With the regulatory assault on fees forcing banks to rethink everything from overdrafts to debit interchange, marketers are under pressure to find new strategies for profitability.
As a commodity product that most consumers expect to get for free, checking is a particular challenge. Many attendees of the American Bankers Association's recent marketing conference eagerly sought out ideas for coping, whether in sessions, during lunch, or over cocktails.
"Community banks have to consider: Should we continue to offer free checking because big banks aren't, so that could be a differentiator for us? Or by offering free checking, are we risking profitability?" said Tami Armstrong, marketing director at The National Bank and Trust Co. in Sycamore, Ill.
Even discussions about mobile banking and social media often wound back to the topic of checking. In a panel discussion about using digital channels to attract and retain customers, Renan Levy, CEO of technology vendor ActivePath, said overall adoption of online banking is still below 50 percent, and of electronic statements, below 10 percent. This prompted moderator Drew Sievers, CEO of mobile banking provider mFoundry, to ask for ideas to get those numbers higher.
David Bucher, the creative director at Meridian Bank in Devon, Pa., quickly recommended charging a fee for paper statements, a tactic that doubled the adoption of e-statements for his $370 million-asset bank.
A disappointing 29 percent of Meridian customers had given up paper statements as of January 2010. To get to that level, the bank had threatened a $2 monthly fee for paper statements several times. But after those initial nudges, it resisted following through, for fear of driving customers away.
In retrospect, Bucher considers the fear overblown. Once the bank required e-statements for new accounts, and imposed the fee for paper statements on existing ones, the adoption rate rose to 45 percent by July 2010, and 60 percent this summer. Meridian exempted some customers who complained, mostly seniors.
Many marketers at the conference said their banks have yet to impose such fees, in some cases because they are waiting to see what other local banks do first. But in a lively debate about whether free checking can survive the new regulations, Mary Beth Sullivan, managing partner at Capital Performance Group, argued that banks should have a monthly fee and give customers a variety of ways to avoid paying it, such as switching to e-statements and maintaining a minimum balance. "My thinking is, you don't need free checking in your arsenal," she said. "You have to be willing to let go of the part of your customer base that is going to be mad."
Sullivan squared off against Mark Zmarzly, vice president of financial services at ACTON Marketing. He said a fee would alienate many of the customers that community banks want to keep. "Consumers don't make logical decisions," Zmarzly said. "They make emotional decisions."
A big bank with several thousand customers per branch can afford to lose some. A community bank might average 800 to 1,000 customers per branch, and expenses won't change much if the number goes down marginally. "You're not saving money by firing one customer," Zmarzly said.
The week after the conference, news broke about Bank of America's decision to charge checking customers a $5 fee in any month they use their debit card to make a purchase. Zmarzly and others questioned the logic of such a move.
Though some gleefully suggested community banks would benefit, others worried about how another round of negative publicity on a closely watched consumer issue would hurt all banks.
Bryna Butler, market and e-strategies officer at Ohio Valley Bank in Gallipolis, Ohio, said the pressure on profitability is intensifying. That's why her $802 million-asset bank is serving up discounts from retailers to its customers. The offers are triggered by debit card purchases and thus likely to be relevant-for example, someone who shopped at Home Depot might see a discount at Lowe's.
"There are ways for us to create noninterest income without hurting the customer and we just have to be very creative in finding those ways," Butler said. "So many times we jump to the fees, because that's the easy thing to do."
Ohio Valley is working with Truaxis, formerly BillShrink, to offer the discounts, which customers see in the online transaction history for their debit card. Truaxis also provides an analysis of cable and wireless bills that recommends money-saving alternatives.
Services like these enable the bank to look out for customers, Butler said. Particularly since today's twentysomethings are coming of age in a recession, she said, "this is an opportunity for banks to become a hero."
Citizens First National Bank also is getting more creative. The $1 billion-asset bank in Princeton, Ill., switched the name of its checking account from "Absolutely Free" to "Absolutely E" in July. The account is still free for customers who accept electronic statements. A $2 fee is imposed for each paper statement. Seniors, students and minors are exempt from the fee.
Julia Yaklich, the vice president of marketing, says the bank discussed adding a fee for debit cards but rejected the idea. Instead, starting this month, Citizens First is going to give customers the option to put personal photos on their debit cards for a $10 fee. The cards expire in three years, and the fee would recur only if the customer wants the new card personalized.
Another option, inspired by a similar program at Bank Iowa, is a "Spirit Card," with a photo promoting a local high school. In those cases, $5 of the fee gets donated to the high school that the customer chooses. As of early October, 22 high schools had agreed to participate.
The bank plans to feature high school coaches in its radio ads for the card. It also is considering other marketing initiatives with the schools, such as making a donation for every touchdown at home football games. A mention of the bank when the home team scores would help promote the card.
The fee on the Spirit Card is to cover expenses, not generate a profit. But the hope is that the program will get customers to use the card more, generating more interchange income for the bank.
With education funding getting squeezed, school administrators are "very receptive" to ideas for bringing in revenue, Yaklich says. Banks no doubt can relate.
