It’s math time on Bank Innovation.

For five points toward your final grade (that would be toward your MS in Bank Innovation, parenthetically), identify which is greater: the call-center cost to field an inbound customer service query for an NSF or the fee to the consumer for the NSF?

Correct answer: the NSF fee (probably).

I say “probably,” because it is remarkably difficult to decipher just how much the average inbound customer service contact costs a bank. However, it is this essential calculus played out in any number of banking products that drives banking behavior. Why? Because if the fee income is greater than the savings from helping a customer avoid fees, then the impetus to do so is non-existent — and that is putting it mildly. I call this the Bad Bank Dilemma, because the less banks “help” their customers, the more the bank profits.

Let’s be blunt about the fact that banks can absolutely do more to help consumers. Could not a bank set an easy if/then software program to waterfall through a customer’s bank accounts to find the money to cover a check payment should there not be enough funds in the customer’s checking account? Yes. Could not a bank push a message to a customer when he is about to incur a $2.50 ATM charge that identifies that no-fee ATM a couple of blocks away? Sure. Could a card issuer send a text message to a cardholder with a balance outstanding that determines, based on easy analysis, that she has enough money in her checking account to cover the balance outstanding and that she is better off if she paid off the balance now? Absolutely. But why would the bank or card issuer do that when it benefits more by holding its tongue, er, text message?

This quandary came up during a wonderful demo we did yesterday of ActivePath‘s in-email transaction platform. ActivePath, which offers a technology I like a lot, allows bank consumers to engage in transactions, such as balance transfers or bill pay, within the body of an email and without the need to click through to a bank’s online banking platform. In other words, the company has overcome the security challenges to in-email transactions.

But ActivePath’s technology raises an important question. The ActivePath technology shows how much easier it could be for consumers to avoid, say, an NSF. An ActivePath email notifies the customer that an NSF is about to take place. To avoid the NSF, the consumer must do little more than “click here.” Click and the problem is gone, and the overdraft fee saved.

But wait a minute. The bank that sent this hypothetical email charges the customer at least $30 for an NSF. In that case, why would it not want the customer to incur an NSF charge, after all the bank makes more money by charging the NSF than not?

I asked ActivePath this question and they suggested that the ROI works, because the bank would save on customer service costs. ActivePath estimates that an NSF usually generates a bank contact center query, and that customer service call costs the bank about $8, as well as about another $3 to $4 of mailing and ancillary costs. Which brings us back to our math problem. $12 is less than $30, as far as I know. Why would a bank want to make less money by helping the customer avoid an NSF fee?

I have little doubt that there is not a banker who would proudly claim that he wants to be a “bad banker.” I can just imagine what Richard Davis — the CEO of US Bancorp and, in my view, a loud voice on how bankers truly behave, rather than how the “media” portrays bankers — would say about this. A “bad bank”? he would rail. Are you nuts? We do what is right for our customers, period. 

But being a “bad bank” does not have to be overt. Simply making it more difficult to avoid a fee, in my view, could be a “bad” practice. Like any product, the ActivePath service costs money. Is a bank “bad” if in doing the simple ROI analysis, it passes on the purchase because the “math doesn’t work”? Perhaps yes or your brand’s promise its customers.

I see no solution to the Bad Bank Dilemma. Regulators have attacked aspects of it through rule changes and disclosure requires, but, by my read, banks essentially remain better off when consumers fail — up to a point. Certainly, loan defaults incur a cornucopia of fees, but by and large no lender can charge enough fees to make up for a credit loss. So we’re talking about being “bad” around the edges, making things a bit harder, requiring a call to facilitate something or a visit to a branch to make a subtle account change rather than offering the easy digital solution. Today, the technology is readily available to make the bank consumer’s life remarkably better. I hope bankers will use it to do what’s “good.”