Last week, Twitter was all, uh, atwitter, about Royal Bank increasing its bank fees. Some of the changes which go into effect on June 1st include:
- If you use up your free monthly debits (raised from 10 to 12), you’ll have to pay a fee to pay your mortgage, car loan, or any other loan automatically taken out of your account. That fee is from $2-$5 per transaction
- If you have a kids or student account, this fee is $1
- Seniors now have to be 65 to qualify for discounted banking packages. The previous age was 60
Related: See how Vanessa holds a mutual fund with a 2.46% annual fee to get free banking.
Basically, these fees mostly affect the $4 per month account, which people have been using and then getting for free by having two of a credit card, mortgage, or investments with the bank. That’s exactly why Vanessa ended up buying that mutual fund with a 2.46% MER, to save that monthly fee.
Here’s what gets me about this whole thing. It’s really easy to maintain free banking, even by staying at Royal Bank. All you need to do is stay under the minimum of 12 transactions per month by putting everything on your credit card, and paying it off at the end of the month. It’s easy, and you’ll earn rewards from your credit card at the same time.
But instead, we get comments like this, from an anonymous Globe and Mail reader:
There are some very uncharacteristic yet refreshing waves of discontent appearing amongst the usually calm waters representing the Canadian investor.
Personally I am loving the sudden backbone exhibited by shareholders on the say-on-pay issue. Gone are the days when the AGM is stacked with insiders, fund managers and other biased fart-catchers. Gone are the days when entrenched major shareholders and pension funds simply rim the bum of the Board and endorse whatever it recommends.
And now banking fees are under the microscope. Well … it is about time. Banks today are being paid by their customers more and more for doing less and less. This is a fact and it is beyond dispute.
Not gonna lie guys, I’m pretty impressed he properly hyphenated the fart-catchers bit.
I’ve talked before how it’s stupid to care about bank fees. Rather than getting pissed off about losing a few bucks a month, I’d recommend everyone get busy earnin’ so they’re in a position where they don’t care about a lousy bank fee. So let’s not talk about bank fees anymore.
Instead, let’s talk about RBC is inadvertently teaching us something really important about marketing and business with these new fees.
Because we haven’t had one of them in a while, let me tell you a story about my days selling chips. This one is about my worst customer.
He ran a small convenience store an a village of about 200 people. The chip display was immediately across from the cash register, so he’d look at it, every single day. If he ran out of hickory sticks early, he’d complain constantly the next time I was there. So I’d give him extra hickory sticks, and then he’d run out of something else. He responded by asking for extras of everything, even though a full 20% of items were in danger of going outdated. (I was allowed 1% of sales as outdates) Since everything was a guaranteed sale, he didn’t care about outdates at all. So we’d argue about it, constantly.
It got to the point where going there was a chore. Wal-Mart sold $3-$4k worth of chips every week, with almost no headaches. This guy sold $100. When I left, I heard that the next driver fired him as a customer. In hindsight, I probably should have done the same thing.
Anyway, the point is this. Every business has crummy customers. To deal with them, you have a couple of choices. You can either a) suck it up or b) fire them.
By raising their fees, Royal Bank is telling all their worse customers to hit the road without actually telling them.
Anyone with a brain and an internet connection knows that Canada has several banks with very little in the way of fees. They offer a trade-off of no fees for reduced service. Most financially savvy people are okay with this, so that’s the direction they go.
But for some people, this isn’t good enough. They want the benefits of having a branch they can drop into to complain, without paying to do so. I can see why people want this; but I can also see how these are money-losing customers from the bank’s perspective.
Each time they increase fees, a certain amount of freeloaders head on over to Tangerine or PC Financial. Many other potential freeloaders complain, but stick around. What a great way to fire your worst customers without actually doing it.
The other nice thing about this is from the other banks’ perspective. Now they’re free to raise fees, conveniently offering the excuse that they’re just doing it because of RBC.
If you’re the kind of customer who has had a meeting with someone in a bank somewhere about free banking, you are a bad bank customer (especially if you have a credit card you pay off each month and no mortgage). I won’t begrudge you for wanting to get something for free, but at least understand that there’s a reason behind this that isn’t just OMG ROYAL BANK IS GOUGING US SOMEONE CALL ELLEN ROSEMAN.
And better yet, if you think the banks are really screwing over customers, maybe you should buy shares. Seems to me like a company that charges outrageous fees should be a pretty good investment.