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Why Entrepreneurs Should Embrace Bank Transfer Day

In the first few months of working with me, clients get this advice: “move your banking to a small bank and develop a relationship with your banker.” Unfortunately, clients rarely take the advice. The reasons I’m given are everything from the obvious “I like the convenience of ATMs everywhere” to the inane “but I’ve been banking with them since high school.” Yes, you’ve been banking with them since high school, and you’ve had a business account with them for 20 years. Does anyone there ever talk to you? Help you? Advise you? I didn’t think so.

When I started seeing momentum building around Bank Transfer Day, I was excited. Not because I embrace the philosophy behind the movement, though I do, but because I knew that one outcome of the movement would be that thousands of entrepreneurs would end up in stronger, more supportive banking relationships.

Big banks do not support small business owners. They just don’t.

Whenever I see banking slogans, I imagine myself in a conversation with the president of the bank. So, Mr. Brian Moynihan, how is it that through banking with Bank of America, my service-based client with annual revenues under $500,000 will “get just what [he] needs for [his] business?“ And, Mr. John Stumpf, how is it that Wells Fargo will help my small not-for-profit client who is “working to build a successful business?“ When you go to Chase.com, they clearly delineate the playing field for you. Business banking is for those with revenues up to $10,000,000. Is your business nearing $10,000,000? If so, that’s great. Perhaps you should be banking at a big bank. But for the rest of us, the 99% of business owners if you will, we’ll be ecstatic when our revenues reach $1,000,000, or even $500,000. And until your business starts to approach those million dollar numbers, your banker is not likely to spend much time thinking about you, or even bothering to remember your name.

That is just one small reason I’m a huge fan of local banks and credit unions. My other three favorite reasons are:

• Big banks have a revolving door for employees. Just when you get to know your bank manager, she’s promoted to some bigger branch or department and you’re left building another new banking relationship with another green bank manager.
• Employees at small banks are given the latitude to make decisions and use their judgment. Employees at big banks rarely have the ability to override bank policies and procedures, even the most minor ones.
• You matter. Even if your business is very small, a small business bank values you as a customer. There is almost always going to be an actual human being who truly wants your business.

The turning point for me, the moment that I became clear that all small businesses should be with a small bank, was when I learned first hand what my favorite Manager at PriceWaterhouseCoopers once told me: “Being a bank manager at a big bank is akin to being a manager at McDonalds. You have very firm policies and procedures, and it is your job to ensure that they are followed. There is no room for judgment or reason.”

I had seen this play out with clients in my first few years of advising small business owners. I’d have conversations with their bank managers about some decision that didn’t make sense, one that was hurting my client’s cash flow or ability to borrow. There was always a policy behind the decision. It was annoying, but I’m a big fan of systems so it generally made sense and I learned in those first few years that you can’t budge a big bank.

And then something happened with my business at my big bank. I made a mistake. I deposited a very large check into the ATM. I knew better. I was in a hurry and wasn’t thinking. And the minute that happened the time clock went off on a 14 day hold. But I needed the cash in 7 days. It was the experience of talking to the branch manager and department heads who could have reversed the hold (they knew the check had cleared) that implanted in my mind, I will never bank at a big bank again.

I moved to Sacramento’s River City Bank. I am a tiny client there, as are a number of my clients. The reason why all entrepreneurs should move to a small local bank or credit union is this: at River City Bank, when one of my clients needs something to happen that is outside of the bank’s policies and procedures, I can pick up the phone and talk to my bank manager. She knows me. She’ll talk to me. She can’t always override a policy, and I wouldn’t expect her to. But she does always explain the reason for the policy, talk through options, and in instances where it has made sense, she’s overridden policies and assisted clients with their banking needs. I have newer client who also banks with River City Bank, but their reserve funds are at ING.com. When I asked why, they said that their bank manager advised them to move their funds to ING.com; that the rates were better at that point in time. River City's bank managers have done, as have other local bank managers, what I have never seen a big bank do: “gotten my clients just what they need for their business“ and “worked with them to build successful businesses.”

That is the kind of service you should expect from your banker. And that is why, political reasons aside, you should make a smart business decision to participate in Bank Transfer Day.

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Stacey Powell builds financial muscles at TheFinanceGym.com, creates financial clarity at CreatingAnswers.com, and shows off Financial Art at Facebook.

How Consumers Should Beat the New Banking Fees

Before we cry foul play and cut up our debit cards, let’s take a second look at these banking changes.

To recap, the Durbin Amendment limited the debit card interchange fee from an average of 44 cents to about 24 cents and spurred Bank of America to announce a $5 monthly fee on debit cards. Consumers and politicians cried foul, and big banks defended these fees as a necessary way to recoup the estimated $7-8 billion in annual losses due to the Amendment.

While recent controversy over fees in the banking industry certainly isn’t pretty, to reiterate the Godfather’s famous line, “It’s not personal. It’s strictly business.”

Free banking services and benefits may no longer be sustainable due to tightened regulations and big banks’ decreasing profit margins.

However, increasing banking fees and growing public skepticism towards banks could potentially urge consumers to be more financially-conscious and critical of their banking decisions. The end of low-cost banking could be the dawn of smarter banking.

