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Merchant Banks are now making a large proportion of their profits by charging fees to both end consumers or account holders (although they worry about overdoing this to prevent customer "churn") and to merchants who want to offer payment services to their customers. In the latter, there are many direct and indirect fees in the mix that need to be closely scrutinised. In this follow-on article a philosophical perspective is taken and we gaze into the crystal ball a little. We will therefore look at what the future might hold for merchant bank fees of all kinds.

The future of Direct Customer fees

Banks tend to charge transactional fees only when a customer has gone beyond what is deemed to be the core commercial relationship. Hence, fees are typically charged to customers when they have overdrawn an account, written a cheque in circumstances where they are insufficient funds to cover it, written a banker's draft, made a wire transfer or carried out a foreign exchange transaction etc.

Although different banks are likely to try different approaches, most of them will want to move to a more transparent business model with customers. This will involve no fees whatsoever for customers that maintain a minimum positive balance and are willing to tie inward payments to their checking account (such as regular salary payments for example). It may also be that the bank will require some other accounts to be maintained to keep fees at zero (such as having a separate savings account or buying insurance through the bank etc). However, the model here will typically be not to charge fees for normal everyday transactions, and this will include items such as electronic bill pay, peer-to-peer payments online or via a smart phone app and even account balance enquiries online or at an ATM.

Of course, while this free service approach may work well for customers who can maintain a minimum float in a checking account (and also meet the other standards that may be required), many customers will not be able to do this and may actually pay more than they are charged today. As this encompasses many customers who are potentially still very valuable to a bank in the long-term, another strategy here (and one that has been adopted already in several banks) is to charge a single standard account management fee (such as