Getting Too Free With Fee Income

Fee income is all the rage. It is the way to fill coffers little by little. The idea behind fee income is just like that old childhood song, "little drops of water, little drops of sand make the mighty ocean and the mighty land."

Little drops of fee income can add up to big things, such as turning a profit. A fee here, a fee there and the next thing you know, just as the song says, the bank is turning a mighty profit. Tempting?

In our opinion, fee income isn't all it's cracked up to be. There are several pitfalls - quicksand, if you like - that are ignored when the focus is on fee income.

The first problem is the customer. Customers don't like fee income. We know that. They have already made their thoughts and attitudes clear. Over the years, banks have gotten away with a lot of fee income as long as it was only little drops of water. For example, customers are used to paying fees for their checking accounts.

But watch out for customers when we increase the types and amounts of fee income. Customers - most of them, anyway - can add. They know when the little drops of water become a large puddle. And they care. If you don't think customers notice and care, just ask them about their phone bill!

Customers are willing to accept little drops of water, but only a few of them. Long before the mighty ocean accumulates, customers will have moved their accounts out of the bank, written hostile letters to the newspaper, and advised their Congressional representatives that they think banks are big, mean, and greedy. They will make you pay.

The second problem is all customers, together. This is really the issue of the image of banks and banking. When banks are seen, as an industry, to be taking steps that are not apparently reasonable and fair, or not in the interests of customers, those customers will speak up - loudly.

Consider what consumers, including you, have to say about airlines and pricing. When was the last time that you tried to buy a plane ticket and felt the price quoted made sense? My recent experience is a perfect example.

I needed to fly from Washington, D.C. to Chicago for a family event. Even with a Saturday-night stay-over, I could not get a flight for less than $1100 round trip. I considered that to be a bit steep for the purpose, so I didn't go and I missed the family gathering. Last week, long after the event in question, the airlines - the very same airline in fact - advertised round trip tickets to and from the same airports for $198! The same flight for a small fraction of the original price quote! But the dates were wrong and my family opportunity was lost.

Does that airline pricing make sense? Do we believe the airlines when they raise prices yet again? Why do we continue to fly? Because we don't have a real choice. All the airlines do this. But when it comes to financial services, customers do have a choice. And that is the third and biggest concern banks should have about fee income. There is much more to lose here than a few customers.

Banking is based on trust. Poor treatment of customers undermines that trust. Fee income, in very modest amounts, makes some sense. Fees for checking accounts make sense because the customer is in effect paying the bank to process checks for them. But charging a fee to use a teller - which customers see as part of the product offered - does not sit well. Customers can and will find other things to do with their money.

When looking at the big picture, fee income has some real dangers. We can lose sight of the big picture and we can lose sight of how the customer sees the bank. When that happens, we have lost everything.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 2, 2/01