With the recent backlash surrounding the banking industry, more consumers are becoming increasingly vocal about the poor service, high fees and dismal interest rates offered by the nation’s biggest banks and demanding justice.
Usually, when enough customers complain about a business, that business is inclined to make a change and regain the trust they’ve lost. It follows then, that if you’re dissatisfied by your bank, you should make your voice heard and request action. Unfortunately, big banks probably aren’t going to do much changing anytime soon, because frankly, they don’t want your business.
Big Banks Don’t Want Your Money
One of the major reasons banks aren’t interested in gaining new business is because most depositors are unprofitable.
One would assume that, considering lending out customers’ deposits is one of the major ways banks make money, the more cash sitting in bank accounts, the better. The truth, however, is that most big banks have more money on deposit than they know what to do with.
Bloomberg reported in December 2012 that deposits at U.S. banks exceeded loans by an “unprecedented” $2 trillion. In fact, deposits have increased by 29 percent since September 2008, while loans have experienced growth of less than 2 percent over the same time period.
Additionally, Bloomberg reported the banking industry was lending 78 cents for every $1 in deposits at of the end of last year, well below the mid-90 percent range the Royal Bank of Canada’s Gerard Cassidy states is ideal.
Ron Sellers of Grey Matter Research & Consulting explains, “Consumers don’t understand the finances of banking. They often say, ‘Well, you’re using my money, so you’re making money off me.’ What they don’t recognize is that servicing that account costs money.”
Therefore, it’s likely you are costing your bank more than you’re contributing to its bottom line — so it’s no wonder they aren’t going out of their way to make you happy. In fact, your bank might actually be trying to drive you away.
What Does a Profitable Bank Customer Look Like?
Alexey Bulankov, CFP, told me that a few years ago, he worked for the investment arm of a well-known bank as an investment consultant. The bank’s management decided to have branch managers compile a list of its most profitable accounts — defined as bringing in the highest percent of revenue per dollar of deposit.
“I was quite surprised when I saw the list,” says Bulankov. “It was compiled almost entirely of the low-balance accounts — under a $100 — which had low balances, high overdrafts and were systematically overdrawn, late or had a bunch of bounced checks,” he explains.
This was prior to the passing of the Dodd-Frank financial reform law, however, which in part limited the bank fees institutions could charge customers. Reuters cited Todd Maclin, head of consumer and business banking at JPMorgan Chase & Co, as explaining that people who couldn’t bring at least $100,000 in investable assets, loans and deposits to their banks would be largely unprofitable once Dodd-Frank passed.
Driving Away Unwanted Bank Customers
It’s important to remember that banks are, in fact, businesses, so their number one driving objective is to turn a profit. Today, bank fees make up a much smaller percentage of overall banking industry revenue. Financial institutions are using bank fees to drive away those customers who were once the most profitable, but now cost banks more than they’re worth to keep.
“In my experience, I was told by my management to manage out my highest loss ‘D’ households,” says Gregory B. Meyer, Community Relations Manager, Meriwest Credit Union. “In other words, find ways to encourage these customers to take their unprofitable business elsewhere. In business reviews, my boss would look at the lowest of the D households and directly ask me, ‘Why are these households still here?’”
Credit Unions Welcome the Business
Meyer explained that credit unions, on the other hand, have a very different perspective regarding customers. As not-for-profit institutions, their priorities aren’t driven by revenue.
“I think this is why, every year, credit unions tend to grow the number of households they service,” advises Meyers, adding, “A while back, Bank Transfer Day was a big day when families with bank checking accounts were encouraged to move to a credit union… Since then, every day our credit union is open is Bank Transfer Day.”
For the average person with a modest-size bank account, a symbiotic relationship with big banks is probably not possible. Even so, there are plenty of credit unions out there that would be more than happy to have you.