Quantcast
Channel: Money Matters » community bank
Viewing all articles
Browse latest Browse all 6

Small Banks Struggle as Overdraft Fees Decline

0
0

overdraft small banksSmaller banks are still relying heavily on overdraft fees, and there seem to be few sustainable options to overcome such a dependency.  Overdraft fees made up 48% of all service charges during the first quarter at banks with $1 billion to $10 billion in assets, based on data from the Federal Deposit Insurance Corp. In comparison, such fees made up 33% of total service charges at larger banks.

Relying on a single type of fee could prove increasingly problematic for community banks, industry observers said. The challenge, however, will involve finding new revenue streams to help smaller institutions diversify.

Annual nonsufficient funds charges are declining across the banking industry, falling from $140 per debit card in 2005 to $60 last year, according to the consulting firm Cornerstone Advisors. Average annual fee income per retail checking account is also declining, the firm said.  Regulation, which has been cutting into the profitability of overdraft programs, is likely to continue as the Consumer Financial Protection Bureau aims to weigh in, said Brad Smith, managing director of technology solutions at Cornerstone.

While hard-pressed to find ways to substantially replace overdraft fees, some institutions are encouraging ways to drive more debit card usage, which in turn should increase debit interchange fees, Smith said.  Annual debit interchange per card nearly doubled from 2005 to 2014, to $69, Cornerstone reported. Existing regulation allows banks with less than $10 billion in assets to charge higher interchange rates.

Monthly maintenance and ATM fees are another area that banks could pursue, though those are tricky, experts said. Maintenance fees only made up 11% of service charges at banks with $1 billion to $10 billion in assets, while ATM fees contributed 6% of the total. The percentages are roughly consistent with those of bigger banks.

It can be difficult for institutions, especially smaller ones, to increase ATM fees, which often take place when people use machines that do not belong to their bank, industry experts said. One strategy could consist of placing ATMs in high-traffic locations, such as airports or sports stadiums, where noncustomers likely need cash, said Steven Reider, founder of Bancography.

Reduced ATM use is a concern for all banks. A rise in electronic banking options is prompting people to rely less on cash, which will likely cut into ATM fees, industry experts said.  Some banks have been experimenting with monthly maintenance fees. Banks may also insist that customers meet certain requirements to avoid monthly maintenance fees – such as direct deposit for paychecks.

Source:  American Banker

Viewing all articles
Browse latest Browse all 6

Latest Images

Trending Articles





Latest Images