Posts Tagged ‘checking fees’
In preparation for my upcoming webinar – The New Checking Landscape: Adapting to Reg E and the Durbin Amendment – my colleague, Julie Lizer, and I were brainstorming ideas and talking about the banking industry. We started to compare it to the airline industry. Granted, banking and flying don’t appear to have much in common. But think Fees, Reward Programs and Status.
From my perspective the banking and airline industries have a lot in common these days. Both are struggling with revenue and profitability. Both keep talking about fees (rather than core business products and services, I might point out.) And both have a lot of customers who are really unhappy with what they get from the company.
I would prefer not to fly these days. It’s just not a pleasant experience, partly because there are so many fees on top of the ticket price. It’s also just plain uncomfortable. And at 5’ 2”, if I’m uncomfortable in the seats, that means the overwhelming majority of passengers are even more uncomfortable than me.
Really? Make your customers pay. Then make them pay some more. Then make them uncomfortable and treat them rudely. I have no status on any airline so I get no rewards, no benefits and no services.
As a result, we try to fly Southwest whenever possible, mainly because they don’t charge to check baggage. When you’re a family of five, those baggage fees add up quickly. Plus the employees just seem happier. For the most part, however, we fly whatever airline is cheapest. We have no loyalty whatsoever.
Julie, on the other hand, has Super Duper Platinum Premier Status on one of the big airlines. She goes out of her way to fly with that airline—including paying more for a ticket—simply because the benefits of the loyalty program make it worth it. She’s somewhat oblivious to the fees, because with her status, the fees are waived.
She asked me what I thought about the fees in the banking industry.
The way Julie feels about flying is similar to how I feel about my bank. As a customer, I could care less what my bank decides to charge me. The number and the size of my products with my bank ensures that I’ll never be charged fees. And like Julie, I’d probably be somewhat inclined to pay a bit more to stay with my bank. It would be a complete hassle to move everything. And I like that fact that having everything at one place gives me preferential treatment. In other words – I. Have. Status.
As a market research professional, however, I think eventually the pendulum will swing the other way. When TCF started offering free checking in the mid 80s, everyone eventually followed suit. Not that long ago, TCF announced that it would charge $9.95 on accounts that didn’t maintain a balance of at least $500 or use direct deposit. By May, the company lost 250,000 accounts – basically all the accounts they had gained since 2004. The company changed course slightly and eliminated the minimum balance requirement for accounts that have at least 10 transactions a month.
Checking accounts are simply another commodity at this point. Consumers need them and there’s not much difference between them. I certainly like my bank, but I don’t love my bank. If we moved, I would evaluate the banks available in our new area.
In other words, although I enjoy the preferential treatment I get with my bank, they haven’t done anything to establish strong brand loyalty.
Many banks advertise convenience and ATM availability. In a Mintel survey, among people who had switched banks, 38% of those surveyed indicated the reason was because they moved or convenience. Of course, convenience means different things to different people. For me it’s about online banking, online bill pay tools and mobile banking. Quite frankly, I could care less if there was an ATM on every corner. I pay for everything – including my $1.69 cup of Starbucks coffee – with my debit card.
I think it’s interesting that banks are doing away with debit rewards, a tool that can actually increase loyalty. Even more interestingly is that Citibank, which offers the ThankYou Network rewards program, has not announced any plans to eliminate its reward programs. The bank has the most extensive loyalty program in the industry, and rewards customers for all their banking activity.
Airlines have some of the oldest, most successful loyalty programs in existence. But they’re not necessarily routed in tangible material rewards. The true value, at least according to Julie, is the fringe benefits – free baggage check, early boarding, upgrades, a special customer service number, beverage tickets, etc.
Rewards won’t resonate with every customer. But neither will convenience or the number of ATMs. The banking industry is doing very little to instill loyalty in customers and is instead focused on short-term revenue goals.
Perhaps, however, a longer term focus on loyalty and cross-sell efforts would be more beneficial. A more extensive rewards program – one that incorporates more than just material goods and incorporates status and services into the program – might achieve just that.
Even if you haven’t heard of the Durbin Amendment or interchange fees, you may have heard rumblings of change coming to your checking account. The Durbin Amendment is attempting to regulate how much banks can earn from each purchase made with a debit card. A decrease in revenue from various fees is leading many top banks to consider doing away with the “free” checking account concept. As fees go up, could more traditionally-banked people turn to the prepaid card instead? Prepaid cards would be exempt from the new legislation, so they could offer a viable alternative. Recently, the Network Branded Prepaid Card Association sponsored a study which found that prepaid credit cards could outpace checking accounts in some cases.
If this all sounds serious, you’re right. It is serious.
Personally, I use my checking account and debit card for everything. I was definitely surprised to learn that Chase is considering capping debit card purchases at $50 or $100. That would create some serious changes to my entire financial routine – but I don’t know if I could forsake my checking account altogether. In addition to changes in how customers can use debit cards, banks are also considering lots of new fees – eBanking fees, statement fees, monthly fees. Fees, fees, fees, fees.
Have I freaked you out yet? My apologies, readers, that wasn’t quite the plan. Well, maybe just a little. There is a reason for this, I assure you. We’re always so quick to rush to doom and gloom and assume fees will skyrocket and send banking back under the mattress, but that may not be the case for the majority of consumers.
Not too long ago when the Credit CARD Act was passed, analysts from Wall Street to Main Street were quick to jump up and forecast that 0% intro rates would disappear, every card would carry an annual fee, credit would be unavailable and so forth. In most cases, that hasn’t really happened. 0% intro rates are still a-plenty, as are no-annual-fee cards.
Yes, banks are experimenting with new fees to combat lost revenue from regulated interchange fees, but those same banks are also including provisions to avoid those fees. So, if your free checking account now has a monthly fee, there’s a decent chance you can avoid that fee by having direct deposit or performing some other activity.
Are more checking account fees on the horizon? Anything is possible, especially if banks are nervous about the passage of the Durbin Amendment. Will people move to prepaid cards to avoid those fees? Some may, but I really don’t think that there will be a mass exodus from the bank to the prepaid card.
So if the sky didn’t fall back in 2009 after the passage of the Credit CARD Act, chances are the sky will stay up this time too – Durbin Amendment or not.
You can breathe now. It will all be ok.