Decline in use of cash makes banks seek income from card fees

Several banks have increased service charge for credit and debit cards

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Service fees charged by banks are on the increase. A survey conducted by Helsingin Sanomat among Finnish banks shows that fees charged for the use of credit and debit cards have gone up in many banks.
     
However, the recent rise has not taken place abruptly like in the past; previous sudden increases in fees for cash payments had the effect of discouraging clients from entering bank offices for transactions.
      At least Nordea Bank, Helsingin OP, and Tapiola Bank have raised the charges for the use of their ATM cards this year, while certain changes to the fees for the use of debit cards are also coming up in the autumn.
      For example Nooa Savings Bank intends to quadruple the monthly fee for its Visa Electron debit card to EUR 4.00.
      Several banks also report that a further pressures on card fees is likely to lead to increases in the near future.
      The banking sector explains that the introduction of the Single Euro Payments Area (SEPA) (by 2010), the new cross-border retail payment system, is bound to increase banks’ expenses.
     
Another fact is that the fees levied on debit and credit cards have become an increasingly important source of income for banks, as cash payments have become more and more infrequent.
      ”It is true that the proportion of card fees [in bank revenue] has increased, as the proportion of the fees resulting from the handling of cash payments has declined”, says Jussi Mekkonen, director of the household customers' unit for Nordea.
      The expenses of credit card transactions have mainly been passed on to consumers, while the costs of handling cash have largely been taken on by merchants.
      Typically, the fees for services constitute around a quarter of a bank’s income. The only higher item of income than various fees and charges is the net interest income, in other words, the difference between the interest payments to the bank on loans and the interest payments by the bank to the customers on the deposits.
      The charges for services can roughly be divided into two categories, namely the fees for payment transactions and the fees for investment products.
     
Customers may find such fees for services small in amount, particularly as the rates are usually quoted monthly rather than for a whole year.
      Debt servicing costs are a clearly higher cost item for those who have taken out a loan. As things stand, customers generally choose their banks on the basis of loan offers, if they decide to compare their prospective banks in the first place.
      ”It is evident that the interest rate and the margin of a loan are the most significant facts”, says manager Anne-Mari Tyrkkö from OP Bank Group Central Co-operative.
      It is usually advantageous for a customer to concentrate his or her patronage in the hands of one bank. A typical benefit would be a reduction in service fees.
      For example Nordea Bank offers credit cards for its so-called key customers free of charge.
      At the same time, OP-Pohjola Bank is offering its big customers a bonus that can be used to cover service fees.
     
According to a comparison made last spring by Suomen Rahatieto (SRT), an independent producer of information relating to the spending of households and small businesses, the service fees had doubled in the course of the previous 12 months.
      However, the banking sector claims that the competition over service fees in the transfer of payments, including electronic banking as well as credit and debit cards, is active.
      ”The banks have raised their prices to some extent, but competition is so high that no significant changes have occurred in the basic banking services”, Tyrkkö notes.
     
Presently the basic banking services are supplied in various packages for regular customers and comprising several services. The pricing is most beneficial for those who have a large number of investments or a housing loan.
      The most expensive way of paying bills is in cash over the counter. This affects particularly those who do not use Internet banking, including many senior citizens.
      As a rule, people appear to be fairly well aware of the service fees of their banks, indicated a poll conducted in downtown Helsinki on Friday.


Previously in HS International Edition:
  Credit card transactions go electronic, causing problems for small businesses (2.1.2008)
  Cash withdrawals at new ATMs prove expensive for consumers (21.8.2008)

Links:
  Bank of Finland: Single Euro Payments Area (SEPA)

Helsingin Sanomat