Chase Manhattan Corp. is laying one of its merger promises on the line by reducing retail banking fees.
For the second time in a year, Chase said this week, it will reduce consumer transaction fees and minimum-balance requirements while increasing interest rates on certain large deposits.
The steps run counter to the general rise in checking account and other standard service fees as banks try to boost revenue. But the New York market has become increasingly competitive through the Citibank-initiated dropping of many electronic access and "nuisance" fees and through Chase's determination to pass on the benefits of its 1996 merger with Chemical Banking Corp.
The latest moves "reflect merger savings and the significant growth we have seen in our business," said Chase vice chairman Michael Hegarty. He and other Chase officials have said that the $14.5 billion merger would have both operating and marketing effects, in terms of efficiencies and "mass customization."
But price reductions have to stimulate a noticeable response if they are to have the desired effect, said R. Harold Schroeder, a financial services analyst at Keefe, Bruyette & Woods Inc., New York.
"That's the risk a business runs," he said. "When you lower your prices, you don't know how elastic demand will be."
The pricing changes take effect later this fall and follow sweeping cuts last year. Deposit minimums for avoiding fees on linked accounts will be cut by 10%, to $4,500, and some monthly maintenance fees will be reduced by $1, or 8%, to $11.
Chase, which had been known to pay a less-than-competitive rate on money market accounts, will increase interest on accounts holding more than $50,000. A spokesman declined to discuss specific rates but said "they will be competitive with the marketplace."
Chase customers already have access to the largest network of branches and ATMs in the New York area, but the $352 billion-asset bank must continually hone its edge. Its competition includes not only Citibank, the principal subsidiary of the $304.3 billion-asset Citicorp and one of the world's premiere retail banks but also several other banks that have grown out of in-market mergers.
"The environment is much tougher," said Harry Totonis, vice president of financial services at Booz-Allen & Hamilton in New York.
Chase's reduction of fees "is a way of capitalizing on its post-merger cost structure" and keeping customers from defecting, the consultant said.
The action comes as many banks are raising fees, especially for customers who want to deal in-person with tellers and service representatives. Electronic transactions tend to cost less.
A recent study found that larger banks are collecting more in customer fees than ever before. The report, by Bauer Financial in Coral Gables, Fla., said that in 1996 banks with more than $300 million of assets for the first time earned a higher percentage from service charges than their smaller counterparts did. (See article on page 6.)
Chase wants to take advantage of economies of scale to avoid raising fees for business and retail customers, said Beth Hirschhorn, vice president of product development. "We'd rather grow by getting more customers and more of their assets, not by charging more,"she said.