became harder for consumers to understand the differences between accounts and their pricing, and harder for the sales force to explain their unique benefits. This “paradox of choice”, it was thought, meant that in the face of complexity, consumers became confused and their natural choice would be what they perceived as the least cost option (Free Checking). Want to sell more relationship accounts, the logic went, simplify the product line so the benefit vs. Free checking was more understandable.
But almost 60% of new checking accounts opened were Free anyway.
If you want to improve sales of multiple products, or purchase of add-on fee products, one option is to selectively increase the number of choices. While that may seem counter intuitive (more choice, more confusion?), choosing from a longer menu often results in buyers picking the options presented as best for them. Think of it this way: with only a few choices, most will pick the lowest cost even if they know it may not be the best fit. In its simplest form, give me a choice of only small and large and I’ll choose small. But if you offer small, medium and large, I’m more likely to buy medium.
With a larger array of options, there is an increased tendency is justify the choice of a better product, even if it costs more. The art of the product and pricing mix is to find the right balance between choice and complexity.
It works in restaurants, in computers – and in financial services.
BBVA Compass’s Build-to-Order Free Checking, which can be customized with the addition of up to 7 additional fee based services, is one example of how financial institutions can provide more variations within a framework that offers a more complex product discussion but results in higher purchase of incremental services. On the one hand, this increases the complexity of the product and blurs the distinctions between different checking accounts. It’s not just Free Checking, but a choice of paying monthly fees for multiple incremental add-on services, which might result in equal or higher cost when compared to other products. But from the consumer point of view, this selective complexity creates greater justification to buy the services that are perceived as needed, even if they are not the least cost.