Avoiding “Bad Bank Syndrome” with Transparent Fees and Notifications

I saw an interesting blog post on Bank Innovation the other day entitled “Good Bank, Bad Bank.” In the post, J.J. Hornblass points out that sometimes good customer service gets in the way of profits, which leads to bad bank syndrome. His point is that if you do the math, banks make more money on NSF fees than they spend on the cost of an inbound customer call to the call-center, so it’s in the bank’s best financial interest to avoid notifying customers of dwindling balances and collect the overdraft fees.

It may make good financial sense for the bank bit it’s really bad customer service, especially in the age of the web. As banks continue to look to fees to make up for shortfalls, the less scrupulous financial institutions will probably make it harder for customers to keep track of fees, whether they are NSFs or checking fees or credit card fees. If you read last week’s blog entry about Chase’s new checking fee structure you can see that fees can be made to be very complex and can be challenging for any customer to follow. And of course, some banks are counting on that. As Hornblass notes, “being a ‘bad bank’ does not have to be overt. Simply making it more difficult to avoid a fee, in my view, could be a ‘bad’ practice.”

And there is no reason why banks can’t make it easy to avoid unnecessary fees, if they so choose. Take the case of one of my friends who has college-aged kids. If you have teenagers you know they are banking challenged, and for whatever reason can’t seem to keep track of how much cash is in their bank account, let alone the consequences of overdraft fees. My friend’s solution was to set up a Bank of America joint student account for his step-daughter, who is attending college on the other side of the country. That way he can make deposits in California so she can access the money in Washington, D.C. And he uses BofA’s daily e-mail notification system so both he and his stepdaughter both get a daily balance alert sent via e-mail or text message. It’s a good way to teach kids how to keep track of their money and keep them out of trouble.

I am sure BofA isn’t the only financial institution to offer this kind of alert service. It’s this kind of Internet-powered, seamless self-service alert that keeps customers happy and coming back for more products. The service doesn’t cost the bank anything to maintain since it is completely automated, and customers love it.

Of course, you don’t want to reward bad customer behavior or give a break to those who won’t follow the rules, but you shouldn’t make it hard to understand the rules or hide them. Simple tools, such as alerting customers to fees before they are imposed, will help banks avoid “bad bank syndrome.”