R.K. Hammer, on card fee income

(August 26, 2014) — Much has been made of card industry fees for many years.  Congress and regulators, journalists and card members, all have joined in.  It seems there is no end in sight to fee income as the proverbial punching bag.

It is true that since all the new regulation and curtailing of interest and fee income business models, issuers had to and did adjust their thinking to more fully price for the value and service card members receive.  Yet, if we look at other industries, their imposition and increase in fees they charge makes the card industry seem pale by comparison.  Few make the contrast between the card business and, say, airlines, or hotels, or rental cars, in terms of new fees, and pricing accordingly.  Check it out.

Take the airlines and newly imposed fee pricing.  Checked bag fees: few do not presently make this charge for flyers.   Fees for excess baggage is up to $100.  Blankets and pillows: “forget-about-it.”  Customer service fees: up to $35 per booking on the phone.  Want to skip through security lanes – there’s a fee for that.  Want to avoid the gate lines or get on early, yes you can do so easily, for a fee.  We don’t think any of our card issuing clients charges for customer service calls.  Calls to make a reservation, again, up to $35, for the privilege of you spending your money with their company.  We know of no prime or super prime card issuer who charges for phone calls to apply for card products.  On board meals and drinks on the plane (without coupons), here they go again – get out your card and pay.

Rental cars, too, have their growing fine print.  Pick up your car at the airport, there’s a concession fee reimbursement to the rental company for that.  Youthful renters:  yes, you can and do pay more.  Collision damage:  you can get a waiver, but not without paying yet again another fee.  Return the car late: you guessed it, perhaps another set of fees.  Don’t prepay for the return gas fill up, then be prepared to pay two to three times the normal street rate per gallon, ten dollars or more.  You want GPS and electronic toll road collection passes, there they go again.  It is the rare driver who when returning their car before running to catch their return flight stops and reviews all the line items on their lengthy, multi-panel payment paperwork, to see the true final billed cost.

Even hotel are also becoming pretty adept at add-on charges.  Seems that everyone are imposing new fees or adding on to existing fees.  Free Internet has become $20 per night Internet at some properties.  Luggage storage: no longer free across the board.  Receiving overnight packages while at the hotel: not only does the sender pay the courier, but you may as well as the receiver.  Special room requests (bed size, floor selection and more) be prepared to pay at some properties.  Not needing or paying for a closet safe; think again, it’s probably already embedded in the daily room rate, used or not.  Want a mini-frig brought to your room where none is included at check in:  just ask, but prepare yourself for another fee.  Using the mini-bar to store your own drinks: sensors can pick up on every door opening.  The tab for all this runs into the billions annually, even though not every property charges or at the same rate.  As with rental cars, not every traveler bothers to review the billing statement left under the door in the middle of the night, as they rush to the airport for the next trip leg.  Many just check the bottom line – “Looks about right; let’s go catch our flight.”

For any other business or industry who suffered serious financially during the recession, fee income models will dominate.   It’s just a fact of life.  We are just not sure just when or whether inquiring minds in Washington will get around to regulations or restrictions on any of these fee income business models in these other industries, as swiftly and deeply as they did for the card business in recent years.  Time will tell.

The watchword remains, though:  better read the fine print, before you book and as you pay.  The new normal is “Free has become Fee,” and it will continue to be so.

R.K. Hammer is a premier provider of card advisory consulting, in the U.S. and in 50 countries abroad.  Based in Thousand Oaks, CA and established in 1990, R.K. Hammer is celebrating its 25-year anniversary in the card business, providing leading issuers with best practices consulting, expert witness testimony, and card portfolio sales and purchases.   Their work and research has been cited over 730 times in the financial press, in virtually every card and industry publication, plus has been used by many government agencies:  OCC, FDIC, Federal Reserve, GAO, OTS, and USDOJ.  Company Founder and CEO Bob Hammer delivered the keynote addresses at industry meetings at 32 international locations.  He has also been a guest lecturer at the ABA Graduate School of Card Management and authored and delivered heir material at MasterCard’s International University.

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