October 17, 2011 |
The anger over bank fees – and Bank of America’s planned $5 debit fee in particular – is creating two vexing questions for the banking industry. First, will people really switch banks? Second, if they do decide to switch to a community bank or credit union, could they successfully open and fund an account – and disentangle themselves from the bank they’re leaving?
The answer to the second question is detailed in a report Javelin released to subscribers Friday. Opening an account online is not as simple and as effective as it should be – and far too many potential new customers of community banks and credit unions will abandon their attempt to open a checking account online.
Let’s make one thing clear. The banking industry has set the stage for a backlash. Banks are essentially firing unprofitable customers by charging $5 debit fees, and raising minimum deposit levels to a point that exclude swaths of Americans – at a time when banks are reporting double-digit profit increases. It’s easy to understand why Occupy Wall Street protesters contend that bankers are tone deaf.
But I went on record Friday with the New York Times and the Associated Press in predicting that it is very much in doubt whether Americans are prepared to emulate Albert Finney in “Network” when he proclaimed, “I’m mad as hell AND I’m not going to take it any more!” That word “and” is the critical word. So far, we have seen petitions and placards. But what will make the industry change course is evidence that the anger is turning into action.
Technology blogger Sam Diaz, a former colleague of mine, provides a case in point. He marched into Bank of America last week to close out his account to protest the $5 debit fee. But when the teller told him there was a $10 charge for cutting a cashier’s check, he fumed that it was precisely this approach that was driving him to close the account. Then he demanded all his money in cash. Then he marched nervously to a nearby credit union. Then he posted his story on Facebook (and later on his blog), where friends cheered and vented their frustration. But despite the 44 comments, 50 “likes,” and the three people who shared his story by midday Sunday, I didn’t see evidence that any of his friends was prepared to follow suit and switch. If that’s the case, big banks are not going to face a Netflix moment.
Javelin’s data shows that the No. 1 reason people switch banks is because they move. The reality is that consumers often balk at switching banks because:
• It’s a pain to troop into a branch to complete all the applications.
• It’s a pain to switch all the bill payments.
• It’s hard to give up the online banking, bill pay, mobile banking, branch network and the slew of ATMs.
The thing to remember, though, is that consumers are not victims in this. They have the power to switch to hundreds of smaller banks and credit unions that are eager to capitalize on this anger by promoting lower fees, and better loan and savings rates. But consumers are being forced to place a value on the convenience of their current banking relationship. If you are unwilling to switch because of BofA’s pending debit fee, then you are implicitly saying there is at least a $60 annual value in that bank’s convenience and your inertia.
My message to consumers: This is your decision, not the bank’s. If you don’t like the bank’s fees, there are literally hundreds of other financial institutions that would be happy to serve you. Take your stand. Make it visible. You are not a victim.
But here’s one practical rub. Many of those angry switchers are likely to log online to open a checking account with the intent of starting a relationship with a new bank or credit union – but they will encounter a process that is flawed and frustrating. In a report Javelin will release to the public this week, we show that it is basically a coin toss whether applicants can successfully open and fund a checking account online.
It’s even worse for newcomers to a financial institution. Nearly 6 of every 10 newcomers who applied online abandoned the process. So, although this is a grand opportunity for community banks and credit unions to grab new customers and members, these smaller institutions will face a daunting challenge if their online account opening processes are inadequate to the task. At best, many applicants will develop a discouraging first impression but still follow through. My fear is that many others will walk away, frustrated – without sending the message about their dissatisfaction with their current banks.