November 26th, 2011
Econintersect: Alison Smith, writing in The Financial Times, thinks so. Her article is titled: “It really is time to wave goodbye to ‘free’ banking.” She says it never has really been free – there is no such thing as a free lunch. Obviously banks don’t provide services as a gift to humanity; they provide services to make a profit. And Smith says that the profits come from hidden fees (she says “opacity and distortion”) and income from other activities that the “free banking” customers use, such as credit cards. However, Smith sees the change to more visible up-front fees for checking as something that will come slowly, over the next few years and not the next few months. And, Smith says, services would have to improve or customers would resent paying. (Click on graphic for larger image.)
Recently Bank of America made a now apparently aborted attempt to institute ATM usage fees on their customers. Charlotte station WBTV reported that the plan was canceled after the bank experienced a “mass exodus” of customers in protest of the move. Slate reported earlier this month that Credit unions have been experiencing a surge in membership from people leaving Bank of America and other banks. From Slate:
A new survey from the Credit Union National Association found that credit unions have gained at least 650,000 new customers since September 29, the day Bank of America announced the new debit card fee. As the Los Angeles Times notes, that’s more than the 600,000 customers who joined credit unions during the entirety of 2010.
By the association's tally, deposits into those new savings accounts totaled $4.5 billion, which, according to Reuters, is more in deposits than credit unions typically get from their entire customer base in a month.
Credit Unions are banking cooperatives, owned by their depositors, or members. They enjoy much better customer satisfaction than do the large banks. Slate says a Harris Interactive poll found nearly 90 % of credit union customers said they were extremely or very likely to stick with their current institution which customers of various large banks had such a response from only 40% to 54%, depending on the bank.
Another form of banking is also getting a lot of attention recently. A total of 15 states are in various stages of considering publically owned state banks, according to news reported this week by GEI News. One of these states, North Dakota, has actually had a state bank in successful operation for more than 80 years. While the primary purpose of such banks is to assure the reliable provision of loan financing for businesses within the state, they also provide deposit services for personal banking, with any service fees supporting the taxpayer owners of the bank rather than a private corporation. It seems that people may be starting to question whether they should pay fees to allow banks to work with their (the customers’) money.
Of course, there are those who oppose public banking. From GEI News:
The U.S. banking industry opposes the idea and is lobbying against it, saying a state-run bank would compete with commercial banks for business and politicize a state’s lending decisions.
“A state-owned bank? Why don’t we just re-label the state capitols the Kremlin?” Camden Fine, president of the Independent Community Bankers of America, a Washington-based trade group that represents more than 5,000 community banks, said in a telephone interview.
“It’s a socialistic idea,” Fine said. “If you get a state-owned bank that is allocating credit, it can slide very quickly into a situation where those in favor get credit and those not in favor don’t get credit.” (Excerpt from Bloomberg/Businessweek article.)