Discover is dropping fees from its online checking and savings accounts amid shifting customer expectations around retail banking charges.
Discover's deposit products already touted no monthly maintenance fees. But the internet bank with only one branch still charged several $15 and $30 penalties for things like insufficient funds, excessive withdrawals and stop-payment requests. That ends as of Monday, according to Discover executive Arijit Roy.
"We wanted to be the first major bank to eliminate all fees from deposit products," Roy said in a telephone interview. "Fees erode trust and create a very negative emotion, and millennials and Gen Z customers in particular don't like 'gotchas' or fees buried in the fine print."
Customer penalties are a significant source of revenue for the financial industry: The 10 biggest banks collected more than $11 billion in overdraft fees in 2017, according to the FDIC. But the public began to view the fees differently after the U.S. government bailed out banks during the financial crisis. More recently, fintech upstarts with names like Chime, Sofi Money and Simple have begun to popularize the idea of no-fee banking accounts.
"Whereas a few years ago, people wouldn't have necessarily minded about an insufficient fund fee, that expectation has moved," Roy said. "We believe customers should keep more of their money to lead better lives."
Discover, which also runs its own credit card network, has about $48 billion in deposits and 1 million bank customers, making it peers with the direct lenders of Synchrony and American Express. It also competes with the online divisions of Ally and Capital One.
The move comes about a year after Discover started to automatically waive fees the first time a customer incurred one. That program gave executives the idea to scrap them altogether in the hopes that it will buy goodwill from customers, who will then use more products, Roy said.
"I have to imagine they're thinking, 'We don't make a lot of money on these fees anyway, so the brand value of being known as the no-fee bank, full stop, is worth it'," said Brian Foran, a bank analyst at Autonomous Research.
"It's funny, if you pay someone 10 basis points on their savings, it doesn't upset them," Foran said, "but if you charge them a $30 fee, it really upsets people."