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Posts Tagged ‘Wachovia’

The Death of Free Checking

January 2, 2011 Leave a comment

All I wanted for Christmas was for someone to sit down with me and explain how a checking account was profitable.  Well, I didn’t get that present, and I still don’t know.  Now, I don’t really believe that free checking accounts will go away.  But I do believe that banks and credit unions that continue to focus on checking accounts may go the way of the dodo.

Changes in banking laws have done nothing but hurt the profitably of checking accounts.  In the past, fee income and interchange fees drove the focus on this account type. Now, overdraft fees have been drastically reduced.  It also looks like a law will be passed that will limit the amount that can be earned from interchange.  But as they say, trouble comes in threes.  Number three will be mobile payments.

This summer, iPhone 5 will hit the market, and along with it, NFC capable phones.  Although the Android based Nexus S is NFC capable, it’s not currently being used with mobile payments.  Apple will change that.  Even with “antennagate”, Apple has sold close to 6 million iPhone 4s.  A newer phone that fixes the old problems and adds NFC will be big.  The kicker would be offering the iPhone on Verizon’s LTE network.

With all of this pushing down the profitably of checking accounts, why would banks and credit unions continue to focus on them?  I think the industry has it wrong.  Checking accounts are the razors, savings accounts are the blades.  If you look at the history of the industry, savings and loans are how we made money.  Fee income from checking accounts was just the gravy and caused the industry to get lazy.

Once it got to the point that fee income became the focus, the beginning of the end started.  The interesting thing is, customers seem to be most interested in savings and convenience.  According to one poll*, customers that signed up for Bank of America’s “Keep The Change” and Wachovia’s (Wells Fargo) “Way 2 Save” programs did so to build their savings accounts.  Of course, the banks most likely did it to build their interchange fee income, but they also built up their deposit base.

I am definitely in the savings and customer convenience camp.  Apparently, I’m not the only one.  At the end of the day, banking is a service industry.  Focusing on customer needs is what built the industry.  Now, it’s what will save it.

*The people surveyed consisted of me (BofA customer) and a cousin (Wells customer).  See, you can find a statistic for anything

Photo from Ziggy on GoComics.com

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I Told You So…

April 25, 2008 3 comments

Right now, spread throughout the many banks and credit unions, there are people sitting back and saying “I told you so”. I know that I mentioned to a co-worker or two that these ARMs were going to get a lot of people in trouble. Just because someone tells you that you can afford a $400,000 home doesn’t mean you have to buy it. Over the last couple of years, I heard the term “house rich and cash poor” used quite a bit.

Keeping up with the Jones and having a house worth half a million dollars on paper isn’t always worth the potential consequence. As my wife and I have said to each other, having an appraisal for $500,000 and having someone willing to pay that much are two completely different things. I’m sure these people in Denver and Charleston, SC can attest to that. (side note: Since I married a Jones, are people trying to keep up with us? If so…cool)

Financial institutions that hedged some of their bets on the sub-prime market are really feeling the pain. Right after the news about the collapse of Bear Sterns, I made a joke about “what if this happens to Bank of America”. Well after B of A’s first quarter earnings report, I don’t think it’s funny any more. I enjoy being able to go coast to coast and not pay any ATM fees. Ken Thompson at Wachovia is also feeling added pressure. There is talk about him being asked to step down.

Closer to home, Carolina First took a $201 million paper loss, but a $14 million operating loss in the first quarter. Most of this is because of loans in their Florida operations. Fortunately, their NC and SC areas are holding strong.

The bad part is the banks and credit unions that stayed away from the sub-prime market aren’t exactly safe. Quite a few of them did a lot of business in the home equity market. So if you’re in the same market that is dealing with a depressed real estate market and facing a rising foreclosure rate, what are the odds you’ll collect on that HELOC or second mortgage? If I remember correctly from my Principles in Banking class, second position is a bad place to be in.

I’m not sure how this will all play out, but one thing is for sure; we need to go back to banking basics. Just looking at FICO scores won’t do it. There’s a reason that good bankers also compare debt/income ratio, payment history, job stability, collateral and character. Most of us refer to that as the 5 C’s.