According to a new Javelin study, Americans actually believe Durbin benefited the banks:
Even though new debit card regulations have significantly decreased the revenue offset for maintaining checking account services, consumers are not fully aware of such implications. They have been confused and have become increasingly hostile in the face of a host of new fees or decreased features. In fact, Javelin data shows that 70% of consumers believe that recent debit card regulations will actually benefit banks, while only 30% believe that the regulations will benefit merchants.
That represents a stunning victory for the retailers. Not only did they get the legislation they wanted in the form of a firm cap on the fees banks can charge them for processing debit card transactions, but now the American public believes all the negative consequences are coming down in the name of increased profitability for the banks.
Of course, that belief bears little resemblance to reality. From the Javelin study:
Due to these recent debit card regulations, Javelin forecasts that affected institutions will stand to lose a combined total of $12.2 billion per year beginning in 2012. In an effort to cover maintenance costs for checking accounts and recoup lost revenue, numerous top banks, such as Bank of America, Chase, Wells Fargo, and Citibank, have announced plans to eliminate free checking services and to restructure checking account offerings.
Here you have the makings of a vicious cycle. Banks try to close the revenue shortfall created by Durbin and vociferously blame it on Durbin, and customers think, "Hey, this Durbin thing is boosting my fees and that's making money for the banks." That, in turn, causes resentful customers to leave for greener pastures, which necessitates boosting fees further to make up the revenue, and so on.
I think banks are going to have to accept that they've lost this battle and instead focus on figuring out how to make their checking accounts profitable at a price customers will accept. That may mean cutting back on old-school infrastructure like branches or executive salaries, or it may mean making the case that the value of their products is worth a few bucks a month in a more compelling way. The bottom line though is that, as unfair as it may seem to banking industry professionals, customers don't really care why their fees are going up, they just care that they are.
I also think Javelin's data shows there is room for a leaner approach to checking, either in the form of an online checking account or a prepaid debit card. Consumers clearly like debit cards. In the Javelin survey, nearly a quarter of debit cardholders were satisfied with their cards. But consumers just don't like paying fees to use them; 32 percent said they would choose to use cash rather than debit in the face of fees.
As a compromise, I think a lot of people would accept a smaller suite of features and a small or nonexistent network of branches to get debit card services for free, especially as fees for full-service checking accounts continue to rise. That's why small banks and credit unions, who offer fewer branches but still keep the free-checking flame burning, have benefited so heavily from the Durbin debacle.
What do you think? Would you accept fewer services and branches in exchange for a fee-free debit card?