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Memo to Bankers: A Customer is Someone Who Pays You

The dramatic vote on the Durbin amendment is causing panic, again, among retail bankers – who were last shocked by the Fed’s overdraft ruling.  I wrote about that in November (Watch Out! Big Changes in Retail Bank Pricing Are Coming).

I think the underlying problem that banks are dealing with is that too much of their retail customer revenue is hidden – that is, their customers don’t know they are paying it.  It seems to me that you really don’t have a customer unless the customer is making a conscious decision to pay you.  Otherwise, you have some other kind of business – sort of like a trading business.  There’s nothing wrong with that as a business – the problem is that if you fool yourself that your customer is “buying” your business, then your management framework is going to get seriously out of line.

You can make an argument that retail bank customers do understand that they are paying for bank services – and I buy this, kinda, when it comes to the value of the balances in the account.  After all, one of the problems that retail bankers have is that customers already think they are paying with their balances (“they’re making money off me somehow”) and therefore don’t need to pay additional fees.

But there is no way that a customer believes that by using their debit card at Shop ‘N Cart they are compensating their banker for the bank account services they get.  So if someone takes that revenue away from the banker (or severely limits it – the likely impact of the Durbin amendment, if enacted), no customer is going to think “OK, that means I’ll have to pay more in fees somewhere”.  Instead, the customer is going to get very angry at the bank.

Retail banks are very customer-centric entities.  They have squads of marketing people surveying customer satisfaction and designing customer-attractive products.  They do care.  They just need to get brave enough to build a business based on getting customers to pay for what they value.

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10 years ago

Surely the difficulty with interchange fees is that they are most definitely not a method by which bank customers pay their banks for services. If that were the case, then people would be charged a transaction fee for using a card at point of sale.

No, interchange fees may be collected by merchants, but they are paid for by everyone, regardless of whether they have a bank account, in the form of higher prices.

In other words, interchange fees are a sales tax, levied on everyone–rich and poor, banked and unbanked (the FDIC says that’s nine million American households) alike–in order to pay for “free” banking for those rich enough to be granted an account. Think Robin Hood.

In reverse.

It’s odd that those most opposed to taxation that redistributes wealth to the poor, are most intensely relaxed by this private sector taxation that resembles nothing more than trickle up.

Unbanked statistic (2009):

Tom Noyes
Tom Noyes
10 years ago

Well done Carol. US Retail Banks have tough decisions to make around how to manage payments within the overall retail value proposition.

10 years ago

I think I’ll go back to stuffing my cash in my matress. Why should I have to PAY a bank to hold my money which they use to make themselves more money by lending it to someone else, then have to pay to spend MY money.

When is the average consumer going to be the winner?

Arun Muthu
Arun Muthu
8 years ago

Passing on the higher cost to consumers is kinda like what the airline industry did when their belts had to be tightened. First, they announce, “We are going to charge you for checked in baggage.” And after the dust settles, marketeers from the same airline company will come back and say, “Free checked in baggage.” And we being an ADD society, conveniently forget that checked in baggage was free to begin with and end up falling for a false promotion.

You can quote me on this: A year from now, bankers will come back and pretend to be the good guys and say, “Look, we don’t charge you for using your debit card!”