By: Joe Gillen
Most financial institutions, ranging from small community banks and credit unions to large national institutions, are seeking out ways to lower their operating costs and protect their revenue and profitability in the process. As new financial reforms and regulations are phased in, many banks have relied more heavily on fee income by increasing the costs of their services or introducing new expenses for services that were previously free.
For many banks, this has resulted in a strong backlash and many have lost a considerable number of customers as a result. Despite these scenarios, more banks are seeking out ways to cut costs, and eliminating free checking accounts has recently been considered by a number of community institutions. The Pennsylvania Standard Speaker recently reported on this occurrence and noted that a growing number of banks and credit unions are thinking about it as a possible strategy for cutting costs.
"The online world has created some efficiencies, but the idea that checking is free is a misnomer" Joseph Earyes, FNCB first senior vice president told the news source. "The bank is paying for it and there comes a time when you must ask yourself how much longer you are going to give away something that costs money."
Cutting free checking programs may lead to consumer dissatisfaction
At present, free banking is generally a benefit offered by community bank and credit union programs. Most large banks eliminated these programs in recent years to scale back their spending and focus on trimming unnecessary costs. However, this scenario benefited - and continues to benefit - community institutions, which saw an influx of customers seeking out affordable services. During Bank Transfer Day alone, more than 600,000 Americans walked away from large national banks, largely as a result of excessive or confusing fees.
Although "free checking" is not free for the banks and credit unions themselves, this offering may help contribute to, rather than hurt, their bottom lines by driving more loyal customers to their doors. Local institutions set themselves apart from national banks not only by offering more personalized services, but by offering products that give value to customers and members and help them improve their financial conditions. Eliminating this service may jeopardize that, as studies have shown that new fees as low as $5 may be significant enough to prompt consumers to switch institutions. Therefore, many bank consultants argue that community institutions and credit unions should only consider this route as a last resort.