Capital One Sees <nobr> Consumer-Fee</nobr> Lessons in Business Banking

CARLSBAD, Calif. — Consumer bankers are reluctant to start charging customers new fees for existing products. But Jonathan Witter, Capital One's (COF) president of retail and direct banking, sees potential lessons in the pricing models of commercial and small-business banking.

While banks are desperate for new consumer fee revenue, many bankers are wary of charging customers for things they now get for free. Witter is one of them; he said in an interview Friday that the bank is not currently considering charging customers for mobile banking or other technological features. But he pointed to the flexibility it offers in pricing business-banking products as an example of how the industry could generate more fee revenue on the consumer side.

"If you look at the commercial banking space or the small-business or business banking space, it is a place where customers have many more options about how they pay for products," he said. "And if you think about the traditional world of treasury services, you can pay for those products through a hard-dollar charge or you can pay for those products and services through an earned credit on balances — there's lots of different ways you can do that."

Bankers broadly need to rethink how they charge customers for services, Witter said.

"We need to as an industry make it clearer both what value customers are getting for the products and services they consume and how they are paying for it," he said. "I don't think customers really understand what they're getting and how much it costs, and they really don't understand how they're paying for it."

Banks are increasingly trying to find ways to rejigger their consumer banking models as relentlessly low interest rates and new regulations continue to eat away at profits. Some banks have successfully added or raised fees for basic checking accounts, but introducing new charges for related products and services has been more difficult. Bank of America (BAC) famously faced a public and political backlash in 2011 when it said it would start charging some customers for using their debit cards, and ultimately retreated.

Witter predicted that over time, "we will see the advent of different pricing models, and we will see the advent of different feature models. … But as an industry, we've done so much work at reinforcing for customers that their banking services should be free, that the idea of charging a monthly service fee for low-balance accounts I think is already a huge hurdle for the industry to get over," he said. "Starting to pay for additional technological services, which I think most customers experience today as free, I think it would be even harder."

U.S. Bancorp (USB) charges customers who deposit checks via smartphone, and Bill Demchak, the president and next chief executive of PNC Financial Services Group (PNC), has discussed doing the same. But last week he acknowledged the inherent difficulty in charging for a service that is currently free.

"It's really hard to throw a new fee on an old product, it comes with a lot of backlash," Demchak said at American Banker's Best Practices in Retail Banking Symposium.

Witter, speaking a day after Demchak at the same conference, threw more cold water on the idea of charging for mobile banking or other technology.

"I am personally skeptical … I'm not sure if that particular idea will happen short-term, medium-term, long-term or ever," Witter said. "But I agree with the general principle that we ought to be clearer on the value, we ought to give customers choice in how they pay for that, and there might be different options for different customers."

In a speech Friday morning, Witter also discussed what he called a "life-defining" professional year at Capital One as it worked to integrate its purchase of ING Direct. The McLean, Va., company needed to preserve the reputation of the much-loved online bank even as it lost the right to use the ING Direct name or branding.

In the interview after his speech, Witter said Capital One was "three innings into a nine-inning game. We have gotten through the hard work of visible customer brand conversion and the hard work of [employee] conversion, and both of those have gone as well as we could have expected. … What we are now focused on is how do we start to build and expand the franchise going forward?"