It seemed like the largest banks had a sure-fire way to raise a few hundred billion dollars. Monthly fees on debit cards would be their new cash cow. Consumers, after all, need their debit cards, and they couldn’t easily leave a bank to avoid the new fees if the other banks were charging something similar. It would be the same kind of windfall as the 3 percent transaction fee the giant banks added to foreign-country credit card transactions nine years ago.
Yet this new transition didn’t go smoothly at all. While other banks were “experimenting” with the new fees, Bank of America went charging ahead with the announcement of a $5 monthly fee. Most of its customers made plans to switch banks. Some switched from cards to cash. Push came to shove last week, when Bank of America went on a self-styled public relations offensive to justify its high fees while several other banks quietly withdrew their debit card fees. Today Bank of America realized it was out in front all alone, walking itself to the slaughter. It announced a change of heart.
It may be too late to repair Bank of America’s image or its stock price, which fell when the new fee was announced and fell again when it was canceled. Bank of America may already have lost more than a million customers, and there will be more when customers get around to it. CNN has already run its program to show viewers how easy it is to change banks. Consumer activists are going ahead with this week’s Bank Transfer Day which encourages consumers and small businesses to move accounts to local credit unions. Credit unions have gotten a fortune in free publicity from the controversy, and there, the main point that has finally sunk in with consumers is that credit unions are simpler than banks.
Banking customers who are worried about new fees will just go ahead and switch regardless of the fate of this one fee. The fact is that the largest banks have the largest expenses and have no other choice but to raise fees somehow. Customers who stay with these banks will be facing a new fee every year. They can either stay put and deal with the next fee when it comes along or switch now to a bank that isn’t so expensive to operate or so difficult to do business with. Consumers have learned that they do have choices when it comes to banking. Knowledge like that can’t be undone.
For the banking industry, this episode is a rude awakening, or at least it should be. The noisy consumer resistance proves that banks have lost the pricing power that they enjoyed up until last year. The banking giants can no longer simply budget how much consumers will pay, nor can they sit in the back rooms and divide the consumer market up among themselves. They now have to compete. They can charge only what the market will bear. If their costs are too high, they have the option of shutting down. The U.S. banking industry as a whole hit its 2007 peak overextended by about 30 percent. If cutbacks have been slow to come, it is because customers have been content to stay put. But now, that appears to be changing.
