Customers Like Convenience More Than They Dislike Fees

A new report by Javelin Strategy & Research, a market research firm, showed that 11% of consumers surveyed said they want to dump their primary banking institution in the next year. That could represent at least $675 billion in deposits changing hands.

But past indicators indicate that few consumers will make a move.

Last fall, in line with the trifecta of Bank Transfer Day, Occupy Wall Street and the public outcry over Bank of America’s proposed $5 debit card fee, there was a lot of talk about customers switching banks with the Bank Transfer Day movement. Even with all the headlines and airtime, only 3% of banking consumers — about 5.6 million people — switched their primary financial institution. Similar statistics were seen in earlier quarters that lacked these public motivators.

Financial institutions are relying on their customers to stay put regardless of fees, and trying to create services to keep them from switching, such as automatic bill paying, online and mobile bank services and widespread ATM networks. said Mark Schwanhausser, a senior analyst at Javelin:

It sets up a conflict of being mad as hell, but not [enough for them to] leave it behind,”

Higher Fees Coming

This summer, banking at some institutions is about to become more costly, with higher overdraft fees and steeper minimum balances required for checking accounts, as banks struggle to replace revenue they previously received from overdraft charges before new rules allowed customers to easily opt out of overdraft service. In the past, banks “had subsidized free checking on the back of overdrafts,” Schwanhausser said.

Increasing Numbers of Unbanked Consumers

But instead switching banks, some consumers might just forgo banking altogether. The Huffington Post recently reported that there are Americans who live off the financial grid. The No. 1 reason suggested by many of these individuals for doing without a bank matches up with Javelin’s research: too many fees.

According to the US Census, nearly 30 million Americans or 26% are unbanked or underbanked. Nearly 8% of Americans are unbanked – 9 million households,, and 18% are underbanked -about 17 million adults.

Who Are The Unbanked?

Unbanked households tend be mostly minority households, making the numbers disproportionate to the overall US population. The most frequently unbanked demographics are Blacks (21.7%), Hispanics (19.3%), and Native Americans (15.6%). Demographic groups that are more likely to be banked, as compared to the overall population, are Asians (3.3%) and Whites (3.3%). The FDIC Survey of Unbanked and Underbanked Households is available here.

  • 11% more likely to be women
  • 38% more likely to be unmarried.
  • 45% have children under the age of 18 living in their household.
  • 32% belong to Generation X.
  • 23% have used a credit card in the past three months.
  • Mmore than twice as likely as all U.S. adults to use a prepaid wireless/cell phone plan.
  • 7% used a check cashing service in the past year.
  • 94% more likely to watch music videos.
  • Markets with the most unbanked consumers are Harlingen in Texas (17%), Fresno (17%) and Memphis (11%).

Opting Out

Dissatisfied bank customers are finding alternative ways to make electronic transactions such as having paychecks deposited directly into a prepaid card account that has a more consumer-friendly policy about overdrafts than a traditional bank account.

Prepaid cards have experienced a jump in popularity as customers have not welcomed bank fees now associated with many checking and savings accounts. The total sum placed on reloadable cards rose from $19.5 billion in 2008 to $57 billion last year — nearly a threefold increase.

PayPal — a popular service among those unbanked — lets registered users make payments through its online account system. The platform also offers a “bill me later” option that allows customers to make online purchases and pay at a later date.

The company has been expanding its reach by offering alternatives for other bank services such as the ability to withdraw money from ATMs. Fifteen new retailers have recently added technology for customers to register into their online PayPal accounts to make purchases without any plastic.