Higher costs, new laws mean no more free rides on some bank services, accounts
Apr 01, 2012 (The Pittsburgh Tribune-Review - McClatchy-Tribune Information Services via COMTEX) --
Dan Flickinger of Greensburg resents his bank's $32 fee when he overdrafts his account with a debit card purchase, especially because the fee doesn't show up for days.
Flickinger, 26, said he is tempted to shift his business to Huntington National Bank because it gives customers 24 hours after a debit-card overdraft to cover it with a deposit. The bank doesn't charge a dime for overdrafts under $5.
"We were the first -- and still the only -- bank to waive that fee," said Vice President Todd Patrick. "Huntington's approach is opposite from the rest of the industry."
Too bad for other consumers. They are well aware that most banks are raising, not waiving, fees these days. Some increases are service fees on checking accounts, while others are on automated teller machines and other services. In addition, banks are working to cut expenses and drive customers to use services that cost less to operate. All are prompted by legislation that changed overdraft policies, capped debit card fees, credit card interest rates on new accounts, among other actions, banking experts say.
Citizens Bank, for instance, is increasing monthly fees by $2 to $15 on checking accounts on April 23, unless customers keep a specified minimum balance. Last June, Citizen's started raising fees by charging $2 a month for receiving paper account statements in the mail.
"These changes are designed to make our offerings more uniform and easier to understand, and also to make them more economically sustainable, in light of recent regulatory and legislative changes affecting our industry," Citizens said in a statement to explain the increases.
Many banks, including PNC Bank, are trying to persuade customers to do more transactions through channels that are less costly for banks than traditional branches, such as online banking and automated teller machines.
PNC Senior Vice Chairman Demchak told Wall Street analysts in early March the bank could save $50 million a year if it could persuade 40 percent of its ATM users to use the machines to make deposits, and 20 percent of them to use ATMs to cash checks. Currently, only 10 percent of PNC's customers used ATMs to make deposits and only 1 percent use them to cash checks.
"Our goal is to help change customer interactions with us and move them to more-efficient channels over time," said Demchak.
A recent study by the Tower Group illustrates how much it costs banks to process transactions through different channels. A traditional branch transaction -- where tellers and customers do business at a window -- is the most expensive, costing banks $4.00 on average to process. A telephone transaction -- where a call center agent talks to a customer -- costs an average of $3.75. By comparison, ATM transactions cost 85 cents and online service costs only 17 cents per transaction, the study shows.
"Any time a person is involved in a branch or a call center, the cost is higher," said David Albertazzi, senior analyst, Aite Group, Boston.
To save money over time, PNC will invest heavily in ATMs capable of cashing checks and printing receipts that include a check's image. Demchak said that by the end of 2012, PNC will have "thousands of these image ATMs" at branches in 17 states.
PNC now operates "dozens" of image ATMs, or "advanced-function ATMs, in Western Pennsylvania, said spokesman Fred Solomon. He could not say how many high-end ATMs might be added in the Pittsburgh market.
Prevailing low interest rates hurt banks' income from loans and from fixed-income investments, experts say. In addition, regulators since the 2008 financial crisis have capped certain fees, which costs banks billions in revenue they historically enjoyed.
"All of the banks are trying to raise new sources of revenue because other revenue sources have been dramatically cut in the last several years," said Bill Hardekopf, CEO of Lowcards.com, Birmingham, Ala., which tracks bank and card fees.
Nationally, Wells Fargo will begin charging $7 a month to checking customers in 29 states, including Pennsylvania. They can avoid the fee if they keep a balance of at least $1,500 or have at least $500 a month in direct deposits. Wells has no branches in this market, but has nearly 300 branches in eastern Pennsylvania. Its 9,000 branches nationwide are the most of any American bank.
Wells, along with Chase, tested debit card fees last fall in a few states, but pulled them in late October. Bank of America, the nation's largest bank by deposits, announced last year it would impose a $5 monthly debit card fee in January, but scrapped the plan after widespread customer reaction.
"There's a lot of pressure on banks' top-line revenue growth," said Keith Legett, senior economist at the American Bankers Association.
Since its provisions started to go into effect in July 2010, the Dodd-Frank legislation to reform financial practices is costing the nation's eight largest banks -- including PNC -- between $19.5 billion and $22 billion a year, estimated Standard & Poor's. Among other provisions, the law capped banks' allowable merchant fees on debit transactions to 21 cents from an industry-average 44 cents.
Another money loser for banks was the so-called CARD Act of 2009, which made credit card fees more transparent and acceptable to consumers. For instance, card issuers may not raise a new card holder's initial interest rate for the first year. Such changes cost card issuers about $8.7 billion in 2010, estimated S&P.
"Banks are constantly looking at ways to manage their costs," Legett said. That means evaluating profitability by branch and trying to "move their customers from costlier delivery channels to cheaper ones," he said.
Meanwhile, contrarian Huntington is betting it can recoup revenue by attracting new customers and holding onto them, Patrick said.
Huntington followed its 24-Hour Grace policy on debit-card overdrafts with Asterisk-Free Checking last May. That account requires no monthly minimum balance on check or debit-card use.
"We make sure customers are happy and won't leave," Patrick said. "If you acquire customers and keep them, you don't have to worry as much about replacing them."
In the October-December period, Huntington acquired more checking households than it did for all of 2009, said the executive, declining to provide numbers. The bank last year increased the percentage of consumer checking customers with four or more products or services to 73.5 percent from 69.4 percent the year earlier.
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