Consumer Product Design for the Great Recession
August 26, 2010 at 1:22 PM
Nobody likes the idea of the “double dip” – whether one is referring to the social faux pas that Seinfeld brought to public notice in 1993 or a return to a period of negative growth in the U.S. economy. Many economists now believe that the odds of a double dip recession are increasing. If this should occur, even more retail customers will need financial help.
There are many practices that retail banks should consider to both better serve current customer needs and help anticipate potential future needs during a double dip recession:
- Helping your strapped customers: Consumer credit scores have worsened significantly due to prolonged unemployment (or underemployment). As of April 2010, FICO reported that the percentage of the population with a credit score of 599 or below had increased to 25.5% (or 43 million people) from pre-recession levels of 15.0%. Banks should think of ways to supplement FICO scores in their underwriting process in order to determine the true credit risk of a consumer loan. Bank of America, for example, is considering the size of a credit card applicant’s deposit relationship with the bank when determining the appropriate rate.
Banks can also offer customers assistance with rebuilding their credit histories, packaging together credit product options that assist customers to pay down debt and pay bills on-time.
- Providing flexibility in case of emergency: Many consumers are still concerned about entering into either long-term credit or deposit relationships while they are uncertain about their future financial status. I wrote earlier in the year about BBVA Compass' unemployment protection for mortgage customers. Banks should also consider ways to create flexibility on the deposit side, such as offering penalty-free emergency withdrawals of funds in a CD in the event of job loss (similar to TD Bank's No Catch CD).
- Letting customers set their price points: Customers who are carefully monitoring spending may not want to pay monthly fees for basic services. Banks can offer customers a choice in how to pay for their basic transaction accounts – by allowing them to choose to maintain minimum balances, pay a monthly set fee, transact in specific ways, etc. NewAlliance Bank’s new DoMore Checking is a great example. Some customers might prefer variable per-item fees for transactions in excess of a certain limit, a pay-as-you-go concept that some may find highly appealing relative to paying a fixed monthly fee.
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