Get Ahead of the Sea Change in Fee-Based Banking 

In October there were two more clear indicators that banking fees have seen better days as a non-interest income strategy for FIs of all sizes. 

First digital banking competition is proving that spotting customers money for OD/NSF fees builds customer relationships and boosts organic growth. 

Leading consumer financial technology company, Chime®, announced that its fee-free overdraft feature, SpotMe, has covered its members with more than $30 billion in transactions since the product launched in 2019. SpotMe® empowers everyday people by providing a safety net when they need it most. 

Second, the states are now looking into their own legislation on fees. 

Sen. Dick Durbin (D) has announced his support for an Illinois law that seeks to ban card interchange fees on the taxes and tips that consumers pay when buying goods and services.  Durbin expressed support for the Illinois Interchange Fee Prohibition Act, in the legal battle playing out in federal court. The state law, enacted in June, is scheduled to take effect next July.  

This adds to the pressure coming from various federal government agencies as well. 

In 2023, the Federal Reserve Board has also issued interchange fee maximums for FIs with $10 billion or more in assets. 

And this all comes as the CFPB recently clamped down on OD/NSF fees for FIs with more than $10 billion in assets, including a new ruling putting the ceiling on OD fees at $5.  

While not all community banks hit that AUM mark, those that escape that mandate still have to compete against the big banks that now can advertise reduced or eliminated OD/NSF fees.  

Given most community FIs’ playbook of boosting free checking accounts or trying to compete on interest rates to acquire customers, those price inelastic new customers aren’t going to impressed by high OD/NSF fees.  

 

Community FIs Out of the Frying Pan 

While none of these efforts are directly affecting community FIs, they have a significant indirect effect. 

For example, as large FIs and neobanks cut their fees, that becomes a difference that they can use to attract retail customers from community FIs that maintain their fee structures. 

And by not being proactive on interchange fees for SMB customers and members, the risk of losing commercial accounts becomes a risk as well. 

A “wait and see” attitude for community FIs means that as mega banks, big regional banks and neobanks like Chime look like they’re becoming more customer-friendly, community FIs look less attractive by their uninterest in adapting to the new market realities. 

 

The Trend Can Be Your Friend 

But this doesn’t have to be the reality for community FIs. 

It’s possible to transition to a subscription-based model that delivers value to customers and members while also boosting earnings, primacy, and differentiation from the competition. 

We know because we have hundreds of community FIs that have adopted this model and are thriving. 

What’s more, a value-driven checking product can also help community FIs learn more about their customer base and find ways to make good customers great ones. 

Best of all, the transition from a fee-based product line to a subscriber-based one isn’t as daunting, time-consuming, or expensive as it may seem. 

 

A Glimpse of the Future 

The days of fees are coming to an end. 

For the past two decades we’ve been rethinking retail checking and revitalizing community FIs around the country with BaZing and its analytics component CheckingScore.