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Andrew Davidson 
Susan Menke 
Susan Wolfe 
Lisa Hronek Banking
Challenges and Fees In the Banking Industry
Hear Susan Wolfe, VP of Financial Services at Mintel Comperemedia discuss consumer dissatisfaction with banking fees and offer ways banks can keep their customers happy while still making a profit.
Click here to view the video.
The High Cost of Accessing Your Own Money
One for $5? Or Two for $9.99?
Pricing. Both tricky and possibly not terribly interesting. But repricing an existing product? Nightmare.
Apple is one of the few companies that can price its products higher than the industry and they still fly off the shelves.
Other companies, of course, don’t do as well with higher than market pricing. Charging customers for something that was once free doesn’t work. As banks struggle to increase revenue they’re examining things like charging for debit card use. Bank of America’s statement is now notorious.
The challenge, of course, is that customers expect the debit card to be a free access point for their cash. Why? Well, simply because they’ve always been free.
Bank of America. Debit card fees. Ouch.
Molly Katchpole certainly expects her debit card to be free. She felt so strongly about the issue that she started a petitition to protest Bank of America’s new $5 per month fee for its debit card. She stated,”I can barely afford to make ends meet. I’m expected to hand over money to Bank of America each month just for using my own debit card?” She voiced a sentiment 300,000 other people felt and made clear when they signed her petition.
But nothing, of course, is free and debit cards are no exception. There’s a cost to plastic that makes the card, and in creating and running the card networks, maintaining them, authorizing transactions, making sure the transactions sync with online and mobile banking, ATM queries and paper statements.
Whether it costs the 44 cents per transaction, as banks claim, I don’t know. But I do know that people are employed to create and maintain the systems and hardware is purchased to keep it all running and to store the information. So there has to be a cost. And by pricing products appropriately, customers understand there is a cost and a value.
The best things in life (aren’t) free
Over the summer I was talking to my uncle about my cousin’s evil rabbit, Charlotte, their family pet in the late ‘80s. In the discussion he mentioned that the family sold her to someone else for $1. When I asked why they didn’t just give her away, he replied, “My father never believed in giving away anything away for free. If you do, the person will fail to see the value in the item and take it for granted.”
Is $5 per month too high to pay for the debit card? I think the answer to that is now clear. Hindsight always is. But it was a moot point from the beginning, because debit cards have always been offered free of charge. When Netflix failed in its 60% price increase, bank executives should have realized that a 500% price increase was also doomed.
Putting it into context
What is missing in banks’ quest to charge debit fees – and also for online banking years ago – is context.
A lot of young banking customers have never had to buy boxes of checks. In my unscientific poll around the office, of those who are younger than 30, when I said “checks” most of those surveyed said, “huh?” Several people had never ordered checks. That’s right. Never.
But if you’ve ever bought checks, you know there’s a cost to them. Today, one box of 125 duplicate checks is roughly $18.95. Writing 33 checks a month would equal that $5 monthly debit card fee. And then there’s the cost of 33 stamps – $14.19 at today’s cost. That’s twenty bucks a month.
If banks had charged for debit cards from the beginning, not only would they have the recurring monthly revenue, they would also have the interchange fees and customers would realize there’s a cost and a value to debit cards.
Intead Bank of America, along with Wells Fargo and SunTrust, has realized that fees for debit cards are not going to be accepted by their customers. They’re going to have to find another way.
How long have you been with your bank?
I’ve banked with my bank for 14 years. It’s a significant chunk of my life – somewhat less than half but more than a quarter. Together we’ve navigated the excitement and work of four mergers – three acquisitions on their part and one marriage on my part. In that time, my husband and I have also welcomed our first dog (and said goodbye), bought a house, had three children, refinanced our mortgage a couple of times, changed jobs six or seven times, gotten a new credit card (or ten), bought and sold six cars, said good-bye to three grandparents, finally got serious about a 401K plan, established an IRA rollover account to deal with 401Ks from pervious employers, set-up a brokerage account, set-up college savings accounts…
Life goes on, right? Our story isn’t much different than many other peoples’ stories.
And frankly my bank’s story isn’t that much different from other banks’ stories. They’ve merged, expanded their online banking and mobile services, done away with free checking, and struggled with earnings. And no, they haven’t started charging a monthly fee for a debit card, but they’re thinking about it.
So, at the end of the day, we’re just an average customer and an average bank doing business together. But to be honest, I feel like I’ve changed more than they have. My bank pretty much handles my day-to-day banking transactions as it always has. Granted, the ability to deposit a check with my phone is a revolutionary change from my point of view, but I’m not sure that anything else about my bank has gone through a revolution.
Oh, I know all sorts of things have changed on the backend. I know this, because literally one second after I deposited a check with my phone, I got an email that they received the deposit request. And another second after that it popped up in my online banking statement.
But from a customer standpoint, my bank handles my business the same way it did when I first opened my account with them 14 years ago.
