3p is proud to partner with the Presidio Graduate School’s Managerial Marketing course on a blogging series about “sustainable marketing.” This post is part of that series. To follow along, please click here.
By Jourdan Phillips
Bank of America has gotten a lot of press over the past few weeks regarding their $5 debit card fee. The fee has customers up in arms and taking action. Molly Katchpole, a recent college graduate, has started a petition to get the bank to retract their $5 fee; to date it has more than 233,650 signatures. In addition, Change.org's Facebook page has been featuring spoofs of Bank of America ads.
With such heat, this fee announcement should be cast as bad marketing. Yet, if it achieves the marketers intended purpose, is it bad marketing?If the fee incites customer churn, the truth is the bank may want that. Free checking debit card users don’t make banks much money and with the recently enforced Dodd-Frank financial reform legislation, Bank of America claims they will have lost income to the tune of $2 billion. The $5 debit card fee will be the source for recovering the lost revenue. For customers that are fee insensitive, the bank will easily pull in $60 a year per account.
For the fee sensitive account holders, there are two primary options, they can switch banks or start using credit cards. If they switch banks, such churn would remove the lower revenue customers. The second option is a more likely route for many customers. A recent Associated Press-GfK poll found that if a $5 fee were imposed, 66 percent of debit cardholders would find another way to pay. Bank of America’s hope is that a switch to a credit card will be to one of their bank credit cards. During the same period in which Bank of America announced the debit card fee, they rolled out a marketing campaign for their 1,2,3% Cash back credit card.
Why push credit cards? Customers with credit cards are more likely to incur a balance and be subject to interest and fees, thereby making the bank money. Historically, consumers have favored credit cards. Yet, over the past few years debit cards have become more popular as people started to be more conscientious with their spending. Beginning in 2009, the total payment volume for debit cards surpassed credit-card volume and for the first time on record, consumer debt declined. This decline has continued the past three years, seeing a nearly $200 billion reduction in debt. This is good news, right? For the sustainability of the individual and financial well-being, having a lower consumer debt is a positive sign. Our society needs good financial infrastructure that helps people live within means.
Bank of America maintains the $5 debit card fee is necessary. If such a decision is justified, why is Bank of America making effort to change its image with new a new ad campaign? In the first half of 2011, Bank of America spent $1.1 billion on marketing efforts. How much is being spent on these new ads? Instead of spending billions on marketing to repair their image, why doesn’t the bank start thinking more sustainably about how they operate.
The fee discourages healthy financial practice. Less than two years ago banks were allowing people to spend outside of their means to make a profit through overdraft fees. Now, a number of banks are planning on charging a monthly debit fee punishing these same customers for living within their means. Bank of America CEO Brian Moynihan’s has stated that the bank “has a right to make a profit”
Yes, a business has a right to make a profit, but not at the expense of its customers. As President Barack Obama stated, "They [banks] can succeed, the old-fashioned way, by earning it."
Jourdan Phillips is an MBA candidate in Sustainable Management at the Presidio Graduate School. She will be closing her Bank of America account prior to the rollout of the $5 fee.