The results are in. After months of public wrangling, private lobbying, and media posturing about the death-blow the Durbin Amendment's cap on interchange fees would deal the banking industry, the big banks finally unveiled their response to the fact that instead of making 44 cents on a debit card swipe, they would now only make 24 cents. And the response looks good for credit unions. So good, in fact, that you could consider this the single, best way for credit unions to differentiate themselves from their nationwide competitors.
This isn't the first mention of fee-based banking. In fact, the trend towards this business model began a few years ago as banks suffering from losses on bad loans and mortgage-backed securities began incrementally increasing fees to their customers to make up for other lost income. One could argue that charging for debit card usage isn't really out of step with that trend, except that, according to the Federal Reserve, debit card transactions make up almost 40% of all noncash payments in the country. It will impact almost everyone who has a checking account.
With the myriad of announcements last week about the new fee structures put into place by some of the largest financial institutions in the country, we now have a detailed idea of what fee-based Banking looks like. And consumers don't like it: $2.50 to use your ATM card out of network at HSBC. $5 a month for the privilege of buying something with your debit card at Bank of America. Free checking? Maybe if you keep a minimum balance of $1,500 at Citi. There are some Bank of America accounts that even charge you if you dare walk into a branch. Chase now charges for paper-statements and is considering charging for online banking, as well. It's enough to make me wonder if the big banks actually want to keep their customers.
Remember What You Are Good At
Last week I was having a conversation with two executives from credit unions of different asset sizes and types of membership. They were talking about their difficulty in converting members who had a single auto-loan with them into members that also have an active checking and savings account and use their credit union as their primary banking institution. It looks like the solution to this problem was just delivered on a silver platter by the nation's big banks.
Credit unions should keep doing what they're good at -- namely, providing essential banking products with a focus on member service. But they should talk about it more. In fact, they should actively market their free checking accounts and debit cards to both their indirect loan members and everyone in their communities. This is an opportunity that doesn't come around very often, and credit unions should seize the opportunity to attract new members as well as increase their wallet-share among current members.
Maybe next week I'll read a story about how a major bank has replaced it's toll-free customer service line with a 900 number that charges $1.99 for the first minute and 99 cents for each additional minute. "Press 1 if you would like to pay us more for the same service that you got for free yesterday. Press 2 to learn about ways we will be cutting service levels in the future. Press 3 to speak to a customer service representative --additional fees may apply!"
Granted, this seems a bit unrealistic. But if you told me a year ago that I would be paying $5 a month to use my debit card, I would probably have said that was unrealistic. Welcome to fee-based banking.
Credit unions take note: now is your chance to differentiate from the big banks. Don't miss the opportunity.
Andrew Tilbury is with Bluepoint Solutions.