Bank of America plans to introduce tiered accounts for which customers will have to pay a maintenance fee. This means the reintroduction of premium bank accounts that will carry a charge of up to $25 a month. Given the current economic climate and the trend toward fiscal austerity, it seems unlikely that customers will be receptive to these accounts.
Citing "a new economic reality," Bank of America has announced plans to overhaul its customer segmentation and introduce tiered bank accounts, under titles such as Essentials, Premium, and Platinum Privilege. All of these accounts will carry monthly fees, a move that is sure to anger the bank's customer base, given the current economic climate. At present a basic banking customer can avoid paying a monthly amount by maintaining $1,500 in the account, but the Essentials policy will not allow the fee to be waived, with even those least able to afford maintenance fees being charged $6 to $9 a month. This means that a customer with the old minimum balance will pay 7.5% of his savings to the bank for the privilege of holding an account that executives say will have "reduced services." Perhaps it would be more aptly named "Bare Essentials."
It is not only the lower end of the customer base that will balk at the introduction of fees, however. Mass affluent customers, whom Bank of America are specifically targeting with this strategy, are also unwilling to pay for their accounts. Premium customers will be charged $25 a month unless they hold at least $20,000 in their account or have a Bank of America mortgage. According to Datamonitor's Financial Services Consumer Insights survey, the majority of American mass affluents let price and cost dictate their financial decisions, and the results clearly indicate that they do not want to pay fees for their premium banking services, with 90% of respondents saying as much. In addition, 96% of consumers across the nation do not want to be charged a fee for their basic banking services. Bank of America would be wise to listen to its customers on these points.
America's mass affluent clients also demand value for money. If the banks interviewed by Datamonitor are right (and we believe they are), then when the cost of holding a bank account becomes explicit, customers will expect banks to demonstrate the value of those accounts. In this area, it is unclear what Bank of America plans to do, but if it intends to follow other banks' mass affluent services, it is likely to offer enhanced interest rates or "free" products as a means of enticing and retaining customers.
If Bank of America wants to incentivize these accounts by offering the free products that are most in demand, then Datamonitor research shows that home insurance is a priority for American mass affluents, followed by free currency exchange services and free foreign transactions. Free travel insurance, mobile phone insurance, and breakdown cover are also considered desirable by consumers. Datamonitor research also suggests that interest rates are, for the most part, less important to mass affluents, with only one fifth of such consumers choosing their deposit account because of better rates, so this is not a key motivator for new business. Instead, American mass affluents are lured by low banking charges, which will not come as welcome news to the bank. More than a quarter of US mass affluents chose their deposit account specifically because it carried low banking charges. In this regard, they are the most charge-conscious among the world's mass affluents.
The bank's decision may yet prove to be a profitable one, but given that only 10% of all American consumers believe that low income individuals should not have access to the same financial products that everybody else does, there is also the possibility that the charges will alienate both current and potential customers alike. Charging poor people - who cannot afford to pay for basic accounts - and mass affluents - who do not want to pay for premium accounts - is not the way to win customers in a difficult economic environment.