A lot of financial institutions offer free checking. A smaller number have dropped overdraft fees. But few — if any — have stopped charging both.
But there is one, Amplify Credit Union. And it’s not just checking and overdraft fees — the Texas-based credit union with $2 billion in assets stopped charging a total of 35 banking fees to its 60,000 members in February 2022.
The few fees Amplify does charge pertain to lending alone, and there are only 13 of them. And the credit union isn’t making up for the loss with higher ATM charges or online banking fees. Amplify doesn’t charge those either.
Making It Up In Volume:
Amplify Credit Union is forfeiting $2 million a year in fees, but calculates it will earn far more through growth.
“We did some research that found members don’t like to pay fees. That’s not exactly rocket science, but charging overdraft and other fees causes a lot of noise. So I said let’s stop charging fees,” Kendall Garrison, Amplify’s CEO, told The Financial Brand. “Our customer experience officer looked at me like I’d lost my mind. But to a customer, free is the right price.”
Non-interest income, or NII, adds a reliable revenue stream for credit unions and banks, though it has been declining for years industrywide. A Value Penguin/Lending Tree analysis finds that the standard account fees of the 10 largest banks in America range from $12 to $25 for checking accounts, $34 to $35 in overdraft fees, $15 to $50 for savings accounts — and that’s just a few of financial institutions’ typical fees. Indeed, Amplify is losing $2 million a year by ending fees.
So the question isn’t why this credit union — or any financial institution — would kill fees. It’s how they can afford to.
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How Amplify Succeeds Without Fees
Garrison says that the $2 million loss Amplify expects will be offset in two ways: interchange income and improved net interest margin, or NIM. Amplify arrived at that conclusion through intense mathematical modelling, which examined members’ checking and saving account behavior in detail over the course of nine months. That modeling revealed consumer behaviors with significant financial potential.
Consider interchange fees. “Interestingly enough, relatively low-balance checking accounts have a much higher rate of debit card interchange income because those members tend to swipe their cards on a very frequent basis,” Garrison says. That income adds up quickly. In 2022, Amplify Credit Union’s monthly gross interchange was at an average of $13.63 per active card.
Life Without Noninterest Income:
Extensive modeling identified net interest margin as a key way to offset forfeited fee income, given the institution's strong loan ratio.
Amplify’s net interest margin model is a little more complicated. Amplify’s loan-to-deposit ratio is in excess of 100%, so every dollar deposited is loaned out at interest. Since it dropped those 35 fees, direct membership growth is up 44% as compared to the same period in the prior year. As a result, deposits are up, servicing them costs less, and loan revenue is on an upswing.
“So with the relatively high-balance, non-interest bearing checking accounts,” Garrison says, “we’ll make up for lost fee income with improved NIM due to the lower cost of funding.”
That, despite Amplify’s quite favorable rates. In September 2022, Amplify was charging 6.044% on a 30-year mortgage, for example, while Chase’s local rate was 6.250% and Bank of America had a 30-year fixed at 6.250%. On the other side of the ledger, Amplify’s interest on savings accounts, depending on the balance, was between 0.05% and 0.30% while Chase offered 0.01% to 0.02% and BofA had 0.01% to 0.02%.
“So what was traditionally a weakness for our credit union — low-deposit accounts — became a strength when we stopped charging fees,” says Garrison.
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Can Other Financial Institutions Do What Amplify Does?
So if Amplify can stop charging fees, surely any financial institution can — and achieve the same results.
Maybe. Maybe not.
On one hand, writing off NII revenue pencils out a little better for big banks that can stand to lose more than Amplify can. For example, killing overdraft fees (and just overdraft fees) ran Capital One 4.8% of total net revenue for that quarter, NerdWallet calculated, and BofA lost 0.4% of its second-quarter revenue, the bank says. Meanwhile, Chase has $2.87 trillion in assets and Bank of America has $2.16 trillion, while Amplify, by comparison, has $2 billion.
On the other hand, Amplify spent nine months analyzing member behavior to arrive at its financial conclusions — yet, at 60,000 members, it has, relatively speaking, far fewer people to study than the megabanks. “We asked every question we needed to ask and our projections are spot on,” says Garrison, “which gave us the best opportunity to be successful.” And those members are running a 500:1 ratio on digital versus branch transactions, providing an enviably robust data set.
Moreover, Amplify’s operation is narrow — Amplify has one kind of checking account, for example, while BofA has at least four and Chase has twice that. And its market footprint is much smaller than a large bank.
So though Amplify’s data set is rich, it has far fewer variables than a bigger institution would have. And while bigger banks can afford to crunch bigger data sets, analysis won’t necessarily offer great insight.
But even some credit unions would struggle to follow Amplify’s example. Some say the fee income per asset ratio in credit unions with a low-income designation are a financial necessity. “These fees are what allow those credit unions to serve their members,” says a creditunion.com article. “In many cases, these fees are a cheaper or more palatable option than higher loan rates or restrictive services/underwriting practices.”
A ‘To-Don’t’ List for the Entire Industry
So any bank or credit union could do the math that Amplify did, but they may not be able to recoup losses the same way Amplify does, because outcomes are correlated to the organization’s customer base, which can differ substantially from one institution to the next.
“But they should do it anyway,” Garrison says.
“As this idea builds throughout the industry, the tide will turn pretty quickly. Now is not the time for half measures.”
— Kendall Garrison, Amplify Credit Union
As evidence, Garrison points to the Consumer Financial Protection Bureau and its dim view of bank fees. Over the past few years, the CFPB has been targeting what it calls “excessive fees,” and banks have been fined tens of millions for their overdraft fee activities. CFPB Director Rohit Chopra said, “The main way banks have flipped the script from paying depositors to charging them is through deposit account service charges, like overdraft fees.”
The CFPB is clearly taking aim at overdraft fees, and regulators may widen their target to other forms of non-interest income in days to come, depending on the political winds. If that happens, the 35 fees Amplify doesn’t charge may become a ‘to-don’t’ list for the entire industry.
And even if that doesn’t come to pass, financial service companies will always have customers who don’t like paying fees. If more and more banks and credit unions drop their fees, consumers will have more and more banking options.
Garrison is counting on that. “If you see deposit fee income as part of your margin,” he says, “your margin is my opportunity. If we can undercut the competition for the good of our members, I think that makes all the sense in the world.”