Authors: Wei Ke and David Chung

In this article, the authors examine the difficulties pricers face in moving from a “free” to a “fee-based” service, and present four valuable lessons learned from examples of this type of transition in both the digital and banking industries. This industry specific example is valuable for pricers in any industry faced with the need to monetize free services without angering or alienating customers. Dr. Wei Ke is a Partner in the Global Banking Division based in Simon-Kucher’s New York and Toronto offices, and David Chung is a Director in the Global Banking Division in the New York office. They can both be reached via

The Pricing Advisor, January 2018

Transitioning customers from a free-to-fee service is never easy. 

Case in point, the popular savings app Digit announced earlier this year it was going to start charging a monthly fee to help users save. The move offended some of the Financial Technology (fintech) company’s customers who took to social media to express their displeasure over the new $2.99 per month charge. Banks have also encountered this reputational challenge over the years. In 2011, Bank of America announced it was going to charge customers a monthly fee of $5 for debit card purchases, for instance. Customers revolted. Less than two months later, the bank retreated and abandoned its debit card fee plan.

But charging customers for services doesn’t have to end in customers getting angry. To successfully move from a free to a fee model, let’s learn these four lessons from Digit and Bank of America’s experiences.

Banks must accompany new fees with benefits of equal or higher value

When companies impose a fee on a previously free service, customers experience this event as a loss. It does not matter that they never had to pay for the service; there is still a mental perception of loss. To make matters worse, economics and decision theory tell us that humans feel the pain of loss more acutely than the pleasure of gain.

To overcome this phenomenon, companies have to add new benefits when they add any new fees or fee increases. Bank of America’s debit card fee, for instance, might have been more palatable if the bank included attractive new add-ons like cash rewards or free overdraft protection when it announced the new charge. Similarly, if Digit had made a stronger communications campaign that articulated the value of its new higher savings bonus and the addition of other exciting perks because of the new fee, customers may have felt less angry.

For nonpaying customers, provide an option to stay

It is not enough just to add new features along with a new fee. Companies must also provide nonpaying customers with an option to stay for free. In both the Digit and Bank of America examples, a fee was “imposed” and customers had two options: stay and pay the fee or close the account. Many people said online that they chose the latter. Again, this decision is rooted in human psychology. It feels good when we have choices and it feels bad when our ability to choose is taken away. Instead of a mandatory fee, Digit could have added a premium option where users could enjoy higher savings bonuses, rewards and other attractive perks for $2.99 per month. Meanwhile, nonpaying users could continue with a free basic level. Then, the company could nudge clients toward the paying option by making it increasingly uncomfortable to stay at the basic level of service. New features and innovative updates can be walled off and reserved for paying customers, which lets the consumer retain the power to choose.

Tread lightly — especially when free alternatives are widely available

Both Digit and Bank of America also overlooked the highly competitive nature of their businesses where free alternatives abounded. Soon after Digit’s fee announcement, rivals including BoostUp, Chime, Clarity Money and Qapital took to social media to emphasize the free nature of their savings apps. Similarly, unhappy customers at Bank of America did not have to look far to find a free alternative. There was a long list of banks — including Wells Fargo and JPMorgan Chase — that were offering fee-free debit card purchases.

Consider monetization options early in product development

Before financial institutions charge fees, they must develop an understanding of their customers’ willingness and ability to pay. This is arguably the most important first step; it cannot wait until the end of the product development process, or worse, after a bank has launched a new feature or service. By that point, it is too late for corrections, adjustments and alternative approaches.

This article originally appeared in the American Banker here ( It has been republished here with their kind permission.

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