Trapped between the desire to retain business through improved customer relations and the need to tap new sources of revenue, many financial companies are considering whether — and how — they can get consumers to pay for basic services.

For the past year, many banks and nonbanks have been quietly raising fees for such things as automated teller machine use and late payments. At the same time, banking companies have been introducing with some fanfare free checking accounts to gain share in new markets, and they have been waiving some account fees for so-called “good customers.”

Are these two trends contradictory? Not at all.

The trick is to do it carefully.

“Over the last 12 months banks have been looking to satisfy retail customers, because revenue growth is being challenged,” said Gerard Cassidy, an analyst at Tucker Anthony Cleary Gull. “They don’t want to lose the customers they have,” and they realize that service can help retain them, Mr. Cassidy said.

“Five or six years ago, the buzz was restructuring,” said Michael Mayo, an analyst at Prudential Securities. “It’s ironic to think of how things have come around, and now everyone’s talking about customer service.”

Facing a sharp slowdown in business from once high-flying brokerage and investment banking activities, many banking companies are putting a renewed focus on more traditional banking services, like deposit business, to fill the revenue void. FleetBoston Financial Corp., for example, is reviewing its consumer products and making adjustments to pricing and features — including minimum balance requirements for accounts. The changes are part of a much broader customer service improvement initiative meant to boost revenues by keeping current customers from bolting to smaller competitors.

“We are evolving the way we handle product and pricing,” said Robert Hedges, a Fleet senior vice president and head of retail distribution, in a recent interview.

For Fleet, the project comes as it tries to welcome new customers from recently acquired Summit Bancorp into the fold, while at the same time hold onto its leading market share in New England. Fleet, like many other large U.S. banking companies, has also had to contend with a sharp decline in revenues from capital markets and brokerage activities.

American Express Co. has recently ladled fees and additional penalty pricing onto its revolving credit card products, which include the Optima line, the popular Blue smart card, and the cobranded Delta SkyMiles card. People who have made late payments will see hikes in their annual percentage rates next year, delinquency fees will be charged sooner, and grace periods will be shortened. Fees are being added in some cases for certain transactions, such as cash withdrawals from ATMs and other cash advances.

Elsewhere, other banking companies are competing for what would once have been considered undesirable business — low profit account holders who bounce checks and keep minimal balances. Charter One Financial Corp. and National City Corp., both of Cleveland, are offering to cut back on fees charged to customers fitting that description, all in the name of good customer relations. The theory being: the word of mouth benefits of reducing fees for even unprofitable customers will lure more business. Plus, there’s also the hope that some of the deadbeats will evolve into more responsible — read more profitable — customers.

For years the conventional wisdom has been that banks should segment consumers and price services according to the varying degrees of profitability. Customers with more than one account at the bank would benefit from reduced or no fees for their multiple services, while customers with just minimal ties would be charged access fees depending on how many services they requested

That thinking might be evolving as banks realize that even the most tangential, least profitable customers have the potential to change for the better. “There was the word-of-mouth effect,” said Thomas Brown, president of Second Curve Capital in New York. “The companies that have grown deposit fees the most in the last few years are the ones that did not have the nuisance fees.”

Of course, banks are still reaping plenty of money in fees. In the second quarter, for example, Charter One credited a 22% jump in “deposit related revenue” for a 17% jump in revenues from retail banking. National City said deposit service charges in the second quarter rose 8% compared to a 1% gain in all fee income.

Marni Pont O’Doherty, an analyst at Keefe Bruyette & Woods, said other banks, including BB&T Corp., Regions Financial Corp., and SouthWest Bank of Texas have been raising fees and benefiting from a boon in deposit charges. “The sexiest fee in the business in the second quarter was the bounced check fee,” Ms. O’Doherty said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.