Just a theory – big banks wanted to curtail debit card use

November 20, 2011

Banking & Finance

Maybe those monthly debit card fees the big banks tried had a purpose beyond recouping money lost to lower payments from merchants on debit card transactions.

Media reports speculate that the big banks figured you would leave your debit card at home and begin using that consumer credit card they issued you. That would bring smiles all around the board rooms, as the banks would get around 2 percent from the amount of each credit card transaction and likely earn some big interest from unpaid monthly balances.

That 2 percent is far more than they would get from the typical swipe of a debit card, said LowCards.com in a web post.

Meanwhile, CreditHub reports that three of the banks that announced plans to assess the debit card charges — Bank of America, Chase and Wells Fargo — rank among the top 10 credit card issuers in the United States.

Birmingham’s Regions Bank, the market leader in Mississippi, instituted the charges (later rescinded) after re-entering the credit card market in July. It did so by purchasing the Regions-branded credit card portfolio from FIA Card Services, a deal that gave it 500,000 existing Regions consumer credit card accounts and a portfolio of 40,000 business credit card accounts.

No doubt the likes of Bank of America, Wells Fargo and Regions knew they’d have to endure an inevitable public relations whipping. But in exchange earnings would improve at a time revenues are increasingly difficult to grow.

Barry Planch, Jackson-based Trustmark’s senior vice president for product management, noted the strategy back in September before the big banks initiated the fees. “If the bigger banks can shift behavior from a debit card to credit card they benefit,” he said.

Planch, whose bank declined to charge the fees, said at the time it would be interesting to see how customers react.

We know now they reacted with so much ire that they shelved the strategy – for now.

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