Bank of America says that starting this month, it will
charge customers a monthly fee of $12 unless they make a direct deposit of at
least $250 or maintain a monthly balance of $1,500. While some lower-income
workers will still be able to avoid that fee by using direct deposit, others
will most probably not have that option.
Some employers – particularly smaller
companies – are yet to implement direct
Why did Bank of America make this decision? I believe that their
logic goes back to the costs of providing accounts.
Checking account interchange
The cost of providing
an account is a lot higher than you might think.
According to the American Bankers Association, it costs at
least $250 to acquire a new customer. The ABA says that banks spend more than
twenty dollars each month after that.
The chart below explains the overall proposition.
Advertising for new customers
Creating and mailing a debit card to their
Providing a branch, complete with tellers and
safe deposit boxes.
Building out and servicing a network of ATMs.
Staffing a call
and data protection.
Creating and maintain their IT systems.
with laws and prevention of fraud.
The net result: only a small percentage of checking accounts
turn a profit for the banks. In most cases, the checking account is a loss
leader. The bank keeps an unprofitable customer in the hope that he or she will
apply for a credit card, get a car loan, or get a home mortgage loan.
A few years ago, the prospects for earning a profit dimmed
when a new rule put caps on the amount of interchange that banks could receive
from swipes. It was a political battle between the large retailers and the banks. The retailers won.
Because nothing about how checking accounts make money
changed, retail banking lost some of its steam. Not coincidentally, this was
about the time when banks stopped advertising about their debit cards and
instead began a full-court press to get us to come back to our credit cards.
Most of the revenue from a checking account comes from two
sources: the amount of “interchange” that banks earn when you swipe your debit
card at a store and the fees you incur when you use the account. Interchange is
the name for the charges that retailers
pay to the card networks (VISA, MasterCard, AMEX, et al.) when you swipe a card at a store. Banks get a portion of
those fees. Even lower-income customers use their debit cards frequently, but
because of changes to interchange rules, the total revenue per swipe is lower
than it used to be.
While swipe revenues might have dropped, banks still benefit
from overdraft fees and minimum balance fees. They tend to enjoy more of those
from lower-wealth households. However, that’s not an ideal system. We don’t
want a payments ecosphere that derives most of its income from the most impoverished customers. If you don’t think
that sounds fair, you are not alone.
But modern online or
app-driven prepaid debit cards don’t face the same challenges.
According to one card provider, it costs about $6 per month
to provide an online bank account. Suddenly, customers who weren’t profitable
as users of a checking account become attractive to companies that have prepaid
debit cards or payroll cards.
WiseWage is trying to move more workers into bank accounts.
That’s our fundamental goal. It’s what we do. Knowing what we do about the
interest – or the lack thereof - that many banks have for unbanked households,
we knew that we had to partner with prepaid debit card companies, with payroll card
programs, and with checkless overdraft-free bank accounts.
We’ve produced a site where anyone can get an account,
regardless of their credit score and even if they don’t have enough money to
cover a minimum average daily balance requirement. We have debit card accounts that don’t rely on
overdraft fees to cover expenses. None have – or will ever have – an overdraft
fee. If one of our partners decided to introduce overdraft, we would cease to
work with them. We are taking a stand for you – the consumer!
The Wisewage blog is not intended to describe any particular product mentioned elsewhere on the site. Please refer to each product page for details about any specific product. You can read our full legal statement about the blog here.
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