Thursday, October 15, 2009

Hell Freezes Over As Banks Reduce Fees

Don’t look now, but I think Hell just froze over. Today the National Australia Bank has announced that it will abolish a range of fees affecting its ordinary everyday customers. From January 1 next year, the account keeping fee will disappear from the Classic transaction account and the E-banking online transaction account. The $25 over the limit fee on Credit cards will disappear as will a range of fees on other accounts yet to be specified. The late payment penalty on credit cards will be reduced, and the bank has also announced that its business banking fees are also under review and may also be reduced in the near future. The bank insists that there are no strings, and that there will be no attempt to claw back the fees in other ways. That, they say, will cost them $110 million a year.

OK, so why are they doing it then? If it is going to reduce the bank’s bottom line by such a substantial amount, what could possibly be the explanation? The most obvious and rational explanation is that it is an attempt to improve market share and add to the bottom line by growing the customer base. The public relations and marketing benefits of portraying the bank as being more customer friendly will also add to the benefit, presumably compounding the goodwill and attracting even more customers. In other words, it’s a bit of good old fashioned salesmanship, buying more market share by spending a little on making your business more attractive.

Of course, I have been saying for years that the money spent on expensive advertising campaigns telling us all about what wonderful service the banks are giving us would be much more effective if it was directed towards actually giving us the service that they depict in the ads. The best form of advertising for any business is to actually deliver a quality product or service, because word of mouth will do the rest for you. Banks have always been big on telling us that they are there for our benefit, but it has been very difficult to believe while they have been so blatantly avaricious. Now it appears that the tide is turning, with more banks now reducing some of their fees.

While the National Australia Bank is insisting that there are no stings and it’s no gimmick, some will no doubt remain cynical. And why not? After all, the big four banks together clock up about $20 billion profit every year. They haven’t done that by giving anything away for free, so it might seem hard to believe that they have genuinely seen the light. But this is the result of competition for market share, and when one of them reduces their fees the others must do it too or risk losing their customers. And maybe it’s just possible that in the wake of the Global Financial Crisis some of our business gurus might have realized that the short term bottom line thinking which has been so prevalent in recent years has actually been part of the problem, while building long term relationships with customers might actually be part of the solution. Maybe.

Otherwise, it could just be a gimmick to cover up the fact that the margins on interest rates are actually getting bigger. Ah, now it all begins to make sense. But who cares, if it means that customers are genuinely better off?

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