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Banks use price to influence behaviour

Thursday, 13 March 2008

A new report shows that banking prices around the world keep varying significantly.

In 2007, the average price for active users of banking services has decreased by 1 per cent to €70 globally, with price levels ranging from €52 in Asia-Pacific to €79 in North America.

This global stability, however, hides price variations between countries and regions.

Fierce competition on account management fees

These are among the key findings from the fifth annual World Retail Banking Report released by Capgemini, ING and the European Financial Management and Marketing Association (Efma).

North America increased the most (averaging 5.7 per cent), resulting from higher prices for payments and cash utilisation.

Its price had declined during the three previous years due to fierce competition notably on account management fees.

Asia-Pacific’s price fell by 11.1 per cent this year as a result of increased competition in Australia and India, particularly in payments and account management.

European prices remained stable with a small 0.8 per cent price increase across both Eurozone and non-Eurozone countries.

Desire to remain competitive

With the advent of SEPA, prices of pan-European payments – defined as the basket of products that will progressively be governed by SEPA’s pan-European standards and regulations - have decreased faster in Europe Eurozone than in the rest of the world, falling by 6.3 per cent from €41 to €38.

Over the last two years, in their struggle to compete, banks used price to influence customer behaviour. They cut the price of sales influencers such as current accounts and cards by 0.8 per cent a year.

This reflects their desire to remain competitive with the product prices customers can see most clearly, and therefore determine purchasing decisions and customer loyalty.

The banks continue to use behaviour influencers to attract customers towards or repel them from certain products and service, cutting the price of less costly products (online banking or withdrawals at ATM) by 0.2 per cent and raising those of more costly ones (cheques or withdrawals at banks) by 0.9 per cent per year.

Reluctance to provoke concern

Prices for unseen services, such as exceptions handling, which customers incur without choice or intent, remained flat, thus reflecting a reluctance to further provoke concern by regulators and consumer associations.

Jointly produced by Capgemini, Efma and ING, the 5th annual World Retail Banking Report focuses on growth in domestic retail banking markets.

Assessing the past levers used by the world leading banks, it explores the alternative distribution strategies that will enable them to pursue their growth organically in today’s saturated and slowly growing domestic markets.

The report is based on internal analysis and in-depth interviews with 52 banking executives in 15 countries.

In addition, the report provides in-depth pricing analyses of retail banks in Europe, North-America, and Asia Pacific, based on data collected in 194 banks in 26 countries.

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