In 1987 Robert Plath, a Northwest Airlines pilot, introduced the world to rolling luggage.
Since the transition from the steamer trunk to the suitcase around 1907, travelers and their porters had manhandled their belongings on trips much the same way. While some travelers started to use portable luggage carts in the 1970s, and a gentleman by the name of Bernard Sadow invented wheeled luggage, neither caught on for mass travel.
Plath reduced the size of the luggage, moved the wheels to the end of the rectangle, and added a telescoping handle. Even after its introduction, he had to work another five years before mass acceptance, as the concept was fought by men who considered wheeled luggage too feminine and female travelers that thought the luggage wasn’t large enough.
However, after acceptance by airline personnel, the public followed suit and Plath’s Rollaboard not only changed luggage, but changed how we pack, airport design, and served to largely disrupt the skycap industry. Thinking back on it, it is amazing that it took almost 100 years for this luggage evolution to take place.
Banks don’t get into luggage handling. But is there a Rollaboard out there that could get at one of the fundamentals of the business—how banks prices their services?
Complexity of bank fees
Rollaboards and their clones took an action that was complicated—moving luggage between different transportation modes—and simplified it. It is time for banks to do the same with fees, as we offer a confusing and dizzying array of costs and charges that the banker, let alone the average customer, has trouble keeping straight.
Consider that there is the fee, the minimum balance, the average daily balance, the combined balance, monthly checking/ACH transaction limits, checking/ACH per item charges, deposit limits, deposit charges, overdraft fees, night drop processing, check costs, and a host of other charges as well.
If you count them up, the typical bank has 13 or more moving parts to determine the cost of business checking. Retail checking isn’t that much better. This isn’t to mention the multiple pricing schedules that a bank may have either due to geography or in the wake of one or more mergers where some customers have been “grandfathered in.”
Now let’s consider another wrinkle in eliminating friction …
Banking as a membership
Are you a member of Amazon Prime?
If not, you should investigate this approach to pricing. Among the advantages Amazon gives for $99 annually:
• Two-day shipping on millions of eligible items for free.
• Access to many songs, movies, and TV shows.
• Secure and unlimited photo storage.
• Ability to borrow over 800,000 ebooks from a special library for member Kindle Owners.
• Early access to new books ahead of their official release dates.
• Instant ordering of frequently used household products via stickup “Dash Buttons” located where items are used and tied into household WiFi.
• Exclusive ecoupons for Prime members only.
This simplified package of product and services are attractive and banks can use the same approach.
Since Prime launched in 2005, Amazon Prime now has over 47 million users that spend an average of two times more per year than non-Prime customers. (That is a middle-of-the-road pick of the estimates of membership that are out there, as Amazon only speaks of growth rates in its presentations.)
Analysts aren’t sure if Amazon makes money off the direct Prime charge of $99 itself (we suspect it does), but what is clear is the psychological impact that Prime has on Amazon’s customer base.
Prime removes the friction in deciding the when, how, and who of making even some day-to-day purchases. It makes purchasing goods move as easy as rolling luggage.
Given its additional attributes outside of free shipping like music and video, Prime also creates a sense of “fun.” As a result, not only does share of wallet, average purchase amount, and retention increase, but engagement, or the number of times that customers think of Amazon dramatically balloons. The byproduct of this effort is a strategic advantage.
What would “Bank Prime” look like?
Instead of maintaining a two-page schedule of fees, banks need to move to an annual membership model. This would simplify the friction in account opening and monthly statement reconcilement while making customers feel more valued.
And it would—admittedly by the back door—address the bane of bankers who design intricate pricing schedules: the seemingly unenforceable tendency of bank staff to waive the fees.
Think of how this could change things.
Banks would become more efficient through simplified billing and costing, while customers would no longer get angry every time they are charged for an inbound wire from a third party. Including non-traditional items such as foreign ATM fees, identity protection, credit verification/guarantee, accounts receivable processing/payment, payroll service, and about 50 other items to help our retail and business customers could be included in either the base subscription or a tiered, silver-gold-platinum-like membership.
Further, specialty memberships would be a natural. Think about how medical professionals; manufacturers that source or ship internationally; contractors; farmers; financial services; grocery stores; ecommerce retailers; and many other customer segments could benefit from a specialty annual membership.
Reviewing “club pricing” and financial membership
Yes, banks have tried various membership schemes in the past. They were often promoted by third-party vendors and were generic. These checking account add-ons involved only a few prenegotiated discounts (i.e.,10% off Federal Express) and often included an array of useless products, like accidental death coverage.
American Express has worked the “membership” phrase for some years with deep success, but since its initial introduction, many nationally focused banks have mimicked its reward points, “experience” events, discounts, and status.
For a “Bank Prime” to work, creativity and attention to what customers value must apply.
For example, for certain tiers of membership, banks could add a layer of fixed-price financial advisory help such as estate planning, escrow services, insurance, or investment services. This could be where bank’s qualified, trusted advisor status could be monetized and leveraged.
Bankers could position themselves as an unconflicted, non-commissioned, and non-biased partner with only the customer’s best interest in mind. For that set membership fee, bankers would be on-call, ready to understand the issue and direct the client to the best “certified” solution provider. Should these providers not achieve a high enough rating from the bank’s clients, they would be automatically dropped and replaced by a more suitable provider who is able to deliver service and sustained value to the bank’s customer.
At present, there are few places where customers can turn where the financial advisor or their firm does stand to make money off the customer following their advice. Banks could fill that role, creating a new class of advisory product in the process.
Time is now for a new business model
Similar to Dick Fosbury’s famous and initially unorthodox high-jump flop, the concept of rolling luggage was met by ridicule and strong resistance at first. Major suitcase manufacturers like Samsonite and Hartmann scoffed at the idea of luggage on wheels and retailers like Sears and Macy’s rejected the concept, saying that it was “unproven.” Some parts of the economy are still trying to figure out what hit them, post-Amazon, and with Amazon Prime on top of that.
A banking membership may seem like a distant concept, but it will become commonplace. When the number-one complaint that banks get revolves around fees, and banks are in desperate need to reduce overhead costs to compete with online banks, an annual subscription seems like an easy answer for everyone.
Editor’s Note: One bank that has tinkered with the membership concept is Pennsylvania’s Univest Bank and Trust. Read about this and other concepts the bank has been trying in “Fintech can be beaten.”