Tenth Avenue Fees-Out | By Steve Viuker
Lately, some banking customers have begun to feel an ill wind from overdraft fees. MoneyRates.com reported in a survey that average overdraft fees rose by 18 cents in a recent survey, reaching an average of $30.01 per occurrence; but the significance of this fee depends on how consumers use their checking accounts. Since overdraft fees are usually assessed for each transaction that occurs while the account is overdrawn, even a few mistakes can cause these fees to run into the hundreds of dollars – but busy entrepreneurs and financial companies across the country are coming up with ways to combat fees and save clients money.
Software engineer Josh Reich and Shamir Karkal, created Simple, an online banking start-up company based in Portland, Oregon. The company now has 20,000 customers and has processed transactions worth more than $200 million. Simple is not a bank, but has arrangements with BW Bank and Bancorp, federally insured banks, to hold its customers’ money.
Customers receive a plain white card that can be used like a debit card. The company offers direct deposit and money transfers. Simple customers cannot make cash deposits and must rely on the Internet and phone for service. Simple makes money by earning interest on the cash it carries and from interchange fees, which it gets from each swipe of the card.
BancorpSouth in Tupelo, Miss., is rolling out a prepaid debt card. The $13.2 billion-asset company has joined with prepaid card manager TransCard to offer a MasterCard prepaid debit card as an alternative to traditional checking accounts. The card carries no minimum balance or overdraft fees. BancorpSouth is offering the program through the American Bankers Association’s Community Bank Prepaid Program, which aims to make the prepaid card market easy for community banks to tap. The reloadable card, which costs $5 to set up and $4 a month thereafter, can hold up to $5,000 and accepts direct deposits of paychecks and federal benefits. The card carries no fee for purchases. Overdrawing the TransCard account at an ATM in the U.S. costs customers $1 each time it happens.
MoneyRates.com pointed out one of the best bets for avoiding maintenance fees may be to choose a checking account from an online bank. Two-thirds of the checking accounts from online-only banks surveyed have no monthly maintenance fee. Those that did have a monthly fee charge an average of $9.42, compared to an average fee of $12.32 at traditional, branch-based institutions. Besides offering lower fees, the survey’s online banks also offer lower barriers to opening a checking account. The average minimum amount required to open a checking account at an online bank is $151.19, compared to $393.60 at traditional banks.
Stewart Rose, president at Truebridge Financial Marketing, says that if conventional banks want to maximize their opportunity, they should go beyond just training people on how to open online accounts, and should show them some value-added services that help them meet other needs, current or future.
Aite Group said the compound annual growth rate for prepaid debit and payroll cards will increase 19.9 percent from 2010 to 2016. “For cards not issued by a bank (e.g. Amex’s Bluebird card), state money transmitter laws provide safety and soundness protections,” said Michael Flores, CEO of Bretton Woods Inc., who has researched and written extensively about payments and banking issues. Last year, consumers loaded about $57 billion onto prepaid financial products nationwide, up from $41 billion a year earlier. The total should jump to $167 billion in 2014, researcher Mercator forecasts.
“Navigating regulatory waters will be tricky at best,” wrote Madeline Aufseeser, senior analyst at the Aite Group. “Prepaid providers will need to keep a sharp eye on the ball relative to product pricing, regulatory pressure and consumer behavior. Programs with high cost structures will suffer. Market pressure from regulators and competitors will force some smaller players to perhaps exit the market.”
Said Rose: “The credit card people figured out long ago how to do affinity marketing with every conceivable affinity to drive card acquisition. Now the same with a bank account. … People are 43 percent more likely to buy a financial product around a life event. It is during those times that people are looking for help. They will do business with the one who is there to provide it.”■