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Overdraft & ATM fees 06/08 USBanker Consumers are always wary of being nickel-and-dimed to death, & thanks to the current economic malaise, more banks are heading in that direction. Many of the biggest banks are raising fees for ATM usage & overdrafts, which analysts say isn’t such a bad idea. BofA raised its overdraft fee to $25 from $20 for the first day, & $35 for each subsequent day. First Horizon raised its NSF fee to $35 from $32. Wamu upped its overdraft to $34 from $32 in most states. Citibank now is charging a $3 ATM fee for non-customers, as is BofA, which raised its surcharge last July. James Holly, Bank of the Sierra, hasn’t joined the wave of increased fees, but acknowledges the changing attitude. ‘Years ago, if you overdrew your account, we couldn’t wait to close your account & throw you out. Now we have to go find those people & bring them in, because they are really valuable folks to have.’ Robert Hammer, RK Hammer Investment Bankers, says banks should be mandated to raise fees. ‘Without a doubt, bank fees are rising, but you have to understand that rising risk in our industry today is indisputable. In an environment of rising risk, you would expect fees of those risks to rise, too. It would be an abdication of responsibility for bank management to not have fees rising.’ While some argue this promotes customer dissatisfaction, it doesn’t seem to lead to attrition, says Greg Lowell, Accenture. It found a 23% difference in customer satisfaction between banks that charged fees & those that didn’t. 61% of customers said that if their bank charged a fee, they would continue to do business with it, only 12% less than those banks that wouldn’t charge a fee for the service. ‘Our research does bear out that customers in retail banking do tend to stay with the bank, not necessarily out of a strong sense of loyalty, but out of a reluctance to make the move to another bank because of all the time & cost in making that happen.’ Certain fees aggravate customers, such as customer-service fees, monthly service fees & product-purchase fees. Overdraft fees were found to be somewhat accepted, because ‘people, for the most part, understand it’s a fee related to a specific error on their part.’ Consumers understand a fee for use of an ATM not connected to their bank. Lowell says banks need to understand how their customers view certain fees & not just make a ‘knee-jerk increase in fees’ because BofA did. Ed Woods, Celent, agrees that not all fees are greeted with anger. ‘There are segments of the population that aren’t adverse to paying late fees. What seems to be most important to them is to have the flexibility to get the payment or take out money when they want.’ Ron Shevlin, Aite, says, though, banks do need to worry about silent attrition. While higher fees may not provoke a customer to leave his bank, he may not keep depositing money or buying new products, either. ‘In the short term, it seems like a great business move. The problem is that it leaves such a bad taste in the consumer’s mouth. These are the kinds of things that over time build up dissatisfaction, but the bank won’t see that in terms of a hit for at least a couple of quarters.’ Shevlin adds that there is no reason to believe that fees will go back down, either. ‘If they were to spend the next year maintaining their retention rates in the face of increasing fees, the business will look at it & say, ‘Why would we want to reduce the fees now?’