Banks Need To Take A Closer Look At Overdraft Fees
Account fees are an important source of revenue for retail banks, but they don't affect bank customers uniformly. For example, 14% of households with checking accounts are charged ATM fees each month, while only 9% are charged a non-sufficient funds (NSF) fee each month. Furthermore, 4% of checking account households get hit with both ATM and NSF fees.

Forrester's analysis of both survey data and actual consumer banking behavior captured through Forrester's Ultimate Consumer Panel shows that:

• ATM fees hit high-use accounts. Consumers who typically incur foreign ATM fees each month are higher-income, higher-balance customers who actively use their checking accounts for all types of transactions.

• Overdraft fees hit consumers who have lower credit ratings. Consumers with two or more overdraft fees per month transact more frequently against their bank balances and have less access to other sources of credit.

It turns out that consumers pay little attention to ATM fees but get irked by overdraft fees. Just 53% of consumers who have been charged overdraft fees during the past few months report that they are very satisfied with their bank, compared with 65% of customers with no overdraft fees. In contrast, there is almost no difference in satisfaction scores between consumers with ATM fees and those without.

Here are a few ways that banks can raise customer satisfaction without affecting fee revenue on checking accounts:

• Market overdraft tied to a savings account. Considering that offering overdraft protection is a staple for firms, it's surprising to have discovered that 30% of NSF fee households say they would switch banks for the service.

• Offer direct deposit advance loans. Wells Fargo has had success with its Direct Deposit Advance program, which allows customers with direct deposit accounts to borrow up to half of the money directly deposited into their accounts a week in advance.

• Maximize ATM fee revenue. Considering consumers' lack of ATM fee sensitivity, it makes no sense for brick-and-mortar banks to try to undercut the competition by $0.50 on foreign ATM withdrawals.

• Customer experience reviews. We can evaluate the usability of your Web sites, emails, and phone apps.

• Web Site assessments. We can compare the features on your site with those of your competitors' sites.

• Market research. We can provide insights on consumers from our existing Consumer Technographics® data or through customized research.

• Online activity benchmarking. Compare your firm's online efforts with that of other banks and credit unions. We are also kicking off a multiclient research project on organizational models and staffing levels.

Research Referenced In This Issue Applying For Auto Insurance Online: It's Not Easy (38260) Available For the Taking: $28 Billion In Deposit Balances (38493) Banking Silos Create IT Governance Roadblocks (38494) Building Stronger Customer Relationships (38048) Deloitte Buys TCi, Ups The Ante For Insurance Consulting (38204) E*TRADE Upsets The Credit Card Applecart With Mileage Maximizer (38435) Mastering M&A: The CIO's Game Plan (38454) Mission Improbable: Selling Checking Accounts To Brokerage Clients (38397) Online Banking Security: Give Customers More Control And Reassurance (38602) The Account Aggregation Fiasco: Lessons Learned (38416) The Effect Of Bank Fees On Customer Satisfaction And Loyalty (38460) The Forrester Wave™ 2005 (36769) The Forrester Wave™: Business Rules Platforms, Q1 2006 (37373) The Forrester Wave™: Database Marketing Service Providers, Q1 2006 (37150) The Forrester Wave™: Email Marketing Service Providers, Q4 2005 (37142) The Forrester Wave™: Message Archiving Software, Q4 2005 (38245) The Forrester Wave™: Multichannel Contact Center Outsourcers, Q4 2005 (36452) The Forrester Wave™: P&C Claims Platform, Q4 2005 (37160) What Affluent Investors Want From Web Sites (38530)

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