From the NY Times:
The Internet banking services that have been sold to customers as conveniences, like online bill paying, serve as powerful tethers that keep them from jumping to another institution.
Tedd Speck, a 49-year-old market researcher in Kent, Conn., was furious about Bank of America’s planned $5 monthly fee for debit card use.
But he is staying put after being overwhelmed by the inconvenience of moving dozens of online bill paying arrangements to another bank.
“I’m really annoyed,” he said, “but someone at Bank of America made that calculation and they made it right.”
Former bankers and market researchers say that it’s no accident. The steady expansion of online bill paying, they say, has emboldened Bank of America, as well as rivals like Wells Fargo, JPMorgan Chase and SunTrust, to turn to new fees on customer accounts as other sources of revenue dry up. The fees have caused an uproar among consumers and drawn sharp criticism from politicians, including President Obama.
“The technology locks you in and they’re keenly aware of it,” said Robert Smith, who was chief executive of Security Pacific when it was bought by Bank of America in 1992. “It’s very hard for consumers to just ditch that.”
For years, banks have openly sought to attach as many loans and services as they can to a customer, like credit cards, mortgages and mobile phone banking.
What they haven’t mentioned are marketing studies like the one commissioned by Fiserv, which develops online bill paying systems, showing that using the Internet to pay bills, do automatic deductions and send electronic checks reduced customer turnover for banks by up to 95 percent in some cases.
With 44 million households having used the Internet to pay a bill in the past 30 days — up from 32 million five years ago and projected to reach 55 million by 2016 — it’s a shift that has major ramifications for competition.
There’s even evidence that fewer consumers are switching banks, with 7 percent of them estimated to be moving their primary account to a different institution in 2011, down from 12 percent last year, according to surveys by Javelin Strategy and Research.
For the young ‘uns out there, back in the day, when new technology like TV and radio came along, the government stepped in on behalf of all Americans to ensure the technology was not used in a way that benefitted a few at expense of the many. That’s how we got radio and TV licenses, the Fairness Doctrine, restrictions on who could own how many media outlets in a market, and other policies. And that’s why the few have spent the last three decades dismantling these policies that benefit us all.
In this case, clearly the government should and must step in to ensure online bill paying is portable. There is zero technical reason the companies that manage the bill paying flow cannot work in a way that lets us change our account information, and banks, once and have all our bill payments continue. Zero. As in none. Banks are allowed to hold us hostage because politicians are either in bed with them OR too clueless to realize what is possible.
The article also mentions National Bank Transfer Day, a great idea but we’ll see how it works out.