Bank of America (NYSE: BAC) may not put the monthly $5 debit card fee it planned into place after all. The monthly toll was to be charged to customers who use the cards for purchases. The financial firm’s problem is that none of its peers will institute a similar fee. That leaves Bank of America with the prospect that its consumer bank clients may flee. It also will boost the perception that the company’s management lacks the skills necessary to operate the troubled institution.
When Bank of America first announced the charge, embattled CEO Brian Moynihan said his bank has a right to make money for shareholders. The debit card fee was, in his opinion, one way to improve margins. He failed to mention the risk of negative publicity or the chance that consumer clients would leave the bank en masse.
There is always a risk when one company in an industry raises prices and the others do not. It has happened in the airline industry for years. One carrier increases ticket prices on several routes, but competitors do not follow along. So the first carrier is left with the prospect that it may lose customers, or face the humiliation of showing it was mistaken as it drops its ticket prices to their previous levels. The cycle also has been part of the metals and chemicals industries for a long time.
The price increase problem, whether it is with banks or steel companies, is always matched with the impression that corporate managements do not understand their customers. They mistake client loyalty for passivity. Rather than asking before raising prices, they raise prices in a vacuum. It is easy to say that all customers in all industries will oppose higher prices. Good management can tell whether those objections are strong enough to hurt their businesses. As a matter of fact, that ability to sense client reactions may be one of the most important hallmarks of managements that are skilled and those that are not.
Bank of America will cut or lower the fee it has announced. It has no choice. Companies in the banking industry have used Bank of America’s move as a way to make them appear “customer friendly.” That means, in the eyes of customers, Bank of America is not.
Douglas A. McIntyre