Future Now
The IFTF Blog
Getting rid of pesky fees
Bank of America announced today that it is going to do away with overdraft fees for purchases made with debit cards bringing an end to the era of $40 coffee. This certainly means that the bank will lose millions in revenue since it is easy and quick source of revenue. It is certainly good news for all Americans since other banks will have to follow suit.
I don’t think Bank of America suddenly cares a lot more about its customers and wants to protect their financial interest. Apart from the impending new federal rule that would force Banks to provide the option to customers to opt out of overdraft services, Bank of America did this for two reasons:
(1) People’s trust in banks has eroded following the global financial collapse and the subsequent government bailout of banks. So Bank of America wants to instill trust among its customers and the easiest way to do it is to do away with hidden fees that have angered customers in the past.
According to a recent survey conducted by Forrester research, most people don’t trust banks, especially big banks. HSBC was the least trusted bank with only 16 percent of HSBC customers believed that the bank did what was in the best interest of its customers and not the bottom line. The other least trusted banks are: Citibank, Fifth Third, TD/Commerce, Capital One, Chase and Bank of America in that order from two through seven. This gives Bank of America the first mover advantage. Customers are going to remember Bank of America as the first bank that did away with the pesky overdraft fees.
(2) There are several smart tools like Mint and Wesabe that do the work for customers of keeping lightweight tabs on their account through email alerts and nudges. I used Mint briefly and I did like its data visualization capabilities (pie charts etc.) and household budget planning and tracking tools, but I loved the alerts that they sent to me when my credit card payment was due or when the account balance in my checking account was low.
Research conducted has shown that nudges like SMS, email alerts and so on are influential in improving decisions about health, happiness and wealth. For example, people are more likely to save if they are nudged to do so. For more details, please check out the nudge blog.
Lastly, in a world where more and more smart tools will be available, it is in the interest of banks to err towards transparency and openness. There is not benefit in hiding fees, people will figure out a way to uncover hidden banking practices.