With the global economic climate appearing to shift daily, financial institutions are constantly looking for newer, more creative revenue streams. The result is that the era of no-charge checking and savings accounts appears to be coming to an end. Actually, the days of receiving anything free from your bank seem numbered.
That, however, may not entirely be the case at the community level. According to some local bank officials, while their complete menu of services may not be cost-free, they’re still working toward maintaining something of a “business as usual” mindset with regard to traditional banking. Just don’t expect them to return to the days of offering you a free toaster when you open up an account.
“Among the community banks, there’s a real reluctance to raise fees, even though our costs are increasing, because we don’t want to do anything that could upset the customers we have already or would be a deterrent to someone opening a new account with us,” said Steve Kelly, Central Bank’s executive vice president of marketing and sales. “So we try to look at fees very carefully in terms of what is the fee, how does it relate to the cost of providing this service, how many people will be affected by it.”
That isn’t necessarily the case with larger institutions.
A big reason is that the traditional method in which banks earned a profit was simple: Borrow money at a low interest rate and then loan those funds out at higher rates, with the company keeping the difference. But profits have recently taken a hit, thanks to unprecedented lows in interest rates that make flipping borrowed money for a significant gain nearly impossible. Banks have sought out ways to make up the difference with everything from charges for using a debit card to significantly increasing the price of cashiers’ checks.
When the American economy began to wobble following the housing market crash of 2008, laws went into effect that reeled in some fees. This includes legislation that kept banks from enlisting their customers into a program that charged up to $35 for checking overdrafts without their consent, as well as not notifying credit card holders of changes in fees and interest rates. In addition to the black eye that came with being associated with the public outcry that led to the creation of those new laws, the big banks’ ledgers were also delivered a blow. The loss of some of the fees via legislation — as well as the public’s newfound awareness of overdraft penalties —resulted in a 4.5 percent drop in the banking industry’s 2011 earnings from overdraft penalties and 14.8 percent overall for the past two years, for a total of $5.5 billion.
Though there have been some changes, things haven’t happened as drastically at the local level, where fewer financial institutions are publicly traded companies and they depend less on those non-traditional revenue streams.
“[Publicly traded companies are] trying to generate revenue however they can do it, because their stock price is fluctuating daily based on what the market perceives as their performance,” Kelly said. “So they’re trying to do anything they can. The consumer reaction, frankly, isn’t as important to them, because they’re dealing with a different set of issues.”
While the larger institutions can more easily absorb the loss of some customers — particularly individual accountholders rather than corporate clients — due to the sheer volume of business they perform annually, smaller banks don’t have that luxury. Many have started new or ramped up existing market research initiatives in order to study customer wants and needs.
For some, this has resulted in a more proactive approach to alerting customers in advance (often at least 30 days, according to some local bank officials) of any changes in plans and policies or the addition of any new fees. Others have broken down their existing models to revise how their checking plans work in order to make them more competitively priced and provide more wiggle room for any overdraft penalties.
For example, Fifth Third Bank has created an overdraft policy that eliminates daily overdraft fees and streamlines per-item charges for overdraft items and overdraft protection transfers. Its customers are not charged a per-item fee when their account is overdrawn by $5 or less at the close of business. And, like many other banks, Fifth Third has taken advantage of leaps in technology to create multiple ways customers can monitor account balances, including online, via phone or through email and text message alerts.
“We spend a lot of time talking to our customers to understand what they need and expect in an account and banking relationship,” said Brant Welch, assistant marketing manager for Fifth Third Bank. “Our customers have told us they want accounts that are simple, transparent and easy to use. … [And] we believe everyone should have some protections from an occasional shortfall.”