Friday, November 4, 2011

No-fee banks cash in

When several major banks announced plans to impose new debit card fees on their customers earlier this fall, Avenue Bank’s marketing manager, Lisa Meiers, handled a daily barrage of questions from customers about the bank’s own fees.

So, Avenue Bank launched a print and online campaign to make the message plain: The bank does not charge swipe fees — a fee of up to several dollars a month for using a debit card to make purchases.

Avenue Bank’s weekly account openings have tripled from normal levels since those ads started appearing, riding a wave of consumer anger over big-bank practices. “In my 14 years in the banking industry, I have never seen a customer response like this one,” Meiers said.

Avenue is among a crop of local community banks and credit unions that are winning new business as once-loyal customers of other institutions close accounts in response to new fees.

A number of institutions are making loud and widespread no-fee advertising messages to lure unhappy customers while local credit unions just try to keep pace with scores of new members knocking on their doors.

“This is prime time for small banks to strike,” said Tim Chen of, a website focused on credit card deals. “And customers should expect new fees down the pike next year, so this behavior will probably continue.”

Banks that, together, command more than half of the market share in the Nashville area have decided to charge depositors as much as a $5-per-month debit card fee and other types of service fees to recapture expected profit losses due to rules under the federal Dodd-Frank financial overhaul.

Regions Banks, Bank of America, SunTrust and First Tennessee Bank comprise 51.5 percent of Nashville’s market share based on deposits, according to the latest reports from the Federal Deposit Insurance Corp.

All four banks have started collecting or pledged to impose monthly debit card swipe fees of varying amounts. A few other big banks, Chase and Wells Fargo among them, have recently backed away from the idea of monthly fees on customers’ debit card purchases after a wave of complaints.

How big of an impact customer flight to smaller rivals will have on larger banks’ core customers isn’t yet clear, said Geoff Knapp, vice president of online banking for Fiserv, which develops Internet bill-paying systems. Many customers, for example, who use bill pay services or who have direct deposit find it inconvenient to unravel themselves from the ties that bind them to their existing bank accounts, he said.

“I suspect there will be some churn from the new fees,” Knapp said. “But if you’re a deep, deep user of online services, you’re probably highly satisfied with the bank.”

Still, a rival marketing strategy to capture frustrated big-bank customers seems to be taking root.

Consider CapStar Bank, where the message of the bank’s recent newsletter highlighted its no-new-fee philosophy. “We’ve definitely had more interest expressed and more frustration about fees referenced to us,” the bank’s president, Claire Tucker, says.

Credit unions also may be seeing a rush of interest. Nashville-based Cornerstone Financial — owned and operated by its members — has seen a spike in interest from potential customers hoping to learn how credit unions work, Cornerstone spokesman Will Frye said.

Cornerstone hasn’t had to spend more money to entice new customers. It has happened naturally, Frye said.

“We’re seeing a mass exodus out of major banks,” Frye said. “The word is spreading so fast that we haven’t had to spend a lot of money in advertising. We’re pushing our services lightly, and still, the reaction is more than we expected.”

New customer accounts at Cornerstone have doubled year over year, according to Hank Flurry, Cornerstone CEO.

Nationally, Web traffic at the National Association of Federal Credit Unions’ credit union locator site has grown more than 350 percent in the past week, spokeswoman Patty Briotta said.

In turn, some banks that have introduced monthly debit card fees in Middle Tennessee — such as Regions Bank — are using customers’ vocal concerns as an opportunity to reach out to customers, said Jim Schmitz, the bank’s regional president.

After Region’s revamped fees were announced, the bank called hundreds of customers to explain the shift in the financial industry and to stress the importance of a strong banking relationship.

“Are our branch teams working a little harder now? Yes. But we did prepare for it, and we stay engaged with customers in a conversation about it,” Schmitz said.

Many explore options on Internet

Other disenchanted bank customers have turned to the Internet for banking alternatives.

For instance, Steven Moore, 36, of Nashville found an online bank that he considers not just fee-friendly, but one through which he can even earn a buck.

Moore opened an account with Delaware-based online bank PerkStreet. The bank gives debit card customers up to 2 percent back on purchases for the first three months. “I wouldn’t set up a new account at a bank if I knew there would be debit card or other fees,” Moore said.

A PerkStreet spokesman said Nashville is the bank’s 10th most popular market in the nation, adding that after Bank of America announced its monthly debit card fees last month, the company’s new accounts doubled from the previous daily record.

In the meantime, some customers are rallying around an online movement to switch to credit unions on Nov. 5, in an event dubbed in social media come-ons as Bank Transfer Day. It has gained more than 38,000 supporters on Facebook.

But no one can be sure if small banks and credit unions will be able to continue free services in the coming years, said Greg McBride, Bankrate’s senior analyst.

“The economics of banking are changing. It’s an open-ended question as to how they will be able to maintain free checking account services,” McBride said. “I suspect that some will, some won’t.”