Fitch Ratings says that the U.S. banking industry faces lower returns as revenues generated from bank fees will fall short of what was earned before the financial crisis, and replacing that revenue will be difficult.
The rating agency says that regulatory changes that curbed overdraft and insufficient fund fees have hurt bank revenues, and reforms limiting interchange income will add further pressure to bank fee income.
Banks continue to struggle to offset lost revenues through various measures, it notes. “We feel a replacement of lost fee revenue on a dollar-for-dollar basis via new fees is unlikely,” it says.
“Ultimately, the competitive dynamic will shape how the industry charges for services in the future, likely with larger banks in the forefront testing which fees will be adopted and which fees will be abandoned. For example, Bank of America recently introduced a plan to charge a $5 monthly debit card fee. After significant public outcry, the plan was quickly dropped,” Fitch observes.
Additionally, it suggests that the introduction of new, and potentially more transparent bank fees could cause some shift in consumer behavior. However, it adds that the overall impact would likely be limited as alternatives such as credit unions and brokerage accounts will have their own limitations.
“Banks have positioned themselves in the fight to regain revenue via cost cutting and the elimination of certain products, including bonus point card incentive programs. We feel those efforts could potentially help net income, but on their own would fall short of a complete offset to the lost revenues from changes to overdraft and interchange regulations,” it concludes.