Jim S Miller

Thoughts on the Client Experience and Banking

3 Reasons Why Bank of America’s On-line Checking is a Bad Idea

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Bank of America branch in Lowell, MA

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In the process of eliminating free checking, Bank of America has introduced a “free” On-line Checking product.  The fee structure is defined on their website: “No monthly maintenance fee when you choose online paperless statements, and make your deposits and withdrawals online or by ATM, without a teller, otherwise the fee is $8.95 per month.”  In other words, if you make a deposit or withdrawal at a teller there is a $8.95 charge for the month.  This reminds me of when in 1995 First Chicago introduced a $3 charge for teller visits, which was met with public outcry.  This was a bad decision 15 years ago for First Chicago and is a bad idea for Bank of America today.  It will hurt their customer satisfaction (an area where BofA already lags) and I think it will turn out to be a bad business decision for Bank of America.

3 Reasons why Bank of America’s On-line Checking is a bad idea:

  1. BofA’s competitive advantage is their convenience.  They lose the competitive advantage of 6,000+ branches. The number one reason why consumers select, and stay with a bank is convenient branch locations.  Why would they want to throw away a key competitive advantage? Customers would be better off at a credit union where they would have a large network of fee-free ATMs and could still have the option of using a branch. 
  2. Teller volumes continue to decline bringing the marginal cost of a teller transaction is close to zero. 15 years ago, when First Chicago implemented their teller fee, branches were much busier and there was a compelling, although misguided, business case for moving transactions out of the branch. Banks have built a lot of branches (too many)  in the last 15 years and the average customer comes in to the branch less often. The net result is that branches and tellers have excess capacity. Our research shows that over half of customers do not have to wait for a teller when the come into a branch.
  3. Bank of America’s On-line Checking is most appealing to Gen Y, who are less likely to use a branch (interestingly Gen Y also select branch location as the number one reason why they select a bank). As Gen Y ages, they will have increasing financial needs. For Bank of America the best place to sell is in the branch and this product puts more distance between the bank and its future valuable customers.

 I realize that banks fee feel the need to find new revenue streams. There are two ways they can do this. They can develop innovative products and services and offer exceptional customer service, or they can implement new fees. The latter may be the easier short-term choice, but in the long run those banks that add value to the customer relationship will win.


Written by Jim S Miller

October 29, 2010 at 1:21 pm

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