That’s some rich irony.
Big banks could actually profit from a protest movement that is calling on retail customers to switch their accounts from corporate behemoths to small local banks or credit unions, several experts told The Daily.
“In essence, by eliminating a percentage of the less profitable customers, the movement could improve customer profitability overall for the bank,” said Hank Israel, an analyst at Novantas, a management consulting firm to the financial industry.
Angered by mounting bank fees, a Los Angeles art gallery owner set up a Facebook event page last month, designating Nov. 5 as “Bank Transfer Day.” Her movement went viral and became an outlet for populist rage stoked by the Occupy Wall Street protests.
Credit unions were already reporting a spike in membership applications after Bank of America announced a new debit card fee in late September, provoking a sharp public backlash. JPMorgan Chase and Wells Fargo also announced new debit card fees.
Though Bank of America and its peers have all backed off their plans in recent days, experts predict that the big banks will still find ways to hit customers with new fees and charges to recoup revenue lost to new federal limits on the “swipe fees” banks charge merchants for debit-card purchases. Those limits were mandated by a provision authored by Sen. Dick Durbin, D-Ill., in last year’s Dodd-Frank financial overhaul law.
And there lies the potential irony around Bank Transfer Day: One strategy banks may pursue to plump their profits is shedding low-balance, free checking accounts.
That’s because the financial institutions actually lose money on roughly 55 percent of their checking customers, a number that increased from 45 percent since the Durbin Amendment took effect Oct. 1, according to the consulting firm Novantas.
Novantas estimates that each unprofitable checking account costs banks up to $250 annually — the biggest money-losers being those who keep a balance under $1,000, incur no fees and use the branch a lot. Roughly one-third of checking accounts will never make the bank money.
“The reality is that banks are going to have to try to figure out what people value and how to monetize that,” said Israel.
He said profitable customers are less likely to switch their account because of the inconvenience or penalties associated with switching. Typically, they are ones who generate a lot of automatic transactions for the bank and also hold credit cards, money market accounts, certificates of deposit, 401(k)s, loans or mortgages from the same institution.
Whether Bank Transfer Day ultimately helps or hurts the banks could depend on what type of customer leaves, and how many.
“If any particular bank would lose in the single-digit percents of deposits in a quarter, I think there would be questions from investors,” said Morningstar analyst James Sinegal.
One percent of total deposits would mean about $10.9 billion for JPMorgan Chase, the nation’s largest bank, $10.4 billion for Bank of America and $8.5 billion for Wells Fargo.
“I think you could easily say it would take 1 million people on Bank Transfer Day in order for banks to take notice,” he said. To date, about 74,000 people have pledged to transfer their accounts on the movement's Facebook page.
Still, Los Angeles gallery owner Kristian Christian, the creator of Bank Transfer Day, stands by her concept.
“If you have less than $20,000, you are either impoverished or working class and it seems particularly unfair to target people who don’t have the money to spare,” said Christian, 27, who plans to switch her checking and small business account from Bank of America to a credit union.
Asked whether she was aware that banks actually lose money on most of their account holders, Christian declined to answer.
Several analysts speculated to The Daily that Bank of America may even have intended to drive away some of their money-losing customers with the very same fee announcement that sparked Christian’s call.
“They decided that there were certain individuals that they may well not want to keep as a customer,” said Keith Leggett, a senior analyst for the American Bankers Association.
Credit unions, which tend to have lower per-customer costs, have happily seized on the furor over new fees to boost their membership.
LGE Community Credit Union in Atlanta started an ad campaign reminding customers that its accounts are still free, and has seen online membership applications nearly triple, according to an industry group. The credit union BECU in Tukwila, Wash., is also on track to triple its membership applications. And LA Financial CU in Pasadena, Calif., reported receiving six times its normal volume of online applications.
A Bank of America spokeswoman said, “We value all our customers and don’t want to lose any of them.”
