Bank Transfer Day: Everybody Wins

NEW YORK ( TheStreet) -- Credit unions and small community banks are rubbing their hands in delight at the prospect of new customers lining up outside their doors seeking to open an account with them on "Bank Transfer Day" that falls on Saturday.

The protest movement that urges customers to close their accounts with big banks and put their money with credit unions and community banks instead has been a boon for smaller players, who are capitalizing on the anti-big bank sentiment.

Credit unions and community banks are reporting significantly higher volumes of applications for new account openings. The Credit Union National Association said credit unions have added more than 650,000 members and $4.5 billion in new deposits in the past month.

Some banks like Los Angeles-based First Pactrust Bancorp ( BANC) has been aggressively seeking out customers frustrated with big banks, hoping to gain some market share through good old-fashioned banking practices that relies on relationships.

"Consumers are dissatisfied with their experience with big banks. The debit card fees, which has now been withdrawn, was the last straw on the camel's back," said CEO Greg Mitchell. "Consumers want to go back to a place where they can get a predictable level of service and some respect."

The bank has kick-started a promotion ad campaign earlier this week, offering customers $60- the same fee customers might have ended up paying in debit fees had Bank of America ( BAC) gone ahead with its unpopular fee- if they switch their account to PacTrust. The bank will stay open longer on Saturday in honor of Bank Transfer Day, the bank said.

Bank Transfer Day has attracted a lot of attention for its anti-big bank rhetoric that seems to have struck a chord with supporters of the Occupy Wall Street movement.

The movement was fueled by a public outcry against new fees imposed by large banks including Bank of America ( BAC), Wells Fargo ( WFC) and JPMorgan Chase ( JPM) as they seek new ways to offset regulations that limit their fee income from processing debit card transactions. The banks have since caved to public sentiment, withdrawing their proposals.

Still, the victory for customers might be short-lived. Industry observers say banks will find a way to charge customers to make up for the shortfall in revenues one way or another.

That's one more reason why customers still fuming from the debacle are seriously contemplating switching bank accounts.

Big Banks Benefit Too

But the big banks might not be too concerned about people defecting. On one level, they are counting on customer inertia. People might be unhappy with their situation but still not do anything about it.

Even if they do, banks like Bank of America ( BAC) are betting that they will only lose customers who are not profitable to begin with- the ones who carry low balances. The cost to service those customers outweighs the money they make from them, goes their thinking.

If a bank earns a spread of 75 basis points on a checking account in this low interest rate environment, the average checking account balance should be at least $24,000 in order for the bank to continue offering free checking services, according to Hank Israel at Novantas . But few customers carry those balances.

Which means big banks could actually benefit from Bank Transfer Day as they lose unprofitable customers.

Bank of America and JPMorgan declined comment on the story.

"We respect that consumers have choices when it comes to their banking needs," Catherine Pulley, a Citi spokesperson said. "If a customer wants to close their account, we will accommodate them online, in person or on the phone. But we are proud that customers continue to choose Citi and will work hard to earn their business," she said.

She added that the bank avoided the debit card fee from the start after listening to customer feedback that said the fees were unacceptable.

Citigroup has raised the monthly fees on its checking accounts but offers customers ways to avoid the fee such as making online bill payments and using its direct deposit facility.

Richard Hunt at Consumers Banking Association says small banks also suffer from the impact of new regulations such as the Durbin Amendment as well and that customers should not be misled into thinking that they will get free services if they go to a smaller player. He points to a Credit Union National Association's 2010-2011 Fee Survey that said 91% of credit unions offering debit cards anticipate making some sort of change to their rates, fees and services as a result of the negative impact of the regulation.

Personal Relationships Builds Profit

Mitchell at First PacTrust says that smaller banks profit from an ability to retain customers through personal relationships. "We monitor account activity and if a customer is unprofitable we do what we can to make it profitable. Banks that find they have unprofitable accounts have not done enough work to keep their customers happy. They have alienated them and are not able to cross sell to them. Most consumer and business accounts can be profitable if properly managed," says Mitchell.

Still, Mitchell acknowledges that big banks will likely not lose too much over Bank Transfer Day. "We are not deluding ourselves into thinking we are going to take massive share from Bank of America. But we will get a sufficient amount of share that will be enough to benefit our shareholders."

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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