Consumers are mad as hell and they aren’t going to take it any more. Consider recent news stories about Bank of America reversing itself on plans to impose a $5 monthly swipe fee for ATM card users. According to news reports, the change in strategy was the direct result of customer feedback:
"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," Bank of America co-COO David Darnell said in a written statement. "Our customers' voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so."
And consider the pending impact of tomorrow’s Bank Transfer Day, where thousands of unhappy depositors are expected to migrate their money. This movement is seen to be closely allied to the sentiment driving the Occupy Wall Street movement, and is an attempt by consumers to make their concerns known in the banking community.
Much of this pressure is the direct result of the recently enacted Dodd-Frank financial reform act, which limits the amount of fees banks can charge retailers for ATM purchases. But will banks continue to knuckle under to consumer pressure? According to a story posted by the New Republic, the exodus of protesting depositors could be a blessing in disguise:
"At the root of the problem is that many Bank Transfer Day enthusiasts have overestimated their value to the banks they patronize: Ultimately, not all bank customers are made equal. Most customers of banks aren’t wealthy (we know from the Federal Deposit Insurance Corporation that 57 percent of all deposits at big banks are under $250,000), but it’s the wealthy upon whom the business models of big banks mostly depend. According to Jennifer Tescher, President and CEO of the consultancy Center for Financial Services Information, banks typically earn at about 80 percent of their deposit revenue from the top 20 percent of their customers.”
The passage of Dodd-Frank has converted the majority of low-balance depositors into a clear liability for big banks. Experts estimate that a customer now has to maintain an average balance of $25,000 in order to be profitable for banks, especially when you consider the overhead from processing transactions, staffing, and the like. And the banks are still suffering from the hangover of loan binging before 2008, when any depositor with a checking account could qualify to borrow money. Now the limits on levies for overdraft fees and “swipe fees” make these depositors much less desirable because they are no longer profitable.
In many ways, Bank Transfer Day and the backlash against big banks is going to help institutions like Bank of America by helping drive the dead wood out of the deposits. By interpreting these new fees as greed, consumer think they are punishing big banks by taking their trade elsewhere, when in reality they are helping banks support more profitable accounts.