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Pricing Payment Services: The Customer’s Perspective

November 3, 2016

Banks and other depository institutions incur real costs in providing deposit and payment services, costs that must be recouped by generating revenues. But consumers became accustomed to getting “Free Checking” after the deregulation of deposit interest rates in the 1980s and averse to explicit fees. So banks switched to raising revenues via opaque or hidden fees that accrued disproportionately to customers with fewer financial resources and less financial literacy. Since then, the emergence of electronic networks – payment cards, the Internet (online banking), mobile phones, and faster payment services – has enabled non-bank and FinTech payment providers to challenge traditional payment services with new “free” payments produced with nearly zero marginal costs. This BAI webinar will explore the changing demand for consumer payments using new data and research from the Federal Reserve Bank of Boston.

Traditional payment service providers find themselves at a crossroad. Banks have been able to raise prices and revenues for some deposit and payment services since the Financial Crisis. However, increased government regulations and tighter household budgets – along with heightened competition from emerging payments and credit providers – are constraining banks’ ability to regain lost revenues and market shares. This BAI webinar aims to stimulate a candid and constructive dialogue about how to tackle the challenge of pricing payment services in the 21st century. The questions and concerns remain the same, but new insights may be gained by rethinking the challenge from the customer’s perspective.

Key Takeaways Include:

  • Enhanced customer communication plans are essential to serve the unbanked and underbanked
  • Navigating the regulatory waters to increase revenue without sacrificing consumer trust
  • Tackling the challenge of pricing payment services in the 21st century

Your Presenter

Scott Schuh
Director and Economist
Consumer Payments Research Center
Federal Reserve Bank of Boston

Scott Schuh is Director of the Consumer Payments Research Center (CPRC) and a Senior Economist and Policy Advisor in the Research Department of the Federal Reserve Bank of Boston. He joined the Bank in 1997 after serving as an economist at the Board of Governors of the Federal Reserve System since 1991. Schuh also worked for President Reagan's Council of Economic Advisers, the U.S. Congressional Budget Office, and the U.S. Census Bureau. He currently teaches at Boston University, and has taught at Boston College and Johns Hopkins University.

Schuh's current research focuses on consumer choices pertaining to money, payments, and banking, and on leading the CPRC to produce the annual Survey of Consumer Payment Choice and a new Diary of Consumer Payment Choice. His earlier research is in macroeconomics, labor economics, and international economics. A distinctive feature of Schuh's research agenda has been a focus on the microeconomic foundations of macroeconomic fluctuations and growth. He co-authored two books, including the award-winning Job Creation and Job Destruction (1995), and has published articles in journals such as the Journal of Monetary Economics; International Economic Review; Journal of Money, Credit, and Banking; Review of Economic Dynamics; and Journal of International Economics. Schuh earned a B.A. in economics and journalism from California State University, Sacramento in 1985, and a Ph.D. and M.A. in economics from Johns Hopkins University in 1992