Well that didn’t work! What’s next for DDA and debit account fees?

Now that Bank of America has reversed its position on charging customers a fee for using their debit card and early adopters of monthly debit fees like SunTrust have also backed down, banks are left with the same question they started with. How can they bring profitability back to demand deposit accounts (DDAs)? Fortunately, while the answer is not as easy as a new fee, it does exist.

In another blog series, my colleague outlined three initiatives banks need to follow in their quest to regain profitability in DDA: decreasing the costs of data and fraud losses, becoming the primary account, and improving retention for long-term relationships with customers. These initiatives require more investment in proactive change over the long term for banking than simply tacking on a fee. The result will leave consumers, not to mention shareholders, more satisfied and boost banks’ bottom line.

Successful businesses are run precisely in this manner: keeping costs down, making your product (whether it is a service such as a massage, tangible item like running shoes, or financial product like debit cards) the primary choice of your customers and keeping them coming back. It’s also a proven practice that it costs more money to recruit new customers, employees, volunteers, donors, etc. than to maintain the ones that you have. Maybe this is an extreme example but Dan Schneider, founder and CEO of SIB Development and Consulting in Charleston, S.C., is offering $50,000 bonuses to any of his full-time employees who stay with his company for five years. If an employee stays on for 25 years, he or she  gets a $250,000 bonus. Schneider realized that training employees is very expensive—depending on the level of experience it can cost tens of thousands of dollars to replace them. He decided to do something proactive about that. I like this example because it is clearly a unique strategy in a down economy.

Because the current banking environment is rife with discontent, this is clearly a good time for banks to employ new customer engagement strategies. Right now, we have an opportunity to reinvent banking as we know it. Banks are doing their best to listen to their constituents by backing down on charging debit fees, but they are still struggling with how to regain lost profits. It will be critical for banks to regain consumer trust and find the right incentives to keep their best customers. Encouraging more frequent debit card use (without fees) and discouraging more expensive check transactions is a start.

A newly released white paper, The Way Forward: Making Checking Account Origination Profitable Again, by Nicole Sturgill, Research Director at TowerGroup, a Corporate Executive Board company suggests that financial services institutions (FSIs) must look beyond the development of a new or changed product set and instead consider a new way of doing business. FSIs have to earn customers’ trust to convince them to give the bank more business. The past several years have been challenging but there is an exciting new road ahead for banking, one that both banks and consumers will welcome.