Banks slash fees as they battle for market share.

Many electronic services offered free of charge

L.A. COUNTY - Bolstered by robust earnings and playing up customer dissatisfaction over the recent merger of Wells Fargo & Co. and First Interstate Bancorp, banks are saturating the airwaves with advertisements for no-fee checking accounts and special deals in an unprecedented fight for market share, bank analysts said.

"If profit margins were thinner, if credit lines were thinner, you wouldn't be seeing this. But banks are doing so well," said Frank Terzuoli, senior manager with Andersen Consulting in San Francisco. "Margins have increased. Returns have increased. It's created more incentive to become a larger bank. The large players are saying, 'The only way we are going to grow bigger is to take away market share from our competitors?"

One way banks are doing that is by slashing fees for electronic services in hopes of enrolling more consumers who are comfortable banking by personal computer, automated teller machine or telephone, said Ken McEldowney, executive director of Consumer Action, a San Francisco-based education advocacy organization.

"There is pretty intense competition for the well-to-do customers who tend to be more technologically sophisticated," he said. "It makes sense to craft a product, say, with no fees unless you go into a bank lobby, because they never go into a bank lobby anyway."

Citibank, the nation's second largest bank, was one of the first to cater to these customers. On June 1 of last year, it dumped the monthly fee it charged New York customers who banked by personal computer. Later that year, Citibank dropped fees in California, as well.

Lifting fee pays off

"From June 1 of last year to December, we saw a 200-percent increase in the number of customers that enrolled in PC banking and 20 percent of those were new to Citibank," said Maria Mendler, Citibank spokeswoman. "We found that people just didn't want to spend $9.95 (a month) to do banking."

Last December, Wells Fargo made a similar move. it introduced a no-fee checking account that requires no minimum balance, free access to information by computer, unlimited use of its ATMs, unlimited calls to the automated phone-banking line and three in-person teller visits per month.

The catch: Customers must have direct deposit and agree not to go to a teller when they could have completed the same transaction using the ATM or the telephone banking system. Wells Fargo originally assessed a $5 monthly fee if a customer broke any of those rules in a given month. But beginning on May 6, it eliminated that fee as well.

"It's another way of promoting this account," said Kathleen Shilkret, spokeswoman for Wells Fargo, about the decision to drop the $5 fee.

But McEldowney said Wells Fargo's fee-slashing is one of many "dramatic steps" it is taking to keep its customers from bailing to other banks, especially those competitors that have been bashing Wells Fargo and trying to pick off its First Interstate customers.

California's largest bank, San Francisco-based Bank of America, hasn't dropped any fees lately. But spokesman Harvey Radin said the bank plans a "major announcement" this month regarding its on-line banking services.

"In all likelihood, there will be ways to use our home banking service with no fee," Radin said.

Just a decade or so from when customers succumbed to "bankers' hours" (usually 10 a.m. to 3 p.m.), today's consumer wants to bank from anywhere, 24 hours a day, analysts said. And because some customers still want to deal face-to-face with a teller, banks must tailor services to meet each customers' preferred mode of banking.

"People want to do things when they want to do them," Mendler said. "People want to sit down at 10 o'clock at night, when the kids are asleep and it's quiet, and do their banking on computer. Some customers want to walk into a branch. That's fine too."

Last year, Citibank eliminated fees in some states, including California, for its electronic bill-payment service, fees for using the ATM and so-called nuisance fees, such as charges for stop payments on checks, cashier's checks or certified checks.

"They were such an irritant to customers, that we removed them," Mendler said.

Citibank was trying to keep its customers from going outside for services other than a checking account.

"What we really want is the full relationship. ... They're using our brokerage services, borrowing from us," Mendler said. "By eliminating the fees, it's opening the door to having customers broaden their relationships with us."