Wells Fargo & Co. likely is about to experience a flood of customer complaints as it starts to experiment with debit card fees to offset revenue losses it expects from the Federal Reserve Board’s interchange-rate cut, observes one analyst.
Wells’ customers in Georgia, New Mexico, Nevada, Oregon and Washington recently began receiving notices in the mail about a $3 fee the bank would charge in every month they use their debit cards to make purchases, effective Oct. 14. The bank will apply the fee whenever customers use PINs or signatures to authorize the payments.
With consumers generally still angry over the financial sector’s recent dicey behavior that many believe fueled the recent recession, Wells risks losing customers by introducing a new fee, Philip Philliou, a partner with the consulting firm Philliou Partners LLC in New York, tells PaymentsSource.
“We’re at this fragile point in time right now,” he says. “Now is probably the wrong time to introduce a fee that consumers are not used to paying.”
Indeed, Wells recognizes the potential for customer attrition from the pilot and potential rollout, according to a company spokesperson. The bank believes “minimal attrition” will be one way it measures the success of the pilot and a potential full-scale rollout, she says.
Wells warned customers earlier this year change was coming because of the Fed’s decision to cap interchange rates at 21 cents per transaction, though the Fed gave banks some leeway to charge even more if they meet certain fraud-prevention standards (
Wells hoped the Senate would vote to delay the ruling until the end of 2012 or later. “Hopefully we’ll all get a delay. If we can’t, what do we do to offset the loss of revenue? Unfortunately, the consumer will pay,” Wells CEO John Stumpf said at a May Barclays Capital conference in London (
Wells decided on the $3 fee because it falls in line with what others are doing, the spokesperson says.
JPMorgan Chase & Co. is testing a $3 fee with one checking account option in a small market, according to a bank spokesperson. For that one account, customers who choose a network-branded debit card pay a $3 monthly fee; ATM-only cards are free.
“We looked at some of our competitors to see which [fee amount] would help us recover lost revenue but possibly wouldn’t be a pain point for the customers as well,” the Wells spokesperson says.
Wells is exempting some checking accounts from the fee. Exemptions include accounts associated with military personnel and college students. Customers should check with their local branch about exemptions, the spokesperson says.
Wells could not say how long the pilot will last.
Philliou believes debit card fees could change consumer behavior in several ways.
“If people start to lose faith in the value of having a debit card as a vehicle to access cash from their bank account, we might see a rise in check use, which is a major step backwards, and an increase in prepaid card adoption,” he says.
Indeed, Philliou has spoken to some major debit card issuers who plan to launch reloadable prepaid cards in the near future. Establishing a prepaid card program could take 6 to 12 months, he says.
“Most issuers can’t use the technology they have today,” Philliou says. “They need to turn to somebody who has the prepaid card processing capabilities.”
Philliou also believes community banks and credit unions are in a position to gain customers frustrated with fees larger issuers charge. Technology has helped smaller institutions to offer products and services that once were reserved for the major players, he notes.
“If you take a look at credit unions specifically, they have done a remarkable job of introducing better products such as great online and mobile-banking capabilities,” Philliou says.
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