Tag Archives: bank fees

Bad Profits

Back in the 1970s my bank called me.  One of my checks had bounced.  They were very nice about it.  Didn’t cost me a cent.  These days deep in the fine print of my bank account’s rules there is a 30$ fee.  But it gets worse.

Over the years main street banking has become more despicable in how they make their money.  The reasonably straight forward model of pooling funds for investments and then paying you a bit of the earnings fell apart when they noticed they could compete on the interest rate and make up the loss on fees.

The banks are now dependent on a business model that runs off fees and charges.  Which means that they sit in conference rooms to architecture their systems to maximize the fees.  The product managers walk a thin line between alienating the customers in the long term, and capturing profits on their stumbles in the short term.

For example let us say you pay 2 thousand dollars in bills, but you only have 13 hundred in the account.  The bank can maximize the bounced check charges if they delay paying your bills so they can batch up as many checks as possible.  That let’s them pay off the larger checks first, so as to increase the chance of draining your account.  With luck they will then have a dozen tiny little checks; these all bounce.  Fees Maximized!

There is a nice term of art for this behavior: Bad Profits.  His list of examples is fun.  Unsurprisingly many of his examples are pricing games.  If your a product manager the question you ask of each of those examples is how bad will it be?  How many customers will I loose.  If the answer is not many, or even not many while I’ve got this job, then the behavior’s not so bad from your point of view.

My bank regularly sends me email about the status of the game we are playing.  They send me solicitations for other products in the mail.  But if I were to bounce a check they wouldn’t notify me.  And unsurprisingly the check can bounce multiple times.