Old bank and neobank
Illustration: Christopher T. Fong/Protocol

One bank’s fee is another bank’s subscription

Protocol Fintech

Good morning, and welcome to Protocol Fintech. This Thursday: fees vs. subscriptions, why Bolt’s being sued, and details on an alleged crypto trading scam.

You say ‘fee,’ I say ‘subscription’

For consumers, casually checking their bank account and seeing a monthly maintenance fee or overdraft charge is a frustrating experience, and fees are a major factor in banks’ low satisfaction ratings.

The challenge for banks is that their efforts to reduce their fees aren’t making a significant dent in improving customer dissatisfaction, according to a recent J.D. Power study. And banks are caught in a financial bind: A CFPB study showed that overdraft and insufficient-fund penalties made up two-thirds of reported fee revenue. A wobbly earnings season for big banks has made cutting a key revenue source even trickier.

There’s a solution neobanks have found, which is part marketing and part product design: Recast fees as subscriptions, and market premium memberships as time- and worry-saving features with a predictable cost instead of surprise charges that disrupt customers’ financial plans.

  • One of the ways that neobanks have flipped the script on traditional banks is by luring in customers with subscriptions that offer perks on top of ways to avoid fees. It may be a matter of semantics — What’s the difference between a subscription payment and a monthly fee? — but it works for modern consumers.
  • Neobanks like Chime, Nubank and Revolut all offer subscription or membership plans in exchange for some of their services and reward programs. Because the subscriptions are optional, these firms still market their services as fee-free.
  • Paul McAdam, a senior director at J.D. Power, told Protocol that younger consumers are more attracted to the neobanks’ approach. It’s rooted in their perceptions of “the issue of unfairness” when it comes to fees, he said.
  • Predictability is also crucial. According to the J.D. Power study, among the neobank customers surveyed, 78% of survey respondents who paid a fee said they knew they would be charged it.

It does raise the question of why banks haven’t just rebranded fees as subscriptions instead of hitting customers with unknown and unexpected maintenance or overdraft fees.

  • There have been glimmers of this in the past: Citi once charged $125 a year for Women & Co., a membership-based personal financial planning service. Citi and Chase today have packages like Priority Checking and Sapphire Premium Checking with a monthly fee that’s waived for higher account balances. But those are targeted at higher-net-worth individuals, not the younger consumers flocking to neobank subscriptions.
  • McAdam theorizes that the banking industry just hasn’t been pressured to do it yet, calling the emerging neobank competition “a classic case of an industry being pushed to move by a new pricing model.”

Traditional banks are already undergoing a digital transformation, but is it enough? Bank of America reported that 53% of its consumer sales came from digital channels in the first quarter of this year. The question is whether it’ll start evolving its products alongside its distribution. Neobanks aren’t waiting to capitalize on the subscription economy.

— Lindsey Choo ( email | twitter )

A version of this story first appeared on Protocol.com. Read it here.


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On the money

Forever 21’s parent company sued Bolt. The one-click-checkout software company best known for its mouthy founder made the retailer miss out on more than $150 million in online sales, retail giant ABG alleged . Bolt said Forever 21 was trying to renegotiate its agreement through legal tactics.

The Central African Republic made bitcoin legal tender. The digital currency will be accepted alongside the CFA franc in the country, where only 11% of the population has access to the internet. It’s the first country to follow El Salvador’s lead in adopting crypto as legal tender.

The Department of Justice charged a San Francisco crypto fund manager with fraud. Japheth Dillman, who’s set to appear in court today, was accused of a scam involving automated crypto trades.

WhatsApp is trying new strategies for peer-to-peer payments in India. It’s testing cash-back rewards and other features, moves that come amid of a general retooling of Meta’s payments strategy.


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Thanks for reading — see you tomorrow!

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