The Internet banking services that have been sold to customers as conveniences, like online bill paying, also serve as powerful tethers that keep customers from jumping to another institution.
Tedd Speck, a 49-year-old market researcher in Kent, Conn., was furious about Bank of America’s planned $5 monthly fee for debit card use.
But he is staying put after being overwhelmed by the inconvenience of moving dozens of online bill paying arrangements to another bank.
“I’m really annoyed,” he said, “but someone at Bank of America made that calculation and they made it right.”
Former bankers and market researchers say that it’s no accident.
The steady expansion of online bill paying, they say, has emboldened Bank of America, as well as rivals like Wells Fargo, JPMorgan Chase and SunTrust, to turn to new fees on customer accounts as other sources of revenue dry up. The fees have caused an uproar among consumers and drawn sharp criticism from politicians, including President Obama.
“The technology locks you in and they’re keenly aware of it,” said Robert Smith, who was chief executive of Security Pacific when it was bought by Bank of America in 1992. “It’s very hard for consumers to just ditch that.”
For years, banks have openly sought to attach as many loans and services as they can to a customer, like credit cards, mortgages and mobile phone banking.
What they haven’t mentioned are marketing studies like the one commissioned by Fiserv, which develops online bill paying systems, showing that using the Internet to pay bills, do automatic deductions and send electronic checks reduced customer turnover for banks by up to 95 percent in some cases.
With 44 million households having used the Internet to pay a bill in the past 30 days — up from 32 million five years ago and projected to reach 55 million by 2016 — it’s a shift that has major ramifications for competition.
There’s even evidence that fewer consumers are switching banks, with 7 percent of them estimated to be moving their primary account to a different institution in 2011, down from 12 percent last year, according to surveys by Javelin Strategy and Research.
Emmett Higdon, a consultant who managed Citibank’s online bill payment product from 2004 to 2007, said that “for the consumer, it’s a double-edged sword.” While customers value the convenience, inside the industry “it was known that it would be a powerful retention tool. That’s why online bill paying went free in the first place. Inertia is powerful in the banking industry.”
Bank of America today has 29 million account holders banking online and 15 million using the service to pay bills, but company officials say there is no connection between the stickiness of Internet bill paying and the decision to impose the $5 monthly debit card fee.
“People like online bill pay, it’s convenient and safe,” said Anne Pace, a spokeswoman for the company. “The lower attrition rate that came along with it was simply a result of offering a valuable service.”
The fee, she said, “allows us to continue offering the benefits that customers have come to expect from our debit card,” like fraud protection, overdraft prevention and a wide-reaching A.T.M. network.
Asked if the bank calculated how many online-bill-pay customers a new fee could drive away, Ms. Pace said, “We did extensive research on how they would react to a new fee and whether it was fair.”
The new fee will not apply to customers with a Bank of America mortgage or those who have an account balance of $20,000 or more.
Members of Congress have taken notice of the fee uproar — and the ties that bind customers to their banks.
“The difficulty of moving accounts is deliberate and unnecessary,” said Representative Brad Miller, who introduced a bill this month that would make it easier for customers to switch.
Article source: http://www.nytimes.com/2011/10/16/business/online-banking-keeps-customers-on-hook-for-fees.html?partner=rss&emc=rss