Big banks could actually profit from a protest movement that is calling on retail customers to switch their accounts from corporate behemoths to small local banks or credit unions, several experts told The Daily.
“In essence, by eliminating a percentage of the less profitable customers, the movement could improve customer profitability overall for the bank,” said Hank Israel, an analyst at Novantas, a management consulting firm to the financial industry.
Angered by mounting bank fees, a Los Angeles art gallery owner set up a Facebook event page last month, designating Nov. 5 as “Bank Transfer Day.” Her movement went viral and became an outlet for populist rage stoked by the Occupy Wall Street protests.
Credit unions were already reporting a spike in membership applications after Bank of America announced a new debit card fee in late September, provoking a sharp public backlash. JPMorgan Chase and Wells Fargo also announced new debit card fees.
Though Bank of America and its peers have all backed off their plans in recent days, experts predict that the big banks will still find ways to hit customers with new fees and charges to recoup revenue lost to new federal limits on the “swipe fees” banks charge merchants for debit-card purchases. Those limits were mandated by a provision authored by Sen. Dick Durbin, D-Ill., in last year’s Dodd-Frank financial overhaul law.
And there lies the potential irony around Bank Transfer Day: One strategy banks may pursue to plump their profits is shedding low-balance, free checking accounts.
That’s because the financial institutions actually lose money on roughly 55 percent of their checking customers, a number that increased from 45 percent since the Durbin Amendment took effect Oct. 1, according to the consulting firm Novantas.
Novantas estimates that each unprofitable checking account costs banks up to $250 annually — the biggest money-losers being those who keep a balance under $1,000, incur no fees and use the branch a lot. Roughly one-third of checking accounts will never make the bank money.
“The reality is that banks are going to have to try to figure out what people value and how to monetize that,” said Israel.
He said profitable customers are less likely to switch their account because of the inconvenience or penalties associated with switching. Typically, they are ones who generate a lot of automatic transactions for the bank and also hold credit cards, money market accounts, certificates of deposit, 401(k)s, loans or mortgages from the same institution.
Whether Bank Transfer Day ultimately helps or hurts the banks could depend on what type of customer leaves, and how many.
“If any particular bank would lose in the single-digit percents of deposits in a quarter, I think there would be questions from investors,” said Morningstar analyst James Sinegal.
One percent of total deposits would mean about $10.9 billion for JPMorgan Chase, the nation’s largest bank, $10.4 billion for Bank of America and $8.5 billion for Wells Fargo.
“I think you could easily say it would take 1 million people on Bank Transfer Day in order for banks to take notice,” he said. To date, about 74,000 people have pledged to transfer their accounts on the movement's Facebook page.
Still, Los Angeles gallery owner Kristian Christian, the creator of Bank Transfer Day, stands by her concept.
“If you have less than $20,000, you are either impoverished or working class and it seems particularly unfair to target people who don’t have the money to spare,” said Christian, 27, who plans to switch her checking and small business account from Bank of America to a credit union.
Asked whether she was aware that banks actually lose money on most of their account holders, Christian declined to answer.
Several analysts speculated to The Daily that Bank of America may even have intended to drive away some of their money-losing customers with the very same fee announcement that sparked Christian’s call.
“They decided that there were certain individuals that they may well not want to keep as a customer,” said Keith Leggett, a senior analyst for the American Bankers Association.
Credit unions, which tend to have lower per-customer costs, have happily seized on the furor over new fees to boost their membership.
LGE Community Credit Union in Atlanta started an ad campaign reminding customers that its accounts are still free, and has seen online membership applications nearly triple, according to an industry group. The credit union BECU in Tukwila, Wash., is also on track to triple its membership applications. And LA Financial CU in Pasadena, Calif., reported receiving six times its normal volume of online applications.
A Bank of America spokeswoman said, “We value all our customers and don’t want to lose any of them.”
PHOTO: Ted S. Warren/AP, Scott Olson/Getty Images
Occupy Seattle protesters burn a debit card, left, while a Chicago activist crusades against banks.
