Big Wall Street banks aren't anyone's favorites right now. With such a bad reputation, does it really make sense for a bank to give its loyal customers a big incentive never to step inside its doors again?
In the latest in a salvo of responses to the series of laws targeting financial institutions, Bank of America (NYSE: BAC ) is planning to introduce a new type of checking account early next month. According to Bloomberg, the account will give customers free checking without any minimum balance requirement. The catch, though, is that if they visit a branch for routine transactions like making a deposit, they'll have to pay an $8.95 monthly service fee.
Either way, you're gonna pay
Banks have been on the defensive for quite a while now, and the new legislation on debit cards and financial reform certainly isn't going to help. Having changed from investment banks to bank holding companies less than two years ago, Goldman Sachs (NYSE: GS ) and Morgan Stanley will now have to separate out their derivatives trading units. While that may not affect you much, it's a big deal to the big banks.
New restrictions on debit card fees will also have an impact. Although Citigroup (NYSE: C ) reported that limits on debit-card-related fees likely wouldn't have a big impact on profits because it doesn't have a huge retail banking business, B of A said it could cost $2.3 billion annually.
As another major player in the debit card business, JPMorgan Chase (NYSE: JPM ) could also see substantial lost profits. Yet JPMorgan CEO Jamie Dimon summed up the general attitude toward the regulations: "If you're a restaurant and you can't charge for the soda, you're going to charge more for the burger. Over time, it will all be repriced into the business." In other words, once you think you've plugged one leak in the framework of fee income for banks, new ones will pop up to take its place.
At first, B of A's no-teller initiative may sound like a revival of an ill-advised move from 15 years ago. In the mid-1990s, First Chicago, now a part of JPMorgan Chase, charged $3 for customers to visit tellers. It was designed to push customers toward ATMs, but it resulted in a backlash.
Now, though, the banking world is a lot different. Companies such as ING's (NYSE: ING ) ING Direct revolutionized the idea of an online savings account without a bricks-and-mortar presence. Financial services companies such as American Express (NYSE: AXP ) and Discover Financial (NYSE: DFS ) have pushed online services for some time by offering above-average rates on FDIC-insured savings accounts and CDs through their banking units.
With some institutions, you can even handle deposits remotely by scanning check images. It's pretty easy to do nearly anything you can imagine without setting foot in a bank branch.
The challenge is in matching the business value that a branch visit has. For banks like B of A, the primary value of having customers speak with tellers is the cross-selling opportunity that each visit presents. Often, tellers can identify customers' needs just by looking at the simple transactions they bring to the teller window. When a teller can recommend an in-house investment representative, mortgage specialist, or commercial loan officer, the profits those ancillary services generate can dwarf whatever the bank makes on a checking account or CD.
The impersonal touch
By pushing customers away from branches, banks like B of A are saying that those cross-selling opportunities aren't worth as much as they used to be. If banks can duplicate that experience with a sophisticated website, then those customers who rely on online transactions may end up seeing exactly the same product pitches they would have gotten from a teller. The unanswered question is whether those pitches will be as effective online as they would have been face-to-face.
For customers, the move underscores the need to keep tabs on your bank to make sure it's offering what you want at the right price. Increasingly, high-maintenance customers may need to turn to local options such as credit unions for extensive customer service. Meanwhile, if you'd just as soon never see a teller anyway, an easy, no-fee option might make B of A's offering the most attractive out there.
Is it the end of Wall Street as we know it? Read Mac Greer's interview with best-selling author Roger Lowenstein.
Fool contributor Dan Caplinger used to work at a bank and would've liked to tell some of his customers to get out, but such behavior was generally frowned upon. He doesn't own shares of the companies mentioned in this article. American Express and Discover Financial Services are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy will always invite you in for a cup of tea.