A survey from the American Bankers Association (ABA) found that most consumers are able to maintain checking accounts with little or no cost, demonstrating that many account holders successfully avoid common banking fees. However, the banking landscape is changing. As financial institutions continue to face pressure from declining debit interchange revenue and a prolonged low interest rate environment, they are increasingly looking for alternative ways to offset lost income. This shift could reshape how consumers pay for banking services in the years ahead.
In a recent survey of consumer experience with checking account fees, the ABA found that most consumers are able to maintain their deposit accounts at little or no cost. However, with over 14,000 financial institutions in the United States, it should be no surprise that consumers are losing out on their choice of services. At the same time though, while explicit monthly account fees may be flexible, the industry is getting to lose billions of dollars in debit interchange fees. That revenue is going to be re-introduced in a variety of ways that may be transaction-based, tied to exception activity, or represented in higher ATM fees for example.
“It’s impressive that so many customers avoid paying any bank fees,” said Nessa Feddis, ABA vice president, senior federal counsel and retail banking expert. “It shows that consumers are savvy and able to navigate the new banking landscape with skill. Often, avoiding bank fees can be as simple as maintaining a minimum balance or accepting a paycheck by direct deposit,” Feddis added.”
Therefore, while free checking will continue to be available to a broad base of U.S. consumers, fee for service is one likely place to pick up the slack in debit interchange fees, at least while borrowing is still depressed and the Fed funds rate remains at or near zero.
While free checking remains widely available, the economics behind deposit accounts continue to evolve. Banks have historically relied on interchange income and lending revenue to support low-cost account offerings, but both have faced pressure in recent years. As a result, financial institutions may increasingly turn to fee-based services, transaction charges, or higher ATM fees to replace lost revenue. Consumers who understand account requirements and banking fee structures will likely continue to avoid many costs, but the trend toward fee-for-service banking may become more pronounced as institutions adapt to changing revenue streams.