PNC Financial Services (PNC), Bank of America Corp (BAC) – Banks Tell Customers: Pay Up or Get Out!

With the broader market barely budging, shares of PNC Financial Services (NYSE:PNC) closed roughly 2.5% higher on news that the bank will no longer offer full-service checking accounts for free.

The decision should come as no surprise, and the bank acknowledges that the changes will likely only impact roughly 10% of its customers. Last month, PNC Financial Services (NYSE:PNC)’s CFO Rick Johnson had this to say about how the bank is viewing the new environment:

“The current retail banking model is built on giving away services — free checking, free online banking and free deposits. All banks are in the process of rethinking the fair value exchange we have with our customers. And PNC is no exception.”

While truly “free” accounts will no longer exist, most customers will avoid the fee by simply maintaining a certain balance or by linking a direct deposit to one’s account.

As my colleague Matt Koppenheffer and I recently discussed, banks were able to justify the free checking account services because of the revenue they generated from interchange fees and overdraft fees. However, with new regulation limiting these fees, banks have had to adjust retail cost structures.

Bad for customers, great for investors
There’s no two ways about it — as consumer, being charged a fee is never fun, but from an investor’s perspective, charging fees on certain customers to increase profitability is the right decision.

In order to avoid an extremely adverse consumer reaction like what Bank of America Corp (NYSE:BAC) experienced when it proposed implementing a $5 monthly fee for debit card use for certain customers, communication will be essential, and PNC Financial Services (NYSE:PNC) appears to be managing the changes in a prudent way — most of the changes will not be effective until December or June 2014.