It’s not hard to find a bank customer who has had this experience: The trusty local branch suddenly sports a new name from some out-of-state mega-bank. New types of checking accounts are offered, old ones shut down. New lists of charges come in the mail. Phoning for help sends one on an 800-number odyssey to a call center staffed by people with unfamiliar accents.

And a couple of years later, just as the customer gets used to the bank’s new way of doing things, the bank is eaten by an even bigger fish, and the process starts all over again.

Such is banking in the 1990s and early 2000s, as the once-fragmented banking industry continues the consolidation that began a decade and a half ago. Bank mergers have accelerated with the gradual repeal of state and federal laws that had long kept the industry localized by prohibiting geographical expansion.

Between 1980 and 1998, there were approximately 8,000 bank mergers and acquisitions in the U.S. involving 55% of the banks in existence in 1980, according to a 2000 study by the Federal Reserve. Measured by assets involved, about half this activity took place in the late 1990s. And mergers are continuing: First Union and Wachovia have asked shareholders for permission to combine; Mellon Financial Corp is selling its 345 branches to Citizens Financial Group.

Has bank consolidation been good for customers, or bad? Do economies of scale allow mega-banks to offer more service at lower prices? Or does reduced competition give banks the power to squeeze higher payments from customers while cutting services?

Consumer advocates worry that bank consolidation will reduce consumer choice and give surviving banks virtual monopolies. But Loretta J. Mester, senior vice president and director of research at the Federal Reserve Bank of Philadelphia, said mergers do not inevitably give banks greater power in local markets, since two merging institutions often serve different regions. Mester, who also teaches finance at Wharton, noted that the Fed, the Justice Department and other regulators can – and do – block mergers that would create local monopolies.

Still, it is easy to assume that a bank sees a merger as a way to cut costs and enhance profits. Conceivably, a bank that gains market power by becoming a region’s biggest institution could cut costs by scaling back services for customers who cannot easily take their business elsewhere.

But this does not seem to be the pattern, Mester said. Along with her colleague, Allen N. Berger, who is a member of the staff of the Fed’s Board of Governors, she examined banks in an April 2001 working paper, Explaining the Dramatic Changes in Performance of U.S. Banks: Technology, Change, Deregulation and Dynamic Changes in Competition.

The study found that from 1991 through 1997, cost productivity (cost per unit of output) actually got worse, though profit productivity substantially improved, particularly at banks that had merged. Conclusion: “Banks appeared to provide additional or higher quality services that raised costs, but also raised revenues by more than the cost increases.”

The bigger post-merger banks tend to offer wider arrays of services – computer access, more types of accounts, investment operations and personal finance advice. “People are willing to pay more for these new things,” Mester said. From this perspective, bank mergers have been good for customers.

Clearly, though, customers often find mergers disquieting. In a survey of 1,001 households earlier this year, American Banker magazine found that nearly one in five used a bank that had been through a merger in the previous 12 months. Of all the respondents, 54% described mergers as “unfavorable” while 35% called the results “favorable.” About half of those affected by mergers were “very satisfied” with their bank, compared to two thirds of those who had not been through a merger. Those with unfavorable views cited poor and impersonal service, worries about reduced competition and a belief that mergers would lead to higher costs and less efficiency.

It is not clear, however, whether the unhappy customers found the post-merger banking to be worse, or merely different. Even a change for the better can be disruptive initially. Indeed, customers with favorable views of mergers said they liked the wider variety of products and services, the reduced costs, greater numbers of branches and ATMs and better interest rates.

Overall, those surveyed, regardless of their views of mergers, gave the banking industry high marks for safety and security – the best scores, in fact, that the annual poll had ever found.

Each year the Federal Reserve prepares a lengthy document titled Annual Report to the Congress on Retail Fees and Services of Depository Institutions. Generally, these reports show that banking fees have risen in recent years. Though this is not attributed unequivocally to mergers, the latest report, submitted in July 2000, stated: “In a majority of cases, the average fees charged by multi-state organizations were significantly higher than those charged by single-state organizations.” The multi-state banks are the big merger players.

