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Are Bank of America's New Policies Supporting the Growth of Online Banking?

|Includes:HSBC Holdings PLC (HSBC)

Although it has been quietly happening in other institutions for the past several months, Bank of America has finally chosen to announce that time has run out for the small banking customer. By early 2011, the free checking account structure and possibly the deposit account programs will be revamped to include a basic monthly charge. Proponents indicate that this will be a tiered approach in which fees can be avoided by keeping minimum levels in accounts, using credit cards, or investing through the bank.

Not everyone is complaining. Online banking organizations such as ING DIRECT and HSBC Advance may have just won the lottery. These groups brag about their lack of fees and required minimums as well as the easy online service that is available 24/7. They also offer higher interest rates that are very appealing. Since the concept of doing one’s banking business by computer might seem a little unsettling to the uninitiated, the idea has been a little slow to catch on. Now that BofA has warned of the inevitable need for a significant monthly fee, the future of alternative banking may have taken a giant leap.

Bank of America and other similar banking institutions have been stung by the July restrictions placed on overdraft charges and credit card fees. It has been estimated that as BofA responds to these new regulations by phasing out its checking overdraft program, the lost revenue may exceed $600 million. Overall, banks are whining that billions of dollars in easy money could be lost from these handy little fees and charges they have been ruthlessly slapping on the struggling consumer.

And the painful end may not be in sight quite yet. An amendment attached to the Senate version of the industry overhaul bill would curtail the fees that banks could charge businesses for credit card transactions. Ouch! More lost revenue!

In an effort to ward off their certain demise, the banks have been taking a serious look at the “freeloaders” in their system, those low income customers whose accounts cost more to maintain than to profit by. It has been suggested that as much as 50% of all checking accounts fall into this category, and each one of those costs $250-$300 a year to process and maintain. Off with their heads! Or at least let them start paying for services.

While cloaked in language that blatantly claims these new bank changes are strictly aimed at building deeper relationships within the customer base, one has to think it’s just about recovering lost revenue. Or is it really about greed? Bank of America’s 3rd quarter profit came in at 27 cents, 9 cents above predictions. Not too shabby for an institution that’s crying poverty.

When all is said and done, it appears that the lower income, average banking customer is being shown the door. Are today’s banks becoming another exclusive playground for the rich and powerful? Perhaps online banking will become the popular alternative. Maybe we should be considering buying stock in these new venues. They may be about to go golden.

Check out HSBC's (HBC) chart of the past five days.  We will be watching it for the next few weeks:
online trading


Disclosure: No Positions

Stocks: HSBC