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.