In the past year big banks have cut their free checking programs by over half as they try and make up for lost profits due to the controversial Dodd-Frank act. By capping swipe fees to encourage merchants to lower prices, the Dodd-Frank act ended up pushing banks to eliminate free checking, add annoying fees to basic services and find other ways to increase profits.
A study from Moebs Services, showed free checking accounts were actually costing banks their profits — potentially the main factor leading to their fee restructuring.
American Banker sat down with Mike Moebs of Moebs Services, a firm dedicated to improving the performance of financial institutions through research, and they found some interesting statistics.
Free Checking Accounts Cost Banks Profit
Moebs told American Banker that the average checking account cost banks $349 this past year, and with an average revenue of $268 per account this means banks are posting losses of $81 for the typical account. How does this work?
Well, the calculations take into account overhead costs including salaries, security and compliance expenses, as well as product development and sales costs. Considering nearly half of checking account customers do not help banks turn a profit, the move to start charging for various services makes more sense — from a business stand point.
Moebs Services is not the only organization to spot a discord in banking revenue and services; financial consulting firm Oliver Wyman noticed the same thing as noted by the New York Times. According to the way things are currently moving, “banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past.”
On top of the poorly performing checking accounts, big banks also have to worry about the expected $5 billion cut in revenue due to the debit card swipe fee caps. These dismal figures will not plague all banks though; smaller institutions are not only avoiding the debit card fee caps, they even pay less to sustain checking accounts.
Fee Changes to Expect
As a quick rundown of what you may see, we’ve compiled a list of fee changes. Some have been tested, some already implemented and some merely speculated:
- increasing card replacement fees
- mobile deposit fees
- checking account fees
- electronic transfer fees
- increases in monthly maintenance fees
These are just some of the fees you may see. Some banks offer alternative solutions to avoid these fees, but you have to be able and willing to sift through all the fine print.
Do You Feel Bad For Big Banks?
It’s going to be difficult to find people who pity these large billion dollar institutions, but at the end of the day the banking industry is still a business, and that business’ profits are rapidly declining.
Business or not, the average consumer (and nearly all the commenters on both stories) are not buying it. With banks still raking in billions of dollars a year, consumers do not see why they need to be penalized for the banking industry’s blunders. We’d like to know what you think, leave a comment in the section below: