Bluebird and the Evolving Financial Landscape: Can Banks Still Charge Huge Checking Fees?

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The conventional wisdom regarding Bank of America's decision to delay the imposition of fees on checking account holders who do not maintain a minimum balance has been that they were fearful of a consumer backlash similar to the one they experienced last year. It is not that simple.

Earlier this month Bank of America announced that it was delaying the implementation of new fees on its checking account holders until at least sometime next year. This is the second time in as many years that the financial behemoth has backed off plans to hit a certain segment of its checking account holding customer base with fees that would be applicable if an account holder did not maintain a certain minimum balance or employ the use of other services the bank offered, such as its credit card. Bank of America has been searching for a solution to a conundrum it faces with 20% of its checking account customer base, approximately 10 million people, whose failure to maintain a minimum balance in their accounts leads to a cost, to the bank, of several hundred dollars per customer per year on average. Last year Bank of America instituted a $5 monthly debit card usage fee for such customers; the fee lasted for only a month as a petition, signed by 300,000 people, was quickly put together in protest of the bank’s decision. The rapid about face of the chastised firm led to a slew of other banks, including JPMorgan Chase, Citigroup, U.S. Bank and PNC Financial, backing off of similar plans with rapidity. Industry experts and pundits are ascribing similar motivations to Bank of America’s change of heart this year. It might not, however, be that simple.

Last month I wrote an article for this site analyzing the impact of the American Express-Walmart joint venture launching the new, low fee debit card Bluebird. This new entry into the pre-paid card industry carries few fees, no overdraft charges and is without a required minimum balance. The joint partnership makes the opportunity to use this card widespread and therefore a represents direct competitor not just to companies who specialize in such a product, like Green Dot, but to entities like Bank of America whose checking accounts and associated debit cards offer a similar profile of services. Bank of America and other firms like it recognize that the financial services landscape has been transformed and from their perspective not for the better. No longer can they unilaterally impose fees as they see fit upon their consumer base without the potential for significant repercussions that extend beyond mere petitions. Now customers can leave not just their bank, but the industry altogether, and be provided with a similar array of services at a fraction of the cost. The game has changed and the banks must change with it. That, more than any other reason, is why Bank of America and its competitors have backed off their checking account and debit card associated fees; it places them in an untenable position as they are more likely to have customers avail themselves of other options rather than accept paying fees for services that have, up to now, been provided without cost.

Walmart has been searching for ways to break into the financial services industry for years and with the launch of Bluebird they have succeeded in a monumental way. Walmart specializes in providing the same goods and services that their competitors do, but at lower cost. They have triumphed nearly beyond measure in the retail space, dominating that industry and changing the way business is conducted from the supply chain forward. Banks appear to be fearful, justifiably so, that their industry is next and are already beginning to take steps to ensure that they remain competitive. The next few years are going to be interesting ones for the financial services industry with potentially sweeping changes beneficial to consumers on the horizon. Stay tuned.

Michael Cancella
Michael Cancella: Michael Cancella graduated magna cum laude from Columbia University with a B.A in History in 2010. After graduating he worked in the finance industry at a hedge fund startup and is currently going through the CFA Program in an effort to broaden his knowledge of finance and the economy. Prior to returning to school to finish his degree at Columbia, he spent a number of years i

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