Home // Blog

Regulation Has a Cost – Part Two

Can you assign a cost to fee waivers?

Consider both tangible and intangible factors

This is part two in a series of essays on the cost of regulation in the banking environment.  While everyone knows that regulation has a cost, and has for years, it is interesting to consider specific components of that cost. Sometimes, there is more than one, for example, the cost to customers and the price paid in customer satisfaction. As the customer service experience is assessed, analytics can help identify cases in which a change, while still in compliance, can make a major difference in the customer satisfaction level. 

Considering that banks are at an all-time low in satisfaction ratings, a major priority should be recognizing, identifying and fixing the issues that affect the customer experience.  And with major financial services institutions looking to find the right balance among the seemingly conflicting objectives of revenue generation, improved operational efficiencies and customer satisfaction, it’s as good an opportunity as any to review and fine tune customer retention strategies.

Today’s retail banking climate is very different from that of even five years ago, when a number of banks were serving customers they considered to be less than ideal.  The emphasis now is on retaining the good clients who remain on their rolls, while still remaining profitable — even in a period of historically low interest rates.

In the ongoing effort to find a successful balance with deposit accounts between customer satisfaction and revenue generation, the issue of waiving or not waiving fees nearly always comes up.  Listening to just a few customer calls reveals that customers are already unhappy when they call, either because they feel they did not know about the fee to begin with or because they don’t think they really owe for the fee at all.

A recent study of deposit accounts indicated that 10 percent of deposit calls involved requests to waive overdraft fees, so this is certainly a significant issue.

There are a number of decision points in this discussion, with answers that lead in many directions.  The challenge is that none of the points stand alone, yet it is not easy to view them in combination.  Ultimately, customer satisfaction that leads to a profitable, revenue generating relationship will come when each point is thoughtfully calculated.

Let’s look at some of these considerations:

  • The real cost of the waiver:  It’s not only the lost fee revenue, but also the “education” expense incurred in explaining the fee and waiver to the caller.  This is the cost of the extra minutes used in the education process, at approximately $.85 per minute.
  • Balancing that is the good will incurred by educating the caller and waiving the fee, ultimately “buying back” the cost of the education.
  • The cost of saying “No” and losing the customer because of it:  This is harder to define.  Whether it’s an expense the institution is willing to incur may depend on the reason for the decline, e.g., the customer consistently incurs overdraft fees vs. the cost of new customer acquisition.
  • Criteria for waivers:  Waivers requested typically fall into the categories of merchant error, bank error, hardship or customer error.  Individual institutions may give different weight to each of these, taking into account additional factors like the history of the account and the length of time as a customer. Consistent operational processes designed around guidelines (not rules) reduce the cost of the waiver.

After reviewing the procedures agents used to grant or deny waivers, study recommendations included standardizing rules on fee waivers and granting up to two requests per person due to customer error.  The bonus recommendation was that fixed policies like this opened the door to the use of automation, which would further reduce the cost of a waiver.

The ultimate recommendation, then, may be guided less by hard costs than by the CSAT impact of the decisions.