As per The Wall Street Journal, taking cue from last year’s backlash related to the imposition of fees for the overdraft facilities, Bank of America Corporation (BAC - Analyst Report) has called off its plan to levy new fees by the end of this year. The fees were supposed to be charged to nearly 10 million BofA customers.
BofA’s decision to call off new checking account fees until the end of next year came after a proper review of the company’s retail banking operations. The primary aim of the review is to find ways to pursue customers to conduct more businesses – getting a loan, signing up for credit cards or make fixed deposits – with BofA.
All these, in turn, would have boosted BofA’s revenue as well as shielded customers from additional fees, which they otherwise would have had to pay. Moreover, the company is trying to make mobile banking operations more profitable as it can be used to reach new clients at a lower cost. As of September 30, 2012, the company’s mobile banking customers increased 30% from the prior-year period to 11.1 million.
BofA’s retail banking assessment also involves an effort to gain more from profitable customers. The company has been hiring financial advisors and loan officers extensively in an attempt to sell more financial products and services.
At present, BofA charges monthly fees on checking accounts unless customers fulfill certain criteria. Moreover, the company has been testing its new fee structure in the states of Arizona, Massachusetts and Georgia. BofA is planning to charge $6–$9 per month on basic checking accounts. Apart from this, the company is also contemplating monthly fee in the range of $9–$25 on other checking accounts.
Yet, BofA will be giving its customers various options to avoid these fees by making it compulsory to switch to online banking including e-payment of bills. Apart from this, the customers can evade increased fees by maintaining minimum balances, taking a loan from the company or using BofA’s credit card.
The above mentioned pilot project will be continuing as BofA has not completely ruled out the imposition of new checking account fees. However, last year, the company had to face stiff opposition, when it tried to levy additional charges on overdraft services. Eventually, the company had to retreat its steps from introducing the debit card fee of $5 per month.
We believe that the banking industry as a whole has been trying to balance modest economic growth and stiff opposition for higher fees from customers with shareholders who want to maximize their holdings. Many other banking giants, including JPMorgan Chase & Co. (JPM - Analyst Report) and Wells Fargo & Co. (WFC - Analyst Report), have plans in place to augment fees or have already hiked them.
For BofA customers, fee hike postponement is encouraging. Yet, by delaying fee hike, the company will have to forego revenue growth that would have been driven by these fee increases.
Currently, BofA retains a Zacks #3 Rank, which translates into a short-term Hold rating. We believe delay in implementation of fee hikes might lead to negative estimate revisions. This, in turn, could lead to downward revision of the Zacks Rank.