Debit Card Fees Create Opportunity for Community Banks

Bank of America (BofA)'s announcement that it will impose a fee on the use of debit cards is probably the first of many by large banks. Rather than setting a precedent that all banks should follow, this move provides a tremendous opportunity for community banks to strengthen existing relationships, and perhaps attract new ones, by continuing to make debit cards available as a part of low cost checking accounts. Don't let the noise over the “loss of fee income” distract you from an important fact: from a cost standpoint, every debit card transaction (whether PIN or signature) costs less than processing a check. Whether BofA customers will grudgingly pay a fee, revert to check writing, or move their accounts to another bank without such fees, the imposition of a fee (effectively creating an economic barrier to the acceptance of debit cards) is a bad move, period.

The need to offset the loss of fee income is frequently given as the motivation for imposing such a fee. If the result of the fee is increased operational costs, this will certainly impact a bank's earnings, to the negative. There is much confusion over the reduction in interchange fees for banks over 10 billion in assets. This interchange fee only applies to signature transactions, which are already being threatened by the determination of merchants (through configuration of POS devices) to force customers to enter a PIN.

I want to encourage my friends in community banking to do what many have begun to do – promote your already free debit card more heavily - encouraging even more use, so that both your and your customers benefit from this popular, cost effective transaction tool. My twitter feed @techadvisor has been full of such posts from right thinking community banks doing just that.