Thinking BofA’s Debit Fee Refugees Are ‘Unprofitable’ is a Huge Mistake

There are plenty of pundits in the financial industry willing to suggest BofA’s $5 monthly fee for debit card use was a deft pricing strategy deliberately designed to push unprofitable customers out the door.

  • “Bank of America’s strategy toward the unprofitable is ‘We’re firing them!’”
    — Mike Branton, Strategy Corps
  • “The fee will affect only the bank’s lower-end customers, who are not profitable for the bank anyway. The result of those customers moving their accounts away from Bank of America will ultimately help the company’s bottom line and may actually be desired by the bank.”
    — Brad Strothkamp, VP/Forrester Research
  • “Rather than flat out telling unprofitable — or potentially unprofitable — customers to close out accounts, BofA figures, ‘Hey, we’ll slap a fee on them, and if they don’t like it, they’ll leave.’”
    — Ron Shevlin, Senior Analyst/Aite Group
  • “My take on BofA, Chase, Wells Fargo and others is that they see this as a opportunity to offload unprofitable customers.”
    — Paul Stull, SVP/Arizona State Credit Union
  • “Bank of America execs are likely breathing a huge sigh of relief as unprofitable customers stampede for the exits and head for community banks and credit unions.”
    — Bill Anderson, Seattle Times
  • “Let someone else have the unprofitable customers.”
    — Dana Blankenhorn, Seeking Alpha

Has BofA found the magic fee that drives away unprofitable customers only? No. It’s a ridiculous suggestion. Of course there will be plenty of profitable customers among those stampeding out BofA’s doors. But all this speculation about BofA tossing millions of unwanted and undesirable to the curb has community banks and credit unions wringing their hands. “Eek! Maybe we don’t want their discarded trash?”

It is dangerous to label BofA refugees as “unprofitable customers” with such a broad brush. Some of these customers may be unprofitable… to BofA only… and just recently due to Durbin’s new rules. But that doesn’t automatically mean these customers are unprofitable to other financial institutions, especially those unaffected by Durbin.

Think about it. If BofA’s customers were unprofitable prior to Durbin, well then why didn’t BofA implement this clever fee scheme to scare them off sooner?

If BofA’s customers were profitable pre-Durbin because of interchange revenue, then credit unions should be able to make them profitable too because they are unaffected by Durbin’s new rules. Have analysts forgotten that the Dubin Amendment only applies to financial institutions with $10 billion in assets or more?

The reason behind BofA’s $5 fee is simple: The bank is scrambling to show profits to its shareholders, and it’s running out of options. The $5 monthly debit card fee was more like a desperate Hail Mary play than a savvy strategy to clean up its balance sheet.

And besides, if it was such a stroke of genius, then why is BofA backpedaling? The bank is about to join all the other banks who are abandoning plans to charge debit card fees, including Wells Fargo, Chase, TD and SunTrust. If it was so brilliant, why is everyone reversing course?

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