Banks Test Customer Debit Card Fees

by Edward O'Brien 0

Bank of America is the latest bank toannounce a monthly fee for customers who use their debit cards tomake purchases. Customers will be charged $5 per month for thisprivilege, although some will be able to circumvent the fees byincreasing their average daily balances, opting-up to a higherrelationship tier, or bundling other products and services. Otherswill have no choice but to incur the fees, or change financialinstitutions. Customers would not be assessed a fee for using theircards in ATMs.

Other banks, including JPMorgan Chase, Wells Fargo, SunTrust, andRegions Financial, have announced similar intentions, or aretesting similar pricing models in test markets. Monthly fees forthese banks will range from $3 to $5. These fees are in addition tomonthly maintenance fees for customers who do not maintain aminimum average balance.

As banks look to replace revenue lost with a debit card fee capmandated by the Durbin Amendment of the Dodd-Frank act (which isestimated to reduce annual revenues at the largest U.S. banks bybetween six and eight billion dollars), they should weigh theiroptions carefully.

An unintended consequence of these fees is the targeting of thevery customers that banks are trying to attract and deepenrelationships – younger customers who are striving to build theirsavings and other financial assets. The loyalty of these customersis much sought-after, and can provide revenue for theseinstitutions for years, and perhaps decades, to come.

There is a significant risk that these valued customers, who areheavy debit card users and accustomed to using their debit cardswithout fees, may leave the bigger banks in favor of thosecommunity and regional banks and credit unions that do notexplicitly charge debit card usage fees.

For some FIs, it will be a challenge, for others, an opportunity.The challenge will be to profitably offer such services forcustomers who don’t yet have compensating balances. The opportunitywill be the potential for many years of recurring revenues.

In any case, FIs, particularly large banks, should carefullyevaluate their strategies regarding debit card fees. This isbecause once these customers are gone, it will be difficult toentice them back.