Saturday, November 17, 2012

Deposit Fees: Now Is The Time

Aside from my Navy days, I have been in banking all of my life. But I don't balance my checking account. Instead, I run the family budget through a spreadsheet, check my account activity online, and hope for the best. Last week the best got to me. I overdrew my account because I failed to log an auto repair in my trusty budget spreadsheet.

Did I bounce checks? No, because I have a small line of credit to cover such eventuality. It's not the first time I've done this. For the convenience of moving money from the LOC to checking to cover incoming items, my bank charged me a $10 transfer fee: usury rates if a sanctimonious US Senator took to the microphone. But I was happy to pay for it to cover up my miscue.

I recently read an interesting article in Bank Director magazine by Mike Blanton of StrategyCorps. He specializes in designing and promoting profitable checking accounts for financial institutions. In the article, he cites an April 2012 study by Market Rates Insight that identifies fee services that our customers want to use and would be willing to pay for. Scoring high were so-called Lifestyle Financial Services... add-on services that are convenient to, or a concern of our customers. See the table below.

This makes sense to me. In an era where lawmakers and regulators attacked our ability to charge overdraft fees, new opportunities seem to have arrived. If banks implement these value added fees, it will go a long way to improve the profitability of the checking account.  

Improvement is imperative. I wrote a blog post two years ago regarding the importance of fee income to the profitability of the checking account, citing my firm's profitability peer group showing deposit fees as a percent of average deposits declining 22 basis points between 2005-2010. We have yet to recover those fees.

When loan demand outpaced deposit growth we were content charging little to nothing for depositors to bring their money to us. We trained them to be price sensitive, and to demand "free". Now that loan demand is weak and most financial institutions are highly liquid, it is time to evaluate the fees customers are willing to pay because they value the service(s) our bank provides.

What are you doing to improve the profitability of the checking account?

~ Jeff

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