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Banks Try New Charges to Change Customer Behavior

May 3, 1995

NEW YORK (AP) _ Banks are always looking for customers, but they’re starting to get choosy about which ones they court.

By raising deposit minimums, charging for teller services that used to be free and pushing electronic banking, they are looking to change the habits of customers who like to bank the old-fashioned way and attract those who have more money to sock away.

Bankers say the high cost of maintaining branches and paying tellers causes them to charge customers more for the privilege of one-on-one service and for keeping low balances. Some will even close accounts of customers whose banking habits don’t fit the bill.

While no one likes to pay higher fees, most bank customers put up with the new policies because they don’t think they’ll get a better deal somewhere else. But customers who live paycheck-to-paycheck say the changes are hardest on them.

``It seems like a special arrangement to chase away small customers,″ said Joe Gabris, a Bronx resident who banks at Citibank, a subsidiary of Citicorp, the nation’s largest bank.

Gabris was recently informed by Citibank that his checking account _ a special low-fee account _ was being converted to a new account that limits the number of free withdrawals, either by check or at the ATM, that he can make and carries a higher fee for failure to meet a $2,000 balance.

Citibank said in a letter to Gabris that it has the right to close the account if he repeatedly goes over his allotted eight withdrawals a month.

``I don’t understand how a bank could tell a person in good standing that their account can be closed,″ said Gabris, 34, a real estate broker who runs a non-profit community organization in a low-income section of the Bronx.

He figures he’ll pay an extra $25 in monthly fees with the new account, but says he’ll stick with Citibank.

``Many banks are initiating similar policies,″ he said. ``Elderly people and families on fixed incomes are going to get killed by this.″

When questioned about the closure policy, a Citibank official said customers would be offered another account that better fit their needs before closing their existing ones.

But banking experts say the change illustrates how banks are shifting the pricing and design of core products to focus on more profitable customers and get rid of or raise fees for customers who are more expensive to serve.

``Banks are focusing more resources, more products, services and delivery channels on customers who are more profitable,″ said Les Dinkin, a principal at NBW Consulting Group in Westport, Conn.

Affluent people are usually more profitable for banks. They tend to have more bank accounts, maintain higher balances and use more services. Banks make money from investing their deposits and from fees they run up.

Affluent households _ those with incomes of $75,000 a year or more _ can generate more than $7,000 in revenues for a bank, as opposed to $1,960 in revenues from households earning $15,000 to $45,000, according to Payment Systems Inc., a Tampa, Fla.-based market research firm.

More banks are trying to target affluent households and soon-to-be affluent baby boomers. Charlotte, N.C.-based NationsBank Corp. recently opened its first banking office targeting the affluent in New York, and Pittsburgh-based PNC Bank Corp. said it was redoubling efforts to focus on wealthy clients as a core business.

Customers with low balances who visit branches a lot can be profitable too, as long as the bank is charging them for services. Consultants say that’s partly why banks are beginning to charge for services that used to be free, like using a teller. Making a deposit with a teller costs banks 6 to 12 times as much as depositing money into an automatic teller machine, consultants say.

Most bank customers use ATMs for routine transactions, bankers say, but they must keep tellers on staff for those who don’t.

``We are all implicitly having to pay higher fees to pay for those people who use tellers,″ said James McCormick, president of First Manhattan Consulting Group in New York.

First Chicago Corp., the biggest bank in Chicago, recently said it would soon limit the number of free teller visits for most customers and will charge $3 a visit for going over the allotment. Customers who keep at least $2,500 in their checking account, meanwhile, have unlimited free use of tellers.

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