Bank of America’s Debit Card Fees:
Consumer Perception vs. Corporate Strategy
Overview
 Introduction & Problem Statement
 Background
– Review of Financial Crisis
– Impact of Dodd-Frank
– Bank of America
– Public Protests
 Decision Point & Discussion
2
B of A’s Decision
Action
Bank of America (BOA) decided to implement a $5 per
month fee for its debit card users
Environment
The external environment sector remained turbulent
 2007 Housing Collapse & Foreclosure Epidemic
 2008 Financial Crisis
 Toxic Asset Relief Program (TARP)
 Occupy Wall Street Protests
Reaction
The public reacted with boycotts, protests, and online
petitions (which went viral)
What should
BoA do?
Proceed as planned and face a public relations
nightmare or cancel the fee program, lose billions, and
be forced to answer to shareholders?
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History of Bank of America
 Started in 1904 as Bank of Italy
before merging with Bank of
America in 1928, adopting name
 Provides service across:
– 50 states
– 40 countries
– 5,700 retail branches
 Maintains 57 million consumer
and business relationships
4
Brian Moynihan, Bank of America CEO
• CEO since January 2010
• Earned J.D. from the University of
Notre Dame
• Joined B of A in 2004, through the
acquisition of Fleet Boston
• Career banker
Evolution of the Financial Industry
 Multi-decade era of
deregulating the financial sector
 Changing legislation lead to
rapid growth, but also increased
exposure
 Banks became over-levered and
vulnerable to the financial crisis
of 2008
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Notable Policy
Decisions/Legislation
1980
Depository Institutions
Deregulation and Monetary
Control Act.
1982
Garn–St. Germain Depository
Institutions Act of 1982
1999
Gramm-Leach-Bliley Financial
Services Modernization Act
2000
No regulations on OTC
Derivatives
2000s
No regulations on Hedge Funds
2010
Dodd–Frank Wall Street Reform
and Consumer Protection Act
Consolidation of Financial Institutions
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Volatility of Financial Institutions
Symbol
1995 Price
2005 Price
% Change
Bank of America
$11.97
$46.99
285.77%
Citi
$58.33
$481.80
746.09%
JP Morgan
$12.97
$39.01
208.19%
Wells Fargo
$5.87
$31.00
434.80%
Symbol
2005 Price
2009 Price
% Change
Bank of America
$46.99
$14.33
(67.96%)
Citi
$481.80
$71.40
(85.32%)
JP Morgan
$39.01
$31.35
(18.36%)
Wells Fargo
$31.00
$30.00
(3.49%)
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Response from Legislators
 In response to the 2008 financial
crisis, Congress passed new
legislation to “re-regulate” Wall
Street (Dodd-Frank)
 Included in this legislation was an
amendment from Senator Dick
Durbin, IL
– Limited anti-competitive practices
from commercial banks
– Provided Federal Reserve the power
to regulate debit card interchange fees
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Senator Durbin
Transaction Fee Background
9
Interchange Fee Market
 The introduction of the Durbin Amendment:
– Reduced debit transaction fees banks could charge merchants by
50 percent ($0.44  $0.22)
Volume of Debit
Transactions per Year
Pre-Durbin
Fee per
Transaction
Debit Fee
Revenue
38.5 billion
$0.44
$16 billion
Post-Durbin 38.5 billion
$0.22
$8 billion
– Eliminated $8b worth of revenue for banking industry (50% of
total market)
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Financial Impact to B of A
 In 2010, 53% of B of A’s revenue came from fee-based sources
– Fee-based revenue: $58.7B
– Interest-based revenue: $52.7B
 Enactment of the Durbin Amendment significantly reduced a
reliable source of revenue; transaction fees
$1.9B in
fees
3.65%
Noninterest
income
11
1.67% of
Total
Revenue
Shaken Consumer Confidence
 B of A’s decision to implement its
new fee came during a time of
financial distress and uncertainty
–
–
–
–
–
3.9 million home foreclosures
Recession; Effects of Financial Crisis
Tax-payer funded bailouts
Perception of executive greed
Nationwide protests
 These variables created
apprehension toward the financial
industry
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2011 Timeline of Events
9/17
9/27
10/1
10/3
13
10/5
10/8
10/15
10/28
10/29
10/29
Recap
“Era of
Deregulation”
Banks seek
opportunities
to recover
lost revenues
Implementation
of Dodd-Frank
Act and Durbin
Amendment
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BoA proposal
of $5 debit
usage fee
Case Questions
What should
BoA do?
Proceed as planned and face a public relations
nightmare or cancel the fee program, lose billions,
and be forced to answer to shareholders?
 What was the most significant issue for Bank of America in
this case?
 What was the root cause of public outcry? (Timing,
Substance, Insensitivity)
 Did Bank of America conduct enough market research prior
to proposing the new $5 debit card fee?
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