Oh, You Wanted a Steering Wheel with that Car? Contemplating New Debit Fees
I’ve spent part of my weekend contemplating the public relations hubbub that broke out late last week around Bank of America’s announcement that it would assess a $5 monthly fee on certain of its checking account holders who choose to use their debit cards for point-of-sale purchases. It’s a polarizing issue.
At one level, I have sympathy for the economic plight of the large retail banks, most of which have taken actions similar to Bank of America’s (albeit at initially more modest fee levels). The interchange revenue reductions coming to the large banks as a result of the Durbin Amendment are just the latest of several unkind cuts that include reduced overdraft fees and the impact of persistently very low interest rates.
Faced with such pressure, there is a certain logic to the idea of imposing new fees on debit cards, where new regulations have just reduced revenue. The cards are very popular with many consumers, who may therefore be willing to pay to keep them, while those customers who don’t make debit card purchases won’t be asked to pay new fees.
That all sounds sensible, but I still find myself troubled by this course of action and, somehow, I don’t think this is what I’d be doing, were I still a retail banker. But why?
Checking accounts have long been a compound product consisting of several components and features (linked accounts, branch locations, online access, telephone service, etc.). The new debit card fees have the odd effect of attaching a special charge to one particular feature, and it’s one that still generates revenue for the bank from sources other than the account holder. By contrast, other services that are costly to provide and generate no outside revenue – checks, online payment, on-us ATM transactions – still carry no supplemental charges.
Furthermore, most of those other payment instruments are either fairly stable or even in decline (checks), while debit card usage continues to grow smartly. Customers who use them must surely see the debit card as the very core of the checking account bundle. Without the debit card as part of the package, most of these customers would see the product as rather incomplete and lacking critical functionality. To them, the idea of buying a checking account where the debit card is a feature requiring a supplemental fee must seem like buying a new car from General Motors that considers a steering wheel or tires to be a separately priced option.
It’s already clear that large banks taking this tack have ignited the ire of their customers and the general public. They may have also left themselves vulnerable to the inevitable marketing entreaties of the thousands of smaller institutions exempted from the Durbin Amendment’s interchange regulations. What do you think?