The dramatic vote on the Durbin amendment is causing panic, again, among retail bankers – who were last shocked by the Fed’s overdraft ruling.  I wrote about that in November (Watch Out! Big Changes in Retail Bank Pricing Are Coming).

I think the underlying problem that banks are dealing with is that too much of their retail customer revenue is hidden – that is, their customers don’t know they are paying it.  It seems to me that you really don’t have a customer unless the customer is making a conscious decision to pay you.  Otherwise, you have some other kind of business – sort of like a trading business.  There’s nothing wrong with that as a business – the problem is that if you fool yourself that your customer is “buying” your business, then your management framework is going to get seriously out of line.

You can make an argument that retail bank customers do understand that they are paying for bank services – and I buy this, kinda, when it comes to the value of the balances in the account.  After all, one of the problems that retail bankers have is that customers already think they are paying with their balances (“they’re making money off me somehow”) and therefore don’t need to pay additional fees.

But there is no way that a customer believes that by using their debit card at Shop ‘N Cart they are compensating their banker for the bank account services they get.  So if someone takes that revenue away from the banker (or severely limits it – the likely impact of the Durbin amendment, if enacted), no customer is going to think “OK, that means I’ll have to pay more in fees somewhere”.  Instead, the customer is going to get very angry at the bank.

Retail banks are very customer-centric entities.  They have squads of marketing people surveying customer satisfaction and designing customer-attractive products.  They do care.  They just need to get brave enough to build a business based on getting customers to pay for what they value.