by: Karen Coble, Vice President, Sales
Reinventing Checking Accounts, a 2017 study conducted by Cornerstone Advisors, arrived at some interesting conclusions for mid-sized financial institutions ($500 million-$20 billion in assets):
- Free checking accounts should be phased out; and
- Checking accounts should be bundled with value-added services targeted to specific customer segments.
If this seems a little harsh, consider these facts:
Between 2000 and 2016, the number of checks written in the United States declined from 41.9 billion to 17.1 billion, nearly a 60 percent drop. On the surface, this looks like bad news for checking accounts. However, according to the FDIC, the percentage of homes without a checking account only dropped from 8.2 percent in 2011 to 7.0 percent in 2017. More people have checking accounts now, but they’re not writing as many checks. The need for checking accounts still exists, but how they are used is changing.
Why? The study points to a few reasons:
Easy Money.
Keeping money in a checking account offers little benefit today. Financial institutions are struggling to find a value proposition that appeals to a broad set of users. Checking accounts are becoming a place for receiving direct deposits. Members have little reason to keep money in the account, however, as it is easy to transfer money through P2P and to other accounts.
Free isn’t Free.
Perhaps the biggest takeaway from this study is that while many checking accounts advertise as free, the enhanced services consumers expect may have fees attached. From a business perspective, it may make sense to advertise free checking accounts to attract new customers/members, with the expectation of cross-selling more products later. However, over a quarter of survey respondents with a free checking account said they pay a third-party bank ATM fee and/or an overdraft fee.
When users feel duped by the promise of a free service – which ultimately is not free – they are less likely to buy more services or refer others. Of the credit union members surveyed, only 43 percent of those with “free” checking accounts referred friends or family to their credit union, and just 21 percent added non-deposit services. Conversely, 59 percent of credit union members with a fee-based checking account referred friends and family, and 42 percent added non-deposit products.
They Want MORE…
…and they’re willing to pay for it. Twenty-five percent of the “30-somethings” surveyed said they would definitely switch financial institutions if offered a checking account bundled with value-added services – even if it came with a nominal fee. Catalyst Corporate’s Checking with Benefits service provides members with many of those value-added services, such as cell phone damage/theft protection, identity theft protection, roadside assistance, travel insurance and more. Additionally, this service employs the BaZing mobile app, which offers members immediate discounts at over 400,000 local and national retailers.
Checking accounts often serve as the gateway to other services at financial institutions. If your credit union is trying to revitalize its checking account program to appeal to new and current members, look at your value proposition and consider the results of this study.