Citibank recently announced it was planning to begin charging a monthly service fee for about 1 million accounts that previously had free checking. Not so fast, said New York Attorney General Andrew Cuomo. Citigroup now has to delay its plans until 2011 since “Mr. Cuomo’s office didn’t believe Citigroup provided customers with adequate notice about the new fee.”
Citi should thank Mr. Cuomo. What would have happened if he didn’t block their decision? The answer is that nobody really knows. It’s possible that most customers wouldn’t have noticed or wouldn’t react negatively. It’s also possible that attrition would have skyrocketed.
It is clear that retail banks need a new strategy for free checking. A recent article in the New York Times details the rise of free checking in the 90s. It helped bring customers in the door and eventually “became a commodity.” However, the fees that propped this product up and made it profitable are now disappearing.
The challenge is that customers have become used to free checking and now expect this service from their bank. How will they react when it goes away? Banks need to be very smart and targeted in how they approach free checking in the future. (more…)