Higher balance requirements, more fees not the answer for community banks!

June 22, 2010

Recently, there was an article in the San Francisco Business Times outlining Wells Fargo Bank’s upcoming changes to its checking account portfolio. In July 2010, Wells Fargo increased minimum balance requirements and service charges for its checking accounts. The article, headlined “Wells Fargo to boost checking fees,” starts out saying:

“Wells Fargo is alerting customers that fees on most checking accounts will rise July 1, marking the first change in such fees in more than five years.”

That is certainly not what consumers want and expect from their bank. But, in light of regulatory changes and their effect on many financial institutions’ bottom lines (Read more about our clients Reg E results), Wells Fargo must have thought this fee hike necessary to offset any negative impact on earnings.

Another article, “The New Bank Fees: How to Fight Back,” in the Wall Street Journal, explains practices bigger banks are considering to recapture revenue they expect to lose from regulatory changes (see table below). Some of these strategies would impose fees and limit, or completely take away, once-free products or services.

Our research, as well as research from Raddon Financial Group, indicates consumers expect a free account from their bank and that they most dislike minimum balance requirements. Giving the customer requirements – hoops to jump through – is not in their best interest and will push some to other banks. 

Other banks will keep offering truly free checking. These banks understand that checking accounts are very profitable when looking at marginal costs and revenues they generate. These banks also understand that the checking account is a hub for additional business. Based on our research of several million bank customers – not just a survey of a few bank customers – 64% started their banking relationship with the checking account.

Big banks have more locations and more customers than the average community bank. With more customers, big banks have options community banks lack. The average community bank has 1,200 checking accounts at a branch while we estimate that the average mega bank has 4,000 to 6,000.

In the short term, increased service charges will help big banks offset potential fee revenue losses. In the long term, however, even the mightiest banks will have to grow their customer bases again. For community banks that are well positioned, this scenario provides a huge opportunity. 

To learn more about the economics of a checking customer (free checking as well as others) based not on a small survey but date collected from several million real bank customers, order our Free Checking White Paper . If you are a Haberfeld client please request your free copy of the white paper from your account executive.