Banking News: Bank Of America (NYSE: BAC), JP Morgan (NYSE: JPM) Target Fees To Offset Revenue Drags From Financial Reform
Several big name financial institutions, such as Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) are looking for ways to increase fee income in order to offset expected revenue declines from the financial reform bill.
The latest version of the financial reform bill passed on Thursday is expected to pressure revenue in several areas ranging from items like transaction fees on debit card transactions to proprietary trading at banks.
The rule changes may lead banks to start implementing fees that had essentially disappeared from the industry early in the new millennium, such a fees for not meeting mininumu balance requirements on a checking account, or reinstituting fees for certain online banking transactions that are currently free.
Banks are legitimately concerned with revenue declines due to the new rules as Bank of America said on Friday that it could stand to lose more than $2 billion in yearly revenue just from the changes in what fees can be charged on debit card transactions.
The financial reform bill, which is expected to be signed by President Obama soon, represents the largest sweeping change in the banking industry since the Great Depression era.
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Great post but complicated to understand since I am from Faroe islands ;-) 
What would be your top three tips for anyone new to this topic?
Many Consumers feel that this is how God (or Government) tells Big Banks that they are too greedy and not very bright.
The knee jerk reaction of Banks (big and small) has been to initiate schemes to suck/force/pry/scam or gouge more “fee money” out of their existing customer base – i.e., looking only at the obvious and easiest ways to recoup a perceived drop in revenues. The problem with this approach is that it justifiably makes these Banks the “Bad Guys” in the eyes of their customers, and they will eventually loose customers to financial institutions with a more progressive and innovative intellect.
What could a FI with a more progressive and innovate intellect (also know as the “Good Guy” or Smart Banks) do? For starters that could ask themselves “How can we replace lost revenues without ####ing our loyal customers?” This simple perspective will lead to solutions like improving operational efficiency to reduce expenses, developing new revenue streams from “outside sources, and expanding their existing customer base – maybe by using low fees and better services to attract the droves of customers soon to be leaving the Bad Guy Banks.
Of course most Banks won't even consider the progressive/innovative approach for a long, long time (due to a financial industry condition known as turgidity) since innovation requires rational thought, creative thinking, and a willingness to try something a little different – things most Banks are not known to excel at (except maybe some Credit Unions). Of course, when the industry eventually shifts toward the new model, and their customer base is depleted, these banks will gladly follow the herd and pay hundreds of millions of dollars for PR campaigns to proclaim their 'industry leading' investment in state of the art new banking technology.
Banks have become addicted to a drug know as “payment card interchange fees”. The credit card industry provided the initial fixes of 'easy revenue streams' to Banks for a low cost little effort (not unlike a free shot of heroin), then as Banks became dependent on interchange fees and the costs began to creep up (and were subsequently passed on to Merchants and Consumers – with apparent no pain for Banks yet).
What Banks are experiencing now is the equivalent of pre-withdrawal jitters of a junky hooked on interchange fees. The only thing most Banks can think about now is getting a “quick fix” ASAP with no consideration of the consequences. Like real drug junkies, most banks are going ruin the lives of those most dear to them (their customer base) before taking responsible and rational action.
A few smarter, and probably smaller, Banks will have the presence of mind to look at their situation rationally and objectively, and start thinking about “How can we make the most of this painful situation that the whole banking industry is going trough?” They will see, and seize, real opportunities and when the withdrawal process is over they will be in much better shape than they were at the start.
What specifically can a Smart Bank do make the most of an unpleasant situation? One possible area to look is new innovations in electronic billing and payments to find ways to reverse the trend of alternative payment systems taking transaction fees away from Banks. This requires Consumer attractive alternative payment innovations that include Banks in the transaction process so that fee revenues streams again flow through Banks.
The key issue with new alternative payment plans is transaction VOLUME. E-commerce growth has been suffering from the “Payment Paradox” for a decade. This means that Banks and Merchants are waiting for Consumers to adopt and use e-payments en-mass before they are willing to spend real money on e-payment technology implementation. (Why? – That is just how Banks think). Meanwhile customers are sitting on the sidelines waiting for e-payment systems to be developed that offer the real security and convenience they need to begin mass adoption. Until the Payment Paradox is broken, transactions volumes are not going to be adequate to drive a large scale increase in e-commerce payments.
Well, good news. The Payment Paradox is about to be broken! If Banks and Merchants won’t step forward to break the Paradox, Third Party innovators will. Next year expect some major breakthroughs by innovative alternative payments systems, like Moneta and NACHA’s Secure Vault Payments, to drive online transaction revenues back through Banks where transaction fees can again be collected (albeit smaller than interchange fees). A few, new and as yet unannounced companies, will join them to open the e-payment flood gates with innovative and very Consumer friendly ”thru-Bank” alternative payment systems. Look for, evaluate, and use these new systems to (1) offer more and better services to your existing customers at no extra cost, (2) start expanding your customer base from local to a national scale, (3) generate new efficient and high volume transaction revenue streams, and concurrently reduce risk and liability for both Banks and Merchants.
Yes third parties will create ways for banks to get revenue, but only if the banks get to know how to sell to their customers instead of sitting on their duff and say we got the money come kiss our butt. The banks do not know how to sell. They can not sell Remote Deposit Capture Check 21 because they think it is beneth them, it is the 3rd party sellers who are selling these products. Banks got to wake up and smell the sales and not drink coffee.
I would really hate to see more fees added on to online banking and debit transactions. As for online banking, customers are basically in charge of their own transactions and are doing their banking themselves so I really do not feel that charging extra fees for this is warranted. While some bigger banks are going to reintroduce or raise fees to be paid when minimum balances are not meet for checking accounts, there are smaller banks who do not have minimum balances on their checking accounts. I see the smaller banks having a big advantage here.
[...] was the last time we saw any major industry stand up to Washington and say no for their customers! Bank of America would be our hero right now if they told them no to their new regulations. Regulations flow downhill and the customer [...]