But the study found mergers had not left customers with less access to banking services. On the contrary: From 1984 through 1998, the number of U.S. banks fell to 8,697 from 14,381, but the number of bank offices grew from 53,000 in 1980 to 71,000 at the end of 1998. While there was one bank office for every 4,311 people in 1980, there was one for every 3,795 in 1998.

The number of automated teller machines soared from 18,500 in 1980 to 187,000 in 1998. Some had expected a proliferation of ATMs to lead to a shuttering of branch offices, and consequently a decline in service. Obviously, that did not happen. “It is clear that ATMs are not a substitute for banking offices,” the Fed report said. “Indeed, ATMs have proven to be primarily a convenient and popular additional service used for obtaining cash.”

Not everyone is so sanguine about mergers, however.

A 1999 study, Big Banks, Bigger Fees, by the U.S. Public Interest Research Group, a consumer organization, said “the disturbing trend of more, and higher, fees is continuing.” The PIRG survey found fees to be going up at most banks, but that big multi-state bank companies – the kind most likely to be involved in mergers – charged more than locally owned banks.

Big-bank customers who could not meet minimum-balance checking requirements, for instance, paid an average of $234.87 a year, 16% more than the $202.79 charged by small banks. Similar gaps were found in many categories – in checking accounts with minimum or average-balance requirements, in savings accounts with low balances, in fees charged at some banks for using tellers instead of ATMs.

“The best deal for consumers who qualify for membership is member-owned credit unions. Others can find low fees at small, locally-owned community banks,” the report concluded.

Edmund Mierzwinski, USPIRG’s consumer program director, attributes higher fees at bigger banks to mergers, but concedes no one has conducted a study to prove this is so. “We infer that mergers are helping to exacerbate the trend” to higher fees, he said.

He noted that mergers raise a number of other consumer issues as well. Consumer privacy may be harder to protect with large, diversified banks that share information with affiliates. Also, merging institutions often have incompatible computer systems, he said. “We get a lot of complaints from customers who find that their deposits get messed up.”

While executives generally tout mergers as means to gain economies of scale and access to more customers, “merging is sometimes done just to say, ‘We’re bigger than you,’” he said. “It’s a pride kind of thing. ‘We got a bigger skyscraper than [the competition]. We got the stadium named after us.’”

Such motives can blind executives to potential hazards, he added, citing First Union’s near-disastrous takeover of CoreStates in 1997. Unhappy customers deserted in droves.

While the Fed statistics clearly show there are fewer banks than 15 years ago, competition has been shored up by technological change. Today, customers can perform bank transactions at ATMs, by telephone or online. They can have paychecks deposited directly by their employers, and can have bills paid automatically as well. With less need to travel to a local branch, a customer can bank with an institution in another town, even another state. In addition, traditional banks face growing competition from brokerages and mutual fund companies that offer checking accounts and money market funds. People shopping for mortgages and other loans can use online services to look all over the country.

The steady rise in bank fees may, in part, be a result of this changing banking environment, rather than a consequence of market domination due to mergers, said Wharton management professor Harbir Singh. Traditionally, banks made money by charging borrowers higher interest rates than were paid to depositors. But this gap, or “spread,” has been shrinking, Singh said.

Interest rates charged on mortgages are near their 30-year lows, for instance. But rates paid depositors have not fallen as much, since banks must compete with other financial institutions, such as fund companies and brokerages, that are luring customers’ savings.

Consequently, said Singh, “banks are becoming more and more dependent on fees.” Not only are fees rising, many services that once were free now come with charges. Today, a customer may have to pay to stop payment on a check. Phone calls to customer service representatives sometimes involve fees. Customers with ATM-only accounts may pay to deal with a human teller. There may even be a charge to request an account statement, and some banks go so far as to charge a fee to a customer who is the innocent recipient of a bad check.

On the other hand, when the bank is forced to cut rates to compete for mortgage business on a national level, a home buyer may save a small fortune.

Though fees are rising, banks cannot lift them arbitrarily, Singh said. Affluent customers who use the most services tend to be the most profitable ones, paying the most in fees. But banks, he added, cannot afford to drive away ordinary customers who may become the big fee payers of the future.