by Paul Hunt – President
Just when things were looking bleak for Netflix they caught a break as Bank of America came along with their debit card pricing fee. Bank of America has taken such a beating for that decision that if there was such a thing as a Pricing Piñata it would have their logo emblazoned all over it. Here are the facts:
- The move is partly prompted by a new federal regulation, effective Oct. 1, that will limit the cut banks can take from merchants at the point of sale. Bank of America expects the new lower rate to reduce the revenue that those merchant fees provide to the bank; a generous $19 billion in 2009.
- The banking industry expected that this would cost about $6.6 billion in fees.
- Generally the banks are world class when it comes to implementing new fees. For example, did you know that back in 2009, 76% of checking accounts in the US were free. Currently that number is only 45% (Bankrate study). Furthermore, ATM fees are up an average of $0.07 from last year, and average overdraft fees went up $0.36 in the same time.
However these debit fees were perceived as a penalty, and were not taken kindly.
Let’s face it, customers do not like arbitrary policies driven by the internal needs of the company. Remember; it’s all about the value, and there was nothing in this pricing decision that spoke of improved value for the customer.
As for the other banks that were considering this fee? Well they did the smart thing and tested it to see how it was received. Chase, Wells Fargo and others were all running tests and had the benefit of assessing how the new fee was affecting their business. Consequently, they decided not to proceed with it.
This Bank of America Pricing fiasco has made a few things clear:
- People are still upset over the bank bailouts and feel that the banks owe them something in return; picking their wallets was not what they had in mind.
- The little guy is tired of taking it in the chin and now has a way to fight back. Social networks are being used as a powerful tool to change the game.
- The economy isn’t in stellar condition and this has made consumers particularly ornery to any fee that is seen as a penalty (or one that does not bring any value).
When you put these factors together it seems pretty obvious that implementing this fee would not be a good idea. The banks have confused passivity with loyalty and that is a dangerous mistake. It reminds me of a saying a very wise executive once said to me that I have never forgotten; “it’s the hogs that spend the most time at the trough that get slaughtered first”. Bank of America fell prey to it this time but I have a feeling they won’t be the last, stay tuned!
Paul Hunt is the president of Pricing Solutions, an international pricing strategy consultancy dedicated to helping clients achieve World Class Pricing competency. Paul publishes a monthly pricing column in the FP Executive. He also writes for the Pricing Solutions Club.