Rivals may copy Bank of America Corp.'s new strategies, but they're likely to take a while.
This month, executives at the nation's top retail bank have openly discussed their plan to experiment with tiered pricing and specialized branches in certain markets. There is also talk of job cuts in B of A's investment bank. The goal of all these ideas is to offset the $4.3 billion in revenue the company expects to lose as a result of new consumer protection regulations.
But bankers have never much prized the cutting edge, and B of A's competitors are expected to wait and see how its moves sit with the public and with Elizabeth Warren, the special presidential adviser who's setting up the Consumer Financial Protection Bureau.
"Other banks will let Bank of America take all the heat," said D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte. "They'll let B of A get pricing in place, then do the same types of things once customers get comfortable."
Plath predicted such practices could become an industry norm by mid-2011 if there is little push back from outside parties.
"All of these guys are desperate to make money and Bank of America will show them the way to do it," he said.
Analysts said that, for now, banks have considerable motivation to raise fees for deposit products, both to increase revenue and shape customer habits. Conversely, few banks are motivated to break ranks and cut pricing to lure deposits, as a lack of lending opportunities has left most awash with such funds.
Jeffery Harte, an analyst at Sandler O'Neill & Partners LP, said it would be hard to "imagine anyone aggressively chasing deposits," choosing instead to increase fees. "It may be a long time before loan demand motivates banks to compete by lowering fees," Harte said.
Citigroup Inc. is also making changes, but it has plotted a more conservative course so far than B of A.
Brad Dinsmore, Citi's head of North American retail banking, said it already has moved ahead with its strategies for giving customers "more choice and more value." The $1.94 trillion-asset Citi altered its checking account lineup, introducing a smaller menu of options and lowering the hurdles that customers must meet to avoid monthly maintenance fees.
"With all due respect to our competition, they'll make changes that they see are fit, but the changes we felt were most appropriate to our customers, we announced," Dinsmore said.
Officials at JPMorgan Chase & Co. and Wells Fargo & Co. declined to comment for this story.
B of A has been slowly showing its cards. This year it was among the first banks to completely do away with debit overdraft fees.
Brian Moynihan, who became its president and chief executive in January, gave investors a broad strategic overview Sept. 14 at a conference in New York.
"Especially in our consumer business we are moving from the sale of products as a measurement to gains in customer relationships and depth in those relationships," he said. "We are putting in place an operating model that is based on more stability, more discipline and greater accountability."
Joe Price, who runs the $2.36 trillion-asset company's consumer operations, told Financial Times in an interview published Sept. 20 that his team plans to test a variable-pricing structure that would charge lower fees to customers who keep higher minimum balances, use their credit cards more often and bank online more frequently. Customers who keep lower balances or use important services less often would be charged more.
"We are not guaranteeing that we will recover all of the revenue lost" due to regulation, Price was quoted as saying. "Over several years we think we will get back a good share."
Early next year, B of A, of Charlotte, will pilot test "specialty stores" in Los Angeles and Washington that would let customers talk to advisers on topics such as investments, mortgages and small-business products, either in person or through videoconferencing. Anne Pace, a B of A spokeswoman, said it is "testing and trying to get a good read of customer sentiment to deliver more effectively what clients want."
Analysts said banks will want to pay close attention to the public reaction to pricing tiers, which haven't always gone over well with consumer groups and regulators in the past. Banks such as B of A, Fifth Third Bancorp, Regions Financial Corp. and U.S. Bancorp were among those criticized for charging higher overdraft fees to habitual offenders.
Albert Savastano, an analyst at Macquarie Research, said it is "hard to answer" what backlash, if any, might occur. A structure based on rewarding good behavior rather than penalizing bad habits might go over better with consumer groups, he said. "But we don't yet know what the CFPB would do."
Smaller banks in particular would find it beneficial to wait on B of A and others, Savastano said. "Smaller banks just don't have the resources or funding to test the market," he said. "They'll be better off waiting for products to be proven by someone else, and then go out and copy it." Within a year, most banks will look to mimic the most successful practices, he said.
Then the onus will be on performance, and other banks are likely to fine-tune their approach according to customer mix and geography.
Still, some analysts give B of A an advantage over the long term because it already conducts business with every other U.S. citizen, providing the company with a plethora of data. Though B of A's huge size raises the risk that the information will be trapped in silos that don't communicate with one another, analysts said B of A has successfully leveraged internal data in the past for initiatives such as deposit pricing.
"The data mining there is phenomenal and they have a huge sample size," Plath said. "It gives them a proprietary advantage when it comes to segmenting the market."