Alex Matjanec, co-founder, Media and Communications at MyBankTracker.com and creator of the term "a la carte banking," said traditional banking products force consumers to pay for services they never use, and if consumers can't afford the extra expense, they have to opt out of accounts and find more affordable products.
Matjanec noted the prepaid card industry has been a chief beneficiary of that mentality. Prepaid card programs often charge monthly account maintenance fees, but also per-use fees, such as for ATM withdrawals, bill payments and reloads. Prepaid cards are therefore essentially pay-as-you-go products: the more you use, the more you pay, Matjanec said. Because prepaid has been so successful in recent years in poaching consumers from traditional banking services, banks are moving to the opt-in model to win consumers back.
Matjanec pointed to the October 2012 launch of Banking By Design by San Francisco-based Union Bank NA as an example of this trend. The new checking account service offers consumers a range of options, such as online bill payments, out-of-network ATM transactions and wire transfers.
At the launch, Union Bank executive Pierre P. Habis alluded to the market pressure placed on the bank to change, but he did not concede any influence exerted specifically by prepaid. He said, "Consumers made it clear that they want a fair value exchange – they only want to pay for what they need."
Prepaid need not be mentioned to realize the impact it is having on traditional banking. Matjanec stated, "[Banks] are looking for new ways to package their accounts because feedback from consumers is that, 'Hey, I can't meet these requirements. Therefore I'm not going to open an account with you.' And the natural reaction for banks is to say, 'Well, where are people going?' They're going and getting prepaid debit cards."
Matjanec offered two basic ways banks can address this changing customer dynamic. Financial institutions (FIs) can either roll out their own prepaid card programs or make their checking account offerings more flexible, as demonstrated by Union Bank. Matjanec mentioned JPMorgan Chase & Co. as having gone the former route with the Chase Liquid prepaid card.
Chase Liquid charges a flat $4.95 monthly maintenance fee. There are no additional fees for opening accounts, loading or reloading the cards with cash or checks, and no fees when using the cards at Chase bank branches or in-network ATMs, which number over 10,700 in the United States.
But Matjanec considers Chase's prepaid card to be a stepping stone toward a larger goal. "It was an easy transition to go that first step," he said. "[The card] doesn't do everything. You don't get all the features like a regular checking account does. But you only pay one fee, and life is easy."
The next step for Chase is to transition customers from prepaid cards into more profitable (for Chase) traditional checking accounts that feature a menu of opt-in features, according to Matjanec. One downside to Chase's strategy, however, is that other banks that simply forgo prepaid and adopt a la carte banking now may have the edge in luring customers back, he said.
Deciding what fees to charge is a delicate balancing act for financial service providers. Matjanec said FIs want to avoid the "PR nightmare" experienced by Bank of America Corp. in 2011 when it attempted to charge customers a $5 monthly debit card fee. But the opposite approach – giving features away for free – is also fraught with peril. How banks dealt with remote deposit capture (RDC) is a case in point.
"I am very shocked at how many banks gave it away free," Matjanec said. "The cost of gas is so high that you spend more money driving to the bank to deposit that check than paying 30 cents to do it from your office or from your home."
Consumers would have found it reasonable if banks charged a fee for their RDC services, he noted. "There's such a large breadth of digital features coming out that I think it's unrealistic to think that banks are going to offer all of those [features] for free and keep their minimums and requirements and fees where they are today," he said.
Also, if banks continue to offer RDC for free, they risk alienating customers if they decide to charge for it in the future. "The culture won't allow that," Matjanec said. "You can't wait until it becomes ingrained in the society."
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