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Bank customers shift focus to fees

By Claes Bell · Bankrate.com
Wednesday, May 9, 2012
Posted: 11 am ET

Last year at this time, bank fees were something of a fringe issue. Those shopping for a bank account largely ignored them, and it seemed like only personal finance writers, public policy wonks and consumer advocates really cared about them.

But nowadays, a lot more Americans are ditching their banks over fees and paying closer attention to fees when shopping for a new bank, according to the latest Retail Banking Satisfaction Study from J.D. Power.

The study shows that 26 percent of people looking for a new bank ditched their old one  primarily over high fees. That figure shot up to 32 percent if their old bank was one of the "Big 6," Bank of America, Wells Fargo, U.S. Bank, Chase, Citi Bank or PNC.

Compare that to last year, when only 14 percent of those switching banks overall did so due to bank fees.

Michael Beird, director of banking services practice at J.D. Power, says that these days, a high or unexpected fee is often the push bank customers need to overcome their natural tendency to stick around.

"Customers may be saying it's because of fees, but what we really see is that the fee may have been the final straw when they've been experiencing bad service over a period of time," Beird says. "People will tolerate increasingly poor levels of service for a long period of time."

That is, until they see that brand-new monthly maintenance charge on their statement, he says.

"Finally people say, 'Enough is enough.' It seemed like fees last year was kind of that final straw," Beird says. "But I think it would be simplistic for a bank to say, 'It's just about fees.'"

Still, of those customers that left their bank over fees, about a third picked out their new bank based primarily based on their fees, says Beird. Overall, 14 percent of bank customers picked their new bank primarily for that reason, compared to just 7 percent last year.

It seems to me that before the "fee-asco" of last year, bank customers in the U.S. had come to an understanding with their banks over fees. Outside of a small minority of frequent fee-payers, bank customers had gotten more adept at avoiding fees for missteps like overdrafts, and so were OK with banks charging fees for their occasional screw-ups. Banks, flush with cash from overdrafts and debit card fees, were happy to offer free checking to keep them around.

What happened next depends on whom you ask. Banks might tell you an out-of-control federal government upended the system by forcing banks to get customers' OK before charging them for courtesy overdraft and capping debit card fees. But, as I wrote last week, that view is complicated by the fact that fee revenue had started falling way back in 2007.

While regulation was certainly a factor in many banks' decision to shift to less-avoidable fees such as monthly maintenance fees, I think there's more to it. For one thing, I'm sure a lot of people who would have been generating those types of fees have been locked out of the banking system altogether, thanks to financial difficulties caused by the recession.

But those customers who are left have also gotten better at recognizing and avoiding penalty-based fees, thanks in part to new tools such as text alerts and online banking, forcing banks to switch to more broad-based fees.

Unfortunately for many banks, customers hate those impossible-to-avoid fees, says Beird.

Why? It comes down to their perception of value, he says.

"Consumers are concerned that they're not getting value for their money," Beird says. "You can get away with charging something if you reinforce to the customer the value proposition. I think what we're seeing is, as customers have to shell out more money, that the banks have not necessarily offered customers a reason for why they they're paying more money."

Beard uses the analogy of that restaurant that's close enough to your office to get a lot of your lunch business, despite the fact that it's so-so. You may keep going there for a while even after the quality of the food or service has declined, but if that happens in conjunction with a big price increase, you'll probably start looking for someplace else.

Banks struggling to keep customers better hope they can change that dynamic before they become the banking industry equivalent of Bennigan's or Kenny Rogers Roasters.

What do you think? Are bank customers more savvy about fees than they used to be? Do you consider fees when shopping for a new bank?

Follow me on Twitter: @ClaesBell.

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