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Wednesday, June 8, 2011

Fee Income – Different Strokes by different Banks


I just read that the Senate voted let the Federal Reserve limit debit card swipe fees to $0.12 average per transaction, down from $0.44 average per transaction.  

The debit card fee has been a contentious issue that witnessed lobbying by retailers/ merchants and counter lobbying by Banks. Today’s news is a victory for merchants in a long-running fight with banks.

According to the Oliver Wyman report published earlier the Fed’s proposal could trigger a 73% decline in financial firms' fee revenue, from $16.2 billion in 2009 to $4.4 billion. 

No wonder the issue was contentious.

While banks and credit card companies have been losing fee income in post crisis regulations, this Senate vote has only added to their woes.

The innate strength of the banking and financial system has always been its ability to innovate and find new solutions to its challenges. How have Banks and financial services companies responded to loss of fee income?  

Well, different strokes by different banks.

Banks have responded to reduced fee income in different ways.  For example earlier this year, Bank of America introduced four new accounts where users pay fees unless they keep minimum balances, make regular deposits, use credit cards or take advantage of online services. I would definitely not call this innovation!

But I think the best innovation in fee income that I liked came from M&T Bank.  The bank recently announced the launch of new tools for customers to manage all finances and see their credit scores from a single screen. Finance Works enables account holders to view all financial accounts - credit cards, loans, checking, savings and retirement accounts while Credit Score for a monthly fee of $2.99 enables the account holder to see their credit score, refreshed on a monthly basis. These service offerings represent new and creative way to engage the customer, while one service brings in fee income.

While it is true that banks are facing pressure on fee income due to new regulations such as the new debit card fees limit imposed by the Fed,  smart players are leading the way by innovation. 

Greater the challenge, greater the innovation. So I definitely expect to see more innovative service offerings from banks and financial services in the coming months.

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