Ready to Fly?

Consumer restlessness over megabank fees could be rising, again

By Michael J. Blankenheim

In a potential reprise of post-Wall Street crisis fury, consumer ire appears to be rising again over steeper, more frequent and seemingly arbitrary megabank fees, not to mention often persistently exasperating megabank service issues. According to a new survey by a bank consulting firm, customers at the nation’s 10 largest retail megabanks may be ripe for the picking because of consumer dissatisfaction over high fees and other issues.

As always, however, community banks will have to work hard if they hope to woo those frustrated customers for themselves, industry retail service experts agree.

Earlier this year, the Connecticut consulting firm cg42 LLC polled 3,662 megabank customers and found that 9.7 percent are exceedingly frustrated. The firm predicts many of those consumers are likely to leave their megabanks within the next year. If true, this could translate into $92 billion in lost deposits and $5.1 billion in lost revenue for megabanks, creating a potential windfall for community banks that seize this new retail market opportunity, says Stephen Beck, cg42’s founder and managing partner.

That frustration level isn’t as high as was seen in a similar cg42 consumer survey two years ago when, amid the outbreak of Occupy Wall Street and Bank Transfer Day protests, big-bank frustration appeared higher. The 2011 survey projected megabank deposit losses of $185 million from fed-up big-bank consumers eyeing financial alternatives; during this tight recessionary period, the vast majority of community banks held back from raising customer fees.

Beck says this year’s survey shows that a great many consumers at the big banks remain troubled by “broken promises, being nickeled and dimed and getting hit with unexpected overdraft charges and fees.” Of the 10 largest banks, Citibank stands at the top of the list of megabanks most vulnerable to the lingering consumer fury and frustration over fees. In 2011, Bank of America held that dubious spot. BofA now ranks number three on the list. With new overdraft regulations in recent years depressing once-steady revenues from even legitimate overdraft protection service programs, free checking accounts are disappearing from the largest banks. According to Beck and other retail consultants, megabanks, which historically have charged much higher and more numerous account and transaction fees than community banks, have been busy creatively adding new fees.

James W. Pannos, president of the bank marketing firm Pannos-Winzeler Marketing in Bedford, N.H., notes that while community banks have been under the tremendous regulatory and profitability pressures, many still offer totally free checking accounts and much lower all-around retail fee structures. Pannos agreed that community banks should talk more assertively about the value of their free accounts and lower fees—and not just about their superior service, local ties and financial expertise.

But Jeff Bibb, principal partner at BLF Marketing in Clarksville, Tenn., says offering free checking or lowering account fees may not be enough to attract the right balance of customers who will seek not just accounts but also loans from their banks. “Most community banks are not particularly interested in sizable deposit growth without having corresponding loan demand or fee income streams that drive greater profit,” he contends.

Bibb says community banks should be well armed with the value-added deposit products and delivery technologies that modern customers demand. With smartly designed checking account products, he says, community banks will enhance account profitability by encouraging more customers to use lower-cost, higher-revenue producing products and services—such as debit cards, e-statements and other desirable account “add-ons”—that drive incremental noninterest revenues.

Just as important as touting their no-fee and low-fee offerings, Pannos says, community banks should also assertively market the strong technical capabilities of their products and services. Seamless online and mobile banking services, online account opening and loan originations, state-of-the-art bill pay, remote deposit capture and commercial cash management, as well as more everyday electronic funds transfer options are product and service capabilities community banks should emphasize in their marketing, he says.

Also, community banks should address head-on the leverage and sway of big banks’ large ATM networks. Pannos says some community banks are offering fee-free access to their competitors’ ATMs, while others provide ATM surcharge credits, say of $10 to $15 a month, in exchange for direct deposit or minimum balance requirements.

Marketing in technically advanced ways—such as developing robust and active websites, deploying social media channels and using Internet advertising combined with search-engine optimizing techniques—can effectively reinforce a message of providing a strong menu of technically sophisticated products and services, Pannos adds.

Critically important to taking advantage of the opportunity presented by increasing numbers of consumers becoming more likely to abandon the megabanks is making the account-migration process as easy as possible for customers seeking a new banking relationship, several consultants agree. Account switch kits should be easily available online and easy to fill out and return in a seamless digital workflow. Static forms that have to be printed, filled out by hand, and then mailed or faxed back to a bank are obsolete; they immediately send the wrong first message to tech-savvy megabank customers.

For community banks lacking a digital switch kit, creating a fast and efficient telephone or in-branch process guided by bank staff could be a viable alternative. But it’s fast and easy account conversions that win the race in this retail competition, retail experts agree.

Now, as always, community banks should be providing all the help, persuasion and encouragement they can to nudge megabank customers from their megabank coops. Those angry-bird consumers are probably poised to fly.


Michael J. Blankenheim is a writer in Bowie, Md.

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