Bank of America Finds itself out on a Limb

    With it's latest fees it has imposed on debit cards that is exactly where it finds itself and such a position is very unwelcome for BAC.

     It has been argued that more and more, the market for the big banks is becoming like the airlines industry in the sense that while each company may want to nickle and dime it's customers wherever possible yet each are very sensitive to being out on the limb that BAC currently finds itself.

    Historically speaking airline fares have come down adjusted for inflation, which is why they are always looking for ways to put fees on new "services"-bag fees, etc. However when an airline introduces a new fee, if it sees that its competitors don't follow suit it usually rescinds it. The last 2 decades in the industry have been characterized by many price wars

    The big banks in the environment they've faced recently-fewer loans, etc. have been trying to make up for lost profits by the kind of add-ons typical of the airline industry. However it is likely that sensitivity will be just as acute here as in airlines for being out on the proverbial limb.

    Bac has been widely criticized for it's recent decision to add a $5 monthly debit fee by President Obama, Dick Durbin, and many others. For this reason, some of the other banks who had considered their own have backed off leaving BAC with egg on its face:

   " It looks like many of the big banks are backing down from threats to raise debit card fees, reports the Wall Street Journal. After Bank of America was pounded over its decision to slap debit card users with a $5 monthly fee, JP Morgan Chase, US Bancorp, Citigroup, PNC Financial Services Group, and KeyCorp have all said they will not be adding such fees—though they say it's not a reaction to the Bank of America mess. "We looked at all options and quickly decided it didn't fit with our overall strategy," says a spokesman for KeyCorp.

    http://www.newser.com/story/132040/big-banks-decide-against-debit-card-fees.html

    "Chase, which has been testing a $3 monthly fee in Wisconsin and Georgia, will end the practice next month. But Wells Fargo is currently running a test in five states, and SunTrust and Regions Financial are joining Bank of America with a monthly fee—a move that other banks hope will drive new customers their way. "It's not about the money. It's about 'are you kidding me?'" says one US Bancorp customer who said she would have "immediately" left left the bank if it instituted a fee—but now won't have to."

      This is an example of what might be called "correct incentivization." But if so, both Obama and Durbin deserve some credit as well for leaning on Bank of America. The effect is similar to what may happen to those 'the unemployed need not apply' ads. Though Obama mainly just criticized it, that may be enough to make many employers reconsider putting things like that in their ads as even without any new law with enforcement power behind it, having the President of the United States criticize you publicly like that is something of a "chilling effect."

     Similarly with the banks reversing themselves, Obama and Durbin played a part in that reversal. Still while for now they won't follow BAC in the future they may wait for a time when this has died down and they can do it much more quietly. For now you may even see BAC drop or reduce the fee or offer something.