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Andrew Davidson 
Susan Menke 
Susan Wolfe 
Lisa Hronek Banking
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.
Sudden Death for Free Debit Cards and Debit Card Rewards?
I recently read that Wells Fargo plans to start testing a $3 monthly fee for any new debit card account opened in five states starting in October. This is not new. Chase last year tested a $3 monthly debit card fee in northern Wisconsin. Maybe Chase was thinking if Green Bay Packers fans will pay that fee, then maybe anyone would… However, I believe this experimentation is more likely due to new Durbin regulations that limit the amount of interchange fees that banks collect from debit cards to 21 cents per transaction, which begins on October 1st. Earlier this year, we saw debit reward programs end at Chase, Wells Fargo, PNC Bank, as well as other banks as the result of this legislation. Mintel, in a May 2011 survey, asked respondents what they would do if their bank started charging $2 a month for having their debit card. The majority of our respondents indicated that they would switch payment mechanisms. The respondents indicated that they would use cash, credit card, or checks instead of their debit card. A significant number – 24% – indicated that they would switch banks over the issue and 19% said they would pay the fee to continue to use the debit card as they always have. Do these trends forecast a scary, foreboding end of free debit cards and their associated rewards programs? I wanted to find out more information and make my own prediction.
Ally Bank recently introduced its Ally Perks program, which is a merchant funded rewards program. This rewards program deposits cash back into a consumer’s account for making specific purchases with retailers. For example, a consumer makes a $50 purchase at Target and the bank deposits $5 back into their account. There are no points or miles to be earned and no redemption process. The simplicity of the program is nice, but it is limited to 20 retailers right now participating in their program. To participate in the program, a consumer just needs to open an Ally Interest Checking account, which requires zero dollars to open, no minimum balance, no ATM fees, and no monthly maintenance fees. Ally Bank even pays the consumer interest on their account.
PerkStreet Financial has kept its rewards program that offers a debit MasterCard with 2% cash back. To get the 2% cash back, the consumer needs to have $5,000 or more in the free checking account. Otherwise, it is 1% cash back. A PerkStreet Financial consumer can also alternatively choose coffee rewards (Spend $100, get a cup of coffee worth $2) or music rewards (spend $50, get a song worth $1). Consumers can switch among the different rewards programs at any time. The rewards come to the consumer via an email code for music rewards with Rhapsody or Amazon; a reloadable card for coffee rewards with Peet’s, Starbucks or Dunkin Donuts; or a gift card for cash rewards, such as a MasterCard gift card or a gift card from Best Buy, Target, Ticketmaster or the GAP. PerkStreet Financial offers no annual fee, no monthly fees, and a large network of free ATMs. The bank even offers rotating categories and stores for 5% cash back on purchases. For example, in the month of August, non-PIN purchases at Apple store and Half.com would be eligible for 5% cash back.
Will all banks soon eliminate free debit cards and debit reward programs? Probably not. In fact, I think competitors will likely utilize free debit cards and debit card reward programs in their messaging as a point of differentiation against banks that are charging fees and offering no rewards for their debit card customers. Alternatively, banks could have merchants fund their rewards program like Ally Bank. Now, if I can only predict when the Chicago Bears will next win the Super Bowl…