BOSTON-The news last week that Bank of America and other big banks were abandoning plans to add new debit fees doesn't mean other pricing changes aren't in the offing.
Analysts believe banks, still eager to replace that proposed income stream and offset decreased revenue on debit cards, will likely now look to reprice their checking products, which will present other opportunities and challenges to credit unions.
"They have to make up the revenue lost some way, and it has to come from fees on the checking account," Bob Hunt, an analyst for TowerGroup, told American Banker, an affiliate of Credit Union Journal. The question, he said, is "How do you structure it to avoid losing good customers?"
Hunt suggested banks will create a narrower definition for what makes a good customer. Given the declines in overdraft fee revenue from low-balance customers and the diminished profitability of debit, Hunt argues, banks will likely need to seek "non-regrettable attrition," a polite way of telling low-balance checking customers to either provide more business to the bank or get out the door.
With debit card usage fees DOA, Hunt said industry players are going to have to think of a different way to price their products that will woo profitable clients and discourage money-losers. Part of that decision will come down to the bank's internal operating costs. Because the megabanks have significantly higher overhead for accounts, they are the least able to afford low-dollar accounts without accompanying business. Smaller institutions are better able to service such customers, but even they will likely struggle to break even on a checking account that never has more than a thousand dollars in it.
"No-frills credit unions may be best suited to accommodate such customers," American Banker said.
Those dynamics would reinforce a three-tiered system in which megabanks end up charging the most fees and marketing themselves as offering convenience. The differentiation process has already begun, Hunt said, and will likely last well into next year.
"Of the top 30 banks, 21 have implemented a charge where you couldn't get a free account," he says. The others will likely follow, unless they conclude that free checking is an absolutely essential part of their marketing efforts.
