Last month, megabanks Wells Fargo and Chase both announced pilot programs in which they will charge some customers a $3 monthly fee to use their debit cards. Additional banks, including SunTrust and Regions, have followed suit with plans for similar fees. Cue outrage. “A lot of it goes back to the history. Debit cards were supposed to save banks money,” says Scott Strumello, a consultant with Auriemma Consulting Group. Now that customers have to pay for an option they view as benefitting the bank, they get angry. Strangely, though, bank consultants think the idea of a monthly debit fee — separate from the monthly maintenance fees many people pay for their checking accounts — could stick around.
It’s not that consumers like the idea of a monthly fee, it’s just that they view it as less annoying than other options banks are considering. In a survey conducted by Auriemma, consumers said they’d prefer to have a debit card with no rewards program than pay a fee to use the card. The trouble is, most large banks discontinued their debit rewards program after the Federal Reserve capped the amount they can collect on from merchants on debit transactions, a policy that begins next month.
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In Auriemma’s research, consumers were most irritated by the idea of a per-transaction fee for using their debit cards, says Strumello. “The constant reminder and the feeling the people are being nickel-and-dimed to death is kind of offensive, whereas a flat fee might be a more tolerable method for banks to offset this loss of revenue without annoying their customers too much,” he says. Regional bank First Tennessee recently publicized plans for a per-transaction charge for signature and PIN-based transactions with a monthly cap of $3, so it will be interesting to see if the bank makes the shift to a flat monthly fee in the future.
With consumers’ collective ire over transaction-based fees, you might assume that customers would prefer a onetime annual fee rather than having their account docked every month. After all, the more often you’re reminded that using your card is costing you money, the more chances you have to get angry. But this isn’t the case, according to Strumello. “It seems like the monthly fee is less bothersome than the one time annual fee, [based on] what consumers have told us,” he says. If they pay once, consumers feel obligated to stay with that bank, since they’ve already paid their “dues,” he explains. A monthly fee gives consumers the impression that they have more control, although most will wind up using their card every month (and incurring the fee) anyway. Even if they never wind up getting ticked off enough to switch banks, they like the idea that they could. “If they’re in control of when the fees hit, that seems to be okay,” Strumello says.
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Aside from tapping into the consumer psyche, banks are also using the prospect of more accountholder fees as an incentive to try and get customers to consolidate their financial services with them. “I think the debit card product design is in transition from a no fee design to increased use of fees if the customer limits their relationship to that one product with the bank,” says Dennis Moroney, research director of bank cards at research and consulting firm TowerGroup. Moroney adds that the nation’s biggest banks have a good chance of success with this tactic, since they offer so many other financial products and services.
What about you? Would you rather pay an annual fee, similar to a credit card, or a monthly fee that only kicks in if you use your card during the month?