By Ray Birch
LAKE FOREST, Ill.—Checking account fees—and more than just overdraft charges—are fading away, a new study reveals, and further suggests there are five checking charges that should always be free, especially at a time when consumers’ confidence in the banking system has been shaken.
Just as CUToday.info recently reported that the median OD fee tumbled in 2022, a new study from Moebs $ervices shows financial institutions and fintechs are dropping charges on many more transaction account fees.
“Checking is going through a major strategic change,” said Michael Moebs, economist and chair at Moebs $ervices. “The changes that have been happening with checking are equal to the advancements made from the manual typewriter to word processing on a PC.”
Moebs pointed out that NSF, stop payments, return of deposited items, deposit transfer and overdraft lines of credit are all “paper-check-related” fees to cover negative transaction accounts, and that all of these services are extremely low-cost to the financial institution.
“The amount of money made with these fees is very minimal,” stated Moebs. “It is better not to charge for these items, lose a little money for the financial institution, but improve your reputation and trust—which is very important now due to the failure of Silicon Valley, Signature and Silvergate banks.”
What New Survey Found
Moebs said his company’s latest survey of 74% of the 595.9 million transaction accounts in the U.S. shows how much FIs are focused on dropping many of their checking account fees, many of them to zero. The report compares 2021 to 2022 data and found:
- NSF fees declined 51.1%
- Stop payment fees declined 7.8%
- Return of deposited Items fees declined 14.7%
- Deposit transfer fees declined 42.5%
- Transfers fees from overdraft lines declined 22.5%
Michael Moebs
Moebs believes there is a good case to be made for eliminating certain fees.
“It is important to recognize that 77.1% of all depositories offering consumer transaction accounts lose money on the service,” said Moebs.
‘Basic Merchandising’
“The NSF fee should be no-charge. A basic principle of merchandising is never say free—say no charge, which implies value,” Moebs continued. The NSF fee is for a paper check or ACH payments, not a debit card transaction, which has immediate approval or is declined. Paper checks represent less than 7% of the financial service system’s total payments. Is the amount you make on paper checks really worth annoying a transaction account user with a penalty NSF fee? And ACH charges will be reversed and paid positive.”
Additional Questions to Ask
Moebs posed several other questions, too.
“If a debit card is not authorized why does a stop payment fee have to be charged? This is like still having a hitching post for users who still ride a horse to the branch.”
- “How many paper deposits does a financial institution have and are returned unpaid? Of course, there is an element of fraud to consider, but as paper deposits disappear so does the deposit risk. Walmart is number one in consumer checking and do they charge this fee?”
- “What is the cost of automatically transferring money from another deposit account to a negative transaction? Minimal.”
- “Is a separate line of credit cost effective just for an overdrawn transaction account? Would connecting to a credit card be better?”
An Important Point
According to Moebs, coupling merchandising principles to transaction accounts is important.
“Merchandising is a form of marketing promotion of the sale of goods, especially by presentation in retail outlets. Before radio, TV, and the Internet, merchandising was a way to influence the sale of a good. It started in France well over 100 years ago and spread to the United States quickly,” said Moebs. “A basic principle of merchandising is if a product is losing money but covering overhead, package it with a profitable product. Fees are an essential ingredient of the bottom line," Moebs continued. "Merchandising fees with interest related services—loans and investments—shows value to the consumer and a positive bottom line to financial institutions. The banking world is no longer paper for the consumer. Consumer fees need to match the real world of the debit card.”