Lessons from the levy

Bank of America’s decision to charge a $5 levy on debit cards provoked a massive backlash. SHAYLA WALMSLEY examines if there is a cautionary lesson here for UK banks.

Back in September, the Wall Street Journal revealed Bank of America’s plan to charge most of its customers US$5 on debit card transactions. The vociferous response forced the bank to abandon its plan, and a subsequent poll found 91 per cent of 2,250 respondents would refuse to pay.

UK consumers would likely concur. Yet First Direct, the first UK bank to introduce fees on non-premium accounts, outperformed its competitors on fees in a recent survey by market research firm JD Powers.

Its fee structures are the result of research conducted with its customers and others to establish a tolerable fee regime. “It’s a balance between how much it costs to keep the account open and what the public will stand,” says spokeswoman Rebecca Hirst.

Gratis under pressure
In fact, where there has been concerted concern over fees, it hasn’t necessarily come directly from consumers. An example is Consumer Focus’s recent “super complaint” – a quasi-statutory procedure that gives the industry 90 days to come up with remedies – about 3 per cent is the average for fees on the use of debit cards overseas.

“The Office of Fair Trading broadly found in our favour, and that has made fees more transparent. The campaign yielded a good return,” says Chief Economist Prashant Vase, citing £20m saved for UK debit card users.

Pressure from consumer organisations may be enough to persuade high-street banks to reconsider their position on fees. But JD Powers director Stuart Crawford-Brown doubts that complaining customers are ready to vote with their cash. “There is a degree of inertia,” he says, pointing out that only 11 per cent said they planned to switch within the next 12 months.

If banks want to harness the improvement – albeit slight – in customer feeling towards them, they need to ensure customers understand the fees, the fee structure, and why changes happen, says Crawford-Brown.

In future, he adds, banks will have to think about whether they can rely on a business model based on fees. An alternative could be a proposition based on low fees to drive interest, then higher fees as customers add more services. “If they understand what the fees are for, they may be willing to pay it,” he says.

In contrast, Hirst believes most banks are unlikely to introduce fees for basic services. “People are used to free banking. They see it as a service rather than as a business,” she says. “If every bank in the UK were to introduce fees, there would be uproar.”

We’re part of the Union
In the US, credit unions have been the beneficiaries of the reputational fall-out from the Bank of America episode.In any case, not all credit unions offer a current account.

“New members with a bank account will often be using a credit union as an additional place to manage their money – a way to save and borrow,” said Mark Lyonette, CEO of the Association of British Credit Unions Ltd (ABCUL). In any case, that doesn’t get credit unions past the issue of fees. Those offering a current account may charge a small fee each month for members using the account “as a fair and transparent way to cover costs”, adds Lyonette.

SHAYLA WALMSLEY is a business journalist.

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