Is Kim Kardashian running Bank of America?
November 02, 2011
It lasted even less time than Kim Kardashian's marriage.
Bank of America has canceled its plan for a $5 a month debit card fee, barely a month after announcing it.
A crucial difference between the Kardashian marriage and Bank of America's actions is that nobody really expected a reasoned, long-term commitment from a famously flighty reality TV character. People do, however, expect sound, long-term decision-making from bank executives.
Instead, Bank of America's handling of its debit card fee plans seems destined to become a classic "how-not-to" case study at business schools across the country.
It's not as if Bank of America itself didn't have a "how-not-to" case study to use as a cautionary tale. Just recently, Netflix announced an overreaching fee increase. It subsequently had to rescind that fee increase, so like Bank of America, Netflix got bad publicity and customer defections without ever realizing the economic benefit of a fee increase.
Both the decisions by Bank of America--the decision to charge the debit card fee, and the reversal of that decision--are head-scratchers. Here are three possible explanations:
- It was a publicity stunt gone wrong. The timing of the Bank of America fee announcement seemed designed to illustrate the consequences of the Durbin Amendment. The Durbin Amendment, part of last year's Dodd-Frank financial reform act, caps the interchange fee banks charge retailers for processing debit card transactions. This helps retailers at the expense of banks, and ultimately it seems bound to cost consumers. However, Bank of America never managed to make that point.
- Bank of America bowed to popular pressure. The Bank of America fee was a rallying point for Occupy Wall Street and other popular protests. However, the bank would have been unlikely to reverse course so dramatically unless it feared more tangible consequences, as explained below.
- Bank of America reacted to customer defections. No doubt, Bank of America expected to lose some customers over the new fee, but as the public reaction swelled, the bank may have begun to fear a mass exodus. It's probably not a coincidence that the bank cancelled its fee plans just before November 5, which has been tabbed as "Bank Transfer Day."
Coincidentally, Bank of America lost its position as largest US bank to JP Morgan Chase while all this controversy was raging. There were other reasons for this, but the context is at least symbolically significant. After all, JP Morgan Chase also flirted with, and then abandoned, plans for a debit card fee. They just handled it more deftly than Bank of America.
Bank of America has abandoned its debit card fee plans for now, but it still has to make up for lost revenue from the interchange fee cap. Here are three possible actions that might result:
- Stiffer requirements for customers to qualify for a debit card, such as a higher balance requirements for checking accounts.
- Other fees, such as higher checking account or ATM fees.
- Less availability, perhaps with Bank of America no longer providing debit card processing to smaller retailers.
None of these is a good outcome for consumers, which underscores the point that Bank of America never managed to make: the real villain here is the Durbin Amendment, not Bank of America.
Instead, Bank of America has ended up with a huge public embarrassment, and unlike Kim Kardashian, they don't get paid for that kind of thing.