I’m writing about this because I’m working on a Webinar about lifecycle marketing. I don’t get many offers from my bank. Of course we get a few. Most recently they asked us to set up automatic mortgage payments made directly from our checking account. Since my husband doesn’t believe in online banking, we won’t be signing up for the service anytime soon. Not even for the $25 they are offering us. The offer promises to “make your life easier.” It won’t really though. Because if I brought it up with my husband he’d say “no.” And then I might be unable to refrain from muttering something about a “technology laggard.” And then he might be tempted to say something along the lines of “you’re not as cool as you think you are.” And then we’d be in a quagmire. Which is really the complete opposite of making my life easier.
But back to the lifecycle of our relationship with our bank…We often get offers encouraging us to open a savings account. Uh…did they not notice that we already have four savings accounts? Throughout our “relationship” I’m sure we’ve gotten numerous offers. And from the banks’ perspective they are probably exactly where they want to be in their relationship with us…two checking accounts, one jumbo mortgage, one credit line, three credit cards, four savings accounts. Much of that growth has happened with little effort on their part. They inherited the mortgage, the line of credit and two credit card accounts through merger activity.
Truth be told, they haven’t done the best job of knowing what’s going on with me. If they truly knew me, they would be trying to sign me up for a 529 Account (3 kids, remember?) Or better yet, offer me a wedding savings account so that I can save for when those same 3 kids eventually decide to tie the knot. Or a car loan. One car has 130K miles on it, the other has 99K miles on it. A new car is in our near future….I wonder if my bank realizes that?
It’s beginning to feel a lot like…Earnings Season!
Right now football season is in full swing and the holidays are right around the corner. For banks, however, there seems be little hope of a lot of holiday cheer to look forward to. Why?
Two words: Earnings. Season.
In advance of most banks releasing their earnings, The New York Times stated in an article, “For banks, the situation is likely to get worse before it gets better.”
The scary thing, of course, is that we’ve been saying that for years now.
Chase released its earnings on Friday and posted a 4% profit decline for the third quarter compared to the same quarter of 2010. This doesn’t bode well for the rest of the industry given that Chase is considered one of the best managed banks in the industry. Indeed, according to data from Trepp, overall revenue is expected to fall 4% in the third quarter, slipping back to 2005 levels. Consumers, however, seem to be worse off - household income has reportedly dipped to 1996 levels, when adjusted for inflation…
The banks, of course, are looking for ways to make up the revenue lost due to new federal regulations. It’s no secret that banks are attempting to do this by imposing fees on their customers. Free checking – if it even existed in the first place – has largely been eliminated. And infamously, Bank of America announced a $5 fee in any month in which a customer uses a debit card. Wells Fargo and Chase have been testing debit card fees for some time.
Consumers aren’t taking these announcements lightly. One woman – Molly Katchpole – has started a petition asking Bank of America to “stop the debit card usage tax.” Her appeal isn’t to just Bank of America customers. She goes on to write, “Even if you’re not a Bank of America customer, this should matter to you. This campaign will show other banks who are planning to follow suit that the public won’t stand for Wall Street’s newest way to take money from its customers — and that they will take their money somewhere else.“ The petition currently has 224,000 signatures and has received TV, radio, online and print press coverage.
Uh, can you say, “viral?”
Remember Netflix? Remember when they increased their prices by 60%? As a result, the company’s stock lost 60% of its value and lost 1 million customers. The company has also had to backpedal on its plan to split into two services – again because customers were angry.
So what’s a company to do?
Granted, it’s much easier to leave Netflix than it is to leave your bank. Javelin Strategy and Research estimates that only 7% of consumers will switch banks in 2011. An article in the New York Times claims that online banking is the reason that customers don’t switch. But from my perspective, that’s just customers being lazy. It’s also a pain to move, change email addresses, or change phone numbers, but people do it all the time. Can you imagine living in the same place your entire life because it’s too much trouble to change your address?
Perhaps the state of inertia is finally poised to change…November 5th is “Bank Transfer Day” and a Facebook page dedicated to the day has almost 13,000 “likes.” Most likely the day needs a few more supporters to make a difference, but combined with Molly’s petition and the Occupy Wall Street protest, who knows what will happen in the coming weeks.
The irony of the situation is that banks developed debit cards as a replacement for paper checks – debit transactions are cheaper than check processing. Lloyd Constantine – lead counsel in the 1996 antitrust lawsuit against Visa and Mastercard – makes the point that debit transactions are still significantly cheaper than check transactions. If so, aren’t the banks potentially cutting of their now to spite their face, so to speak?
It’s a free country, so banks can charge what they want for their services. But I always wonder about the wisdom of punishing the people who keep them in business – their customers. Isn’t there some merit in having Happy Customers? Surely there’s another way to make money besides charging fees? Until the banks figure this out, expect earnings season to be dismal.