Actionable Insights From APT's Financial Services Practice

Avoid Citi’s Big Mistake

February 15th, 2010 | Posted by Jatin Atre in Uncategorized

Citibank recently announced it was planning to begin charging a monthly service fee for about 1 million accounts that previously had free checking. Not so fast, said New York Attorney General Andrew Cuomo. Citigroup now has to delay its plans until 2011 since “Mr. Cuomo’s office didn’t believe Citigroup provided customers with adequate notice about the new fee.”

Citi should thank Mr. Cuomo. What would have happened if he didn’t block their decision? The answer is that nobody really knows. It’s possible that most customers wouldn’t have noticed or wouldn’t react negatively. It’s also possible that attrition would have skyrocketed.

It is clear that retail banks need a new strategy for free checking. A recent article in the New York Times details the rise of free checking in the 90s. It helped bring customers in the door and eventually “became a commodity.” However, the fees that propped this product up and made it profitable are now disappearing.

The challenge is that customers have become used to free checking and now expect this service from their bank. How will they react when it goes away? Banks need to be very smart and targeted in how they approach free checking in the future.

There are many strategies to try to preserve revenue from consumer checking accounts without increasing attrition. Should customers qualify for free checking only with a certain balance level? Is it better to give free checking to customers with a deeper relationship and other types of accounts or services like direct deposit? Is tenure the better indicator of whether a customer should have free checking?

These are difficult questions. The answers will certainly be different for each bank, and the right approach will also vary for different types of customers.

The winning bank that survives the death of universal free checking will be the one that tries a number of different strategies, rigorously measures how each approach affects customer performance, and determines the best action for each individual customer.

To learn more about how to apply a data-driven, evidence based approach to making critical retail banking decisions:

Read an overview of APT’s Test & Learn approach

Read an HBR article on using scientific experimentation to make better decisions

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