Deposits are on the move. The customers who walk into a branch are the lifeblood of any bank broker. And despite banks trying to make their customers "sticky," some people are finally getting fed up and leaving. To be sure, some banks will be the winners in this exchange, but some will lose. Which side will yours be on? The following is a first-hand account of American Banker's Kevin Wack trying to move his bank accounts.
During the Great Depression, many Americans responded to financial cataclysm by stuffing cash inside their mattresses. This time, we're taking less extreme measures. We're merely moving our money to another bank. While undoubtedly a smarter choice, it's proving to be considerably more complicated than many expected. First there's the process of choosing a new bank. Then there's the need to open a new account and figure out how to disentangle every part of your life from your old bank. Finally, it's necessary to cut ties with the old place without incurring any costly fees.
Clearly, the number of Americans who are switching banks is now on the rise as many customers of large banks, long accustomed to free checking accounts, will soon get hit by a wave of new fees.
Bank of America's $5-per-month debit-card fee has gotten the most attention, but in the wake of a new regulation that limits the amount of revenue generated when consumers use their debit cards, other big banks are instituting their own charges.
These fees are part of a strategy by some large banks to shed certain customers, especially those who don't maintain hefty balances and don't have a mortgage or another important relationship with the bank. Small banks, credit unions and Internet banks are likely to benefit the most.
In 2010, U.S. banks with $50 billion or more in assets lost about 4 million more customers than they gained, according to an estimate by Michael Moebs, an economist and chief executive of Moebs Services Inc. This year, he estimates that those same banks will lose 9 million to 12 million more customers than they add. "And the small guys are getting them," Moebs said in an interview. "There's no doubt about it."
When I moved to Washington, D.C. in late 2008, I opened checking and savings accounts at B of A. My decision was based entirely on convenience. B of A's ATMs were ubiquitous and it had a branch right outside my subway stop. I didn't have a mortgage or a B of A credit card, so the Charlotte-based bank's only real ability to profit from my business was the revenue it collected every time I used my debit card.
When the news came that B of A would charge me $5 for each month that I made at least one purchase with my debit card, I decided to vote with my feet.
But I learned that it can be hard to comparison shop for a bank. As Ed Mierzwinski, consumer director for the U.S. Public Interest Research Group, later told me in an interview, the 1991 federal law that requires banks to publish their fee schedules did not contemplate a world in which consumers shop online so banks are not required to provide that information on their websites.
And even if they did, I probably wouldn't have done much research. Instead I fell back on convenience. And the bank closest to my home was TD Bank.
Initially I tried to enroll in a new account on TD Bank's website. I felt pretty sure that I didn't make any errors, but for whatever reason, the application didn't get processed. This is not an uncommon experience, according to a report released this week by Javelin Strategy & Research. "Only 53% of consumers who applied online to open a checking account succeeded in opening and funding the account. The remaining applicants met with frustration," stated the report, which is based on data from more than 5,000 consumers in March 2011. "About 17% were able to open an account but were unable to fund it, 25% abandoned the process, and 5% of applicants said their applications were rejected."
Two days later, I walked into my neighborhood TD Bank branch, where it took about 20 minutes to open a checking account. When I tried to switch the direct deposit of my paychecks to my new bank, I learned this process would take four to six weeks. But I was lucky not to have any monthly bills that were being automatically deducted from my checking account. These regular deductions are one of the biggest hassles that consumers face when they switch banks.
Consumers must contact the cable company, the electric company, and so on, and one by one, update their payment methods. "You get hooked on not having to deal with the phone company and electric company and everyone else you send bills to every month," Mierzwinski said, "and it's obviously something that the banks rely on to keep you sticky."
ACH payments have grown from 7.9% of all non-cash transactions in 2000 to 18.5% in 2009, according to research by Moebs Services. That figure is projected to grow to 28% in 2020, surpassing credit cards.
Next came the final step in the process of switching banks, which can also be treacherous. In some cases, banks charge customers fees for closing their accounts early. These fees generally apply to accounts that have been open for less than 180 days, according to Mierzwinski.
In addition, consumers who are in the midst of disputing fees that the bank says they owe can encounter problems getting approved to open an account at a new bank. These obstacles would be addressed by legislation introduced recently in the House of Representatives by Rep. Brad Miller, D-N.C. The bill would give consumers the right to close a checking or savings account at no charge. It would also prohibit banks from reporting closed accounts as delinquent solely as a result of overdraft and other fees.
Although Miller's legislation has the support of some consumer groups, its prospects in the Republican-led House appear dim. And even some consumer advocates feel that legislation is not the right way to address the ways that banks can make it painful for their customers to leave.
Kathleen Day, spokeswoman for the Center for Responsible Lending, said that the Consumer Financial Protection Bureau should look at the issue, rather than Congress. "Having legislation for every twist and turn is just an inefficient way to stamp out bad banking practices," she said.
In banking, inertia has traditionally been worth a lot. According to a recent study by J.D. Power and Associates, even among people who were very dissatisfied with their banks, nearly 40% had no plans to switch. "So people will tolerate a lot before they finally decide to switch," said Michael Beird, the director of banking services at J.D. Power and Associates.