Few banks pull out free checking as they lose out on revenue collected from fees

Since the past year, the banking industry has faced a severe revenue crunch due to the regulations that have tightened the noose for the banking sector. Due to the poor revenue collection the free checking account is almost on the verge of becoming extinct.

There are various restrictions on the banks with regard to the fees that banks can charge on overdrafts and on debit card related transactions. These are some of the prime reasons for the decline in the free checking accounts offered by banks. There is one new rule that would be applicable after July 21 that would be capping the fee at 12 cents and this is what the banks will charge merchants when the debit card is swiped. At present, the average debit card interchange fee is at 44 cents for every transaction.

This might not sound like a huge amount but it adds up to tens of millions in debit card purchases. Now all of this seems to be fading for the banks and the revenue stream seems to have diminished. During 2009, around three-quarters of the banks in the nation offered free, stand-alone checking accounts as per the survey done by the industry. The last year, it had fallen to 10 percentage points and now analysts expect it to go down further.

With the dwindling fee revenue, some insiders state that banks are presently facing one of the biggest shifts in consumer banking history and this is forcing them to engage in a risky game. Now they have to persuade customers to pay for the services which were once taken for granted.

Grayson Hall, Chief Executive of Birmingham-based Regions Financial Corp, stated that they had done a good job overall as an industry and convinced customers that banking was free. However, now their biggest challenge would be to convince customers that their services have value and that it should be recognized.

These questions resonate loudly in Birmingham where the overall health of the banking sector is directly related to the financial health of thousands of families and their budgets.

But all is not lost as yet, if one has to go by senior financial analyst, Greg McBride who states that while the prevalence of the free checking account is on the decline, it has not completely vanished from the scene. In fact, financial institutions are offering free checking accounts to tempt customers to sign up for other banking services through which they hope to make a profit.