Gone are the good ‘ol days

Consumers might be nostalgic for the days of free checking accounts, debit card rewards, and higher interest yields, but as a Bank of America spokesperson said, the industry is “adjusting our pricing to reflect today’s economics.” Waves of tightened lending, credit card defaults, home foreclosures, and federal regulations have made free or low-cost banking anachronistic in a post-Recession economy.

Reuters estimated that banks made about $38 billion in 2009 from overdraft fees alone. As the Durbin Amendment cuts into banking profits, debit card fees are one way banks are adjusting their business in reaction to regulatory overhauls.

Here’s a quick calculation from The Financial Brand: Take the 20 cent difference between the old interchange fee and the new cap, multiply by consumers’ average 25 debit transactions a month, and it comes to about $5. Hello, new debit card fee for Bank of America customers.

Debit card fees are an unintended consequence of legislation intended to rectify years of unchecked banking practices. While pointing fingers at banks, merchants, or legislation may be cathartic, it’s not constructive for consumers.

End of low-cost banking & the start of smarter banking

These fees are a wake-up call for consumers. Time Magazine polled Bank of America customers on how they will respond to the new fee and a whopping 75% of nearly 1,000 respondents said they plan to switch banks.

It’s time for consumers to walk the walk and make savvier financial choices. Here are several paths to choose from:

1)      Switch to a credit union or local bank.  Now is the time for credit unions and local banks to court consumers frustrated with big banks. While banks levy fees on debit cards, several credit unions and community banks are actually increasing debit rewards program and reaffirming no-fee financial products. Coastal Federal Credit Union and Randolph Brooks Federal Credit Union are essentially paying members cash back to use their debit cards.  Banks such as Texas First Bank and USAA pledged fee-free debit cards over Twitter. For consumers fed up with fees, check out your local credit union or community bank. While you may not get a network of ubiquitous branches like big banks, the customer service and financial products at smaller financial institutions have a reputation for excellence.

2)      Switch to an online bank. This is also a prime opportunity for online banks to get a piece of the financial pie dominated by big banks.  Ally Bank and ING Direct both offer fee-free checking accounts and debit cards. Ally’s Ally Perks rewards program and PerkStreet Financial offer a cash back rewards program for debit cards, in the midst of big banks eliminating their debit card reward programs. Online banks don’t have the brick-and-mortar branches that big banks offer, but the convenience of banking online coupled with fee-free debit cards may be enough to get consumers to move their money online.

3)      Switch to alternative payment methods. According to Javelin Strategy & Research, as many as 60% of consumers plan to find alternative methods of payment if their bank charged debit card fees. So consumers may stay with their bank, but ditch debit cards. Cash is the traditional fee-free option, however it lacks security safeguards. Paper checks are the payment method that would hurt banks the most since they are expensive to process, but it’s bulky for consumers to carry. Big banks are pushing prepaid cards that have costly fees attached to them. Credit cards are likely the best payment alternative because they offer better rewards-earning power, better security against fraud, and the ability to build credit; however, credit cards risk incurring debt. Credit conscious consumers should take care to check theirfree credit score to monitor their credit health, and keep their monthly balances under the recommended 30% of their total credit limits to keep spending in check.

As banks figure out more creative ways to recoup losses, consumers can accept the rising cost of doing business with their own money or walk out. Will consumers change their banking behavior and swallow the fees, or simply change banks?

In an ironic twist, the outrage over the debit card fees may actually help the banking industry and encourage consumer financial literacy. The call for better banking alternatives may lead to a more open payments marketplace, and shifts in the industry will encourage consumers to find banking alternatives–such as credit unions, online banks, or alternative payments–that are a better fit for their financial situation.

As the banking landscape changes, use online resources like Credit Karma‘s Reviews section to research financial products and the CFPB‘s website to stay on top of the latest financial changes. Also, don’t hesitate to call your current banks’ customer service and ask questions about impending changes to your account. The time for smarter banking and smarter financial action is now.

 

 

Justine Rivero is the Credit Advisor for CreditKarma.com, the pro-consumer credit advocate that helps more than 3 million consumers realize the everyday cost savings of having great credit health.

 

Overcoming Adversity & Embracing Life

I was touched and grateful to hear Jeannine McCurrie share her story at a Money Wi$e Women Conference in September 2009. She spoke passionately about the importance of having adequate life insurance coverage and being financially prepared for the unexpected.  She told the audience not to feel sorry for her, but to listen to her advice and take action. Jeannine was recently one of 13 people awarded the Embrace Life Awards by State Farm. She was honored at a ceremony at State Farm headquarters in Chicago on April 27, 2010.

We Must Invest in Our Women -- Especially in Hard Times

Today's Seattle Times (October 10, 2010) had an Op Ed about Investing in our women especially in hard times. The authors said "As community members, we too must invest in women. Whether you choose to act with your wallet, your time, or both, your action will make a difference. The critical role that women play in maintaining our families and community demands that we identify solutions that will foster not only an equitable recovery, but also innovative long-term solutions for women and girls -- and ultimately for all of us."

Is Your Small Business Prepared for the H1N1 Influenza?

You’ve worked hard to build your small business.  Are you prepared to protect it from the H1N1 influenza?  In September, the Department of Homeland Security urged small businesses to come up with a plan that will allow them to operate when a number of their employees become infected with the H1N1 virus - so that their business operations will not be interrupted.  Is your plan ready?