Banks REDUCING overdraft fees??

Yes, really!

I was a bit perplexed as to why Bank of America, JP Morgan Chase, and Wells Fargo would make the decision to lower overdraft fees, especially considering service fees are the lifeblood of financial services companies’ bottom lines.  Then I realized the marketing impact of these decisions.  These companies can take advantage of the fact that they were the initial leaders in making this drastic change to their respective overdraft policies. Whoever can effectively communicate this fact first could have a huge advantage in attracting new customers and positioning themselves as the bank that “cares” about its customers.  I’m sure advertising, direct mail, and branch promotions are soon to follow this news.

The other question that comes to mind is- where is the additional revenue going to come from for these banks?  Obviously reducing fees takes away from the bottom line and these institutions may gain market share by attracting new customers, but the additional revenue from the new business wouldn’t be enough.  Since these banks are the few large banks remaining after the recent credit crisis, perhaps they have more resources available for acquiring smaller banks and attaining additional business that way.

Regardless, this is a major move in the financial services industry. Perhaps impending legislation was the motive behind the policy changes.  Or, perhaps the banks’ “dirty secret” is out and they need to make the move to save face.  In this case, it appears as a public relations move to increase goodwill.  It will definitely be interesting to see how the changes affect the industry going forward. We’ll see in the future, when these banks announce earnings and if shareholders agree with the decision or decide to sell.