Will Customers Freak Out If You Kill Free Checking?
With balance sheets reeling from lost NSF- and interchange income, retail financial institutions are grappling with two big questions:
1. “Should we eliminate free checking?”
2. “Should we introduce new fees or account requirements?”
Before you answer those questions, you should check out this report, “Free Checking & The Banking Customer.” It’s a nationwide U.S. research study from ACTON Market Intelligence asking consumers for their opinions on free checking accounts, new potential fees and other account requirements. The report examines the strategic significance of free checking and analyzes consumers’ projected acceptance to various alternative banking fee strategies. The report is based on a consumer survey encompassing 10,000 households, conducted in October 2010.
The report also explores switching triggers, asking what it takes to motivate consumers to move a checking account to another financial institution. One question asked how people would respond if their free checking account had fees added to it. A significant two-thirds majority (67%) said they would likely switch to another financial institution.
How important is free checking?
87% of American adults age 18+ have a free checking account. Nearly all of them (85%) feel that free checking is critically or very important in their selection of a primary bank or credit union. Less than 3% of the checking customers in America said free checking isn’t important to them.
Men and women feel differently about free checking. 92% of women felt that it was critically- or very important that a financial institution offer free checking, whereas only 79% of men feel the same way. 94% of women age 18-24 have a free checking account compared to 80% for men. In the 25-34 age group, 91% of men have free checking compared to 78% of women.
Those in the west are more likely to switch. 66% of those in the western U.S. said they would switch immediately if their bank or credit union introduced new fees on a previously-free checking account. Only 50% of those in the Northeast said they would switch.
How will consumers react to new fees?
Over half (57%) of the checking account customers in America are highly at risk to switch banks if their institution began to charge fees for what were previously free services for their checking accounts. Slightly less than one in four (23%) customers would passively accept the implementation of such fees by their bank or credit union.
“This report shows most consumers are not in the mood to pay more banking fees,” says Brian Beach, ACTON Marketing CEO. “Those financial institutions that keep free checking will have a market advantage over their competitors.”
“The real opportunity here for smaller banks and credit unions is to not only retain their current free checking accounts but to aggressively promote them in an effort to increase checking account market share via switching,” the report advises.
What about adjusting minimum balance requirements?
Regardless of gender, a majority of checking customers say they would increase their balances in order to keep free checking.
Download the free report
A summary edition of ACTON’s report is available at no cost to financial institutions. The free edition includes 35 pages, 24 charts, national statistics and the executive summary. The complete report, available for purchase at $99, breaks down responses by age, income and census regions. You can find out more at ACTON’s website.
ACTON Market Intelligence is the consumer research division of ACTON Marketing, ACTON Marketing is a full-service direct marketing organization for financial institutions.
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And how is this surprising to anyone? Encourage someone for years on end that these accounts won’t cost them anything and then turn around and charge them and of course they say they are going to switch! I wonder how this survey relates to the ones we’ve seen that say once you get 3+ products per household, there is only a 10% likelihood that the client will switch, due to the ‘stickiness’ of the client? Seems to me that both can’t be true based on the percentages.
To answer your question, I suppose it depends on how many customers have 3+ products, and how “products” are defined. It’s not uncommon for financial institutions to have an average of ≤2 PPH (dismal, for certain).
And you’re right, the results aren’t that surprising. What is surprising however is the number of financial institutions that are willing to make huge changes to their fee structure based solely on the balance sheet without giving adequate consideration to the strategic implications. It’s almost as if financial institutions are agreeing to move as a herd: “If everyone else is killing free checking, it must be okay, right? All these other banks did their due diligence, right?”
Ultimately we’ll have to wait and see what attrition rates really will be after financial institutions eliminate free checking. With surveys, you can never be quite certain whether or not participants’ stated intentions/feelings will actually align with their real behaviors. But it seems pretty clear (if not obvious) that consumers will be pissed.
One solution is for every financial institution to kill free checking at once. If it’s all the same everywhere, then consumers would have no reason to switch…
We’ve heard this before, and if it were true, customers would be flooding our credit union’s doors begging for refuge from bank fees. People are willing to put one thing on a survey, but actually doing it is quite another.
What about the methodology? Is it strange to anyone else that graph #2 equals 158% of respondents? Seems the responses should be mutually exclusive.
This second graph in the article (page 34 from the report) is not percent of respondants, it is actually percentage of responses. Consumers were allowed multiple responses on the question item. After normalizing the data for multipule responses page 35 from report indicates 36% of checking account holders would switch ASAP, 31% would be upset, wait and research before switching, 18% would be quite upset but not likely to switch and 15% would just accept it and not switch.
This second graph in the article (page 34 from the report) is not percent of respondents, it is actually percentage of responses. Consumers were allowed multiple responses on the question item. After normalizing the data for multiple responses page 35 from report indicates 36% of checking account holders would switch ASAP, 31% would be upset, wait and research before switching, 18% would be quite upset but not likely to switch and 15% would just accept it and not switch.
Maybe I should read the full report before I comment, but looking at the charts it seems that only 37%/39% will possibly react if their FI imposed some restriction on the Free Checking Account, e.g. increased balance. The remaining will either Comply, or wait, or not likely switch or just accept the changes. Yeah, we can say if we start “charging fees” customers will likely switch asap. But I would dare to say that many of those respondents are probably thinking the extreme. There is some level at which customers are willing to pay. Also, in reviewing the last chart it seems that if they know what those changes or restrictions are then what I see is that a vast majority will most likely stay. Of the 37%/39% men and women who will react to a minimum balance restriction, how many of those do we want to keep anyways?
While I respect Acton Marketing and particularly like their blog and read it regularly, they are a free checking vendor, and it’s their business to sell free checking/checking offerings to banks. Do you have other sources that offer similar results?
Bankrate did a study. I think and predictive survey would yield the same result: Consumers are going to say they’d be super pissed, but maybe it’s all talk and no walk. It will be interesting to monitor the movement in accounts as financial institution make changes to their fee structures.
To be or not to be, that is the question facing us and other community financial institutions. This report provides a lot of good facts and points to consider. Thanks so much for sharing these resources!
LOL – I already made the switch. I’m not feeding these greedy institutions anymore. Their fees are never going to stop increasing first it will be 10 dollars/month then they will raise it to 13/month, 20/month it will never stop they have to feed their pockets and share holders.
I think the opinion expressed by customers like Freq are worth taking note of. Banks have created a situation of ill-will by balancing their statements through a penalty-based income model. This is reminiscent of Blockbuster’s late fees, which kept building resentment right up until Netflix came along with an alternative. The same is going on with phone overage fees, and anywhere else companies are depending on punitive revenue. If banks don’t want to be where Blockbuster Video is today, then they really must find ways to re-frame how customers can pay for the services they enjoy, in a way that is transparent, forward communicating, and unequivocally fair.