Hacker News Reader

Comment by rbcgerard | Hacker News Reader

On the banking side, some of it is fairly straight forward - the estimates I’ve seen say it cost ~$100-$500 for a bank to administer a checking account annually. The current net interest margin banks earn on your money in the US is 3.15%.

Which means if a bank charges no fees - and it costs them $315 to administer your account - you need to maintain a $10,000 balance for them to break even.

Once you understand that dynamic - you understand that banks that want to offer low balance free checking - need to either make it up on fees or on cross selling opportunities...

View on HN

I'd be interested in what the breakdown in costs is. Searching a little, it looks like the higher estimates may be based on dividing the total costs keeping the lights on in the bank by the number of checking accounts: https://sandbox.bankrate.com/financing/banking/what-do-you-r...

I'd guess that the costs of administering accounts probably scales with account activity. I'd also assume that to some extent, increased account activity correlates with increased fees. Do you have any more details on the breakdown of costs? While they might not be able to target just customers they want to keep, I have trouble believing that they are continuing to offer services that lose them money.

Plenty of businesses operate off the principle of losing money on one product SKU while making it up on others. Think Dollar Shave Club, game console sales, etc. I imagine banks could take a hit on low-income accounts and make it up on high-income accounts. But apparently they just don't have the financial incentive in this situation to do so. I just wish the moral incentive was enough.

That’s exactly what I meant by cross selling - many bank accounts are actually priced at a loss with the hopes of also getting you to sign up for a credit card or car insurance

the estimates I’ve seen say it cost ~$100-$500 for a bank to administer a checking account annually.

Is that an average or an actual cost per account?

And what is the breakdown on that? What's actually costing the banks that much?

I don’t know the breakdown, but it’s: banking software, mailed account statements, debit cards, phone support centers, websites, bank branches, compliance, ATM networks, check processing etc.

Obviously some of these costs scale very cheaply, but there is quite a bit that goes into a modern bank account+ some customers are costlier than others (lost of call center calls/lost debit cards for example)

It was an average - but it was just for checking accounts

Reply on news.ycombinator.com