Many bankers are nobly searching for the perfect consumer checking line-up — one that resonates better with customers… is more financially productive… differs dramatically from the competition… and meets the changing needs of customers. There are a lot of factors to consider in that noble quest, including macro- and micro-market segmentation, a mix of home-grown ideas and third-party solutions, a complex array of consumer buying trends and personal preferences, and a host of other issues. It’s enough to make your hair hurt.
Reality Check: There’s no perfect line-up today that every bank and every credit union can “plug and play.”
Rapidly changing technology, evolving consumer behaviors, individual financial requirements of a particular financial institution, and most recently the fluid checking-related regulations all make a perfect line-up impossible.
Checking Perfection: Easy as 1-2-3
To get close to the ideal of a perfect line-up, you should employ this easy three-part, three-step approach: thinking, deciding, and then doing.
The first part of this 1-2-3 process will work no matter what your financial institution’s situation is, because it is centered around consumers and not the bank or credit union. So start your thinking here:
- Consumer Priorities – Understand how consumers really choose checking accounts.
- Simplify – Make your line-up as simple as possible, thereby making it easy to buy and to sell.
- Improve & Refine – Make the products as good as possible, not just to stay ahead of your competition, but also so you can have at least one account your customers will happily pay for.
Once you have these as the principles to guide your thinking, you can pause to focus on each one individually.
How Consumers Choose Their Checking Provider
Consumers choose an account based on their buyer type. So here’s the second 1-2-3. The three types of buyers are:
- Fee-Averse Buyer – This buyer wants free checking if it’s available or the cheapest account you offer.
- Interest Buyer – This buyer wants the best yield possible on their deposits and expects a market yield or above-market yield.
- Value Buyer – This buyer wants the best account at your institution, is most focused on account benefits and is willing to pay for the account if there’s a perceived fair exchange of value.
Your branch representatives’ product knowledge or your online marketing messages will play a significant role in helping consumers decide which type of buyer they are. Top-performing retail financial institutions know this stone cold. They don’t automatically assume nearly every customer is a fee-adverse buyer because they’re not — about 50% are. Value buyers make up about 40%, and (in today’s interest rate environment) about 10% are interest buyers.
What Type of Accounts to Offer?
Once you understand how your customers choose checking accounts, the next question is: What type of accounts should you offer and how many?
The answer is the third 1-2-3. For simplicity, and to keep both your branch representatives and buyers sane, there are only three types of checking accounts you should offer:
- No/Low Fee Account
- Interest-Bearing Account
- Value-Based Account
Of course, the most common no-fee account in today’s market place is unconditionally free checking. However, more and more institutions are now offering free checking with conditions — that is, free if a simple condition is met, like getting e-statements instead of paper ones or keeping a minimum balance. If this condition is not met, then there’s a penalty fee, which is sometimes modest and at other times extremely penal for the value received.
For the interest account, customers still want as much interest as they can get (which isn’t a whole lot these days) and believe the higher the balances they maintain, the higher the interest rate that they earn should be. Here we find a tiered-rate account with interest beginning at a stated (reasonable) balance level rather than from the first dollar. This rewards and encourages higher balances for these buyer types while letting you manage your interest expense.
The value account is one that’s not as easy to design. Having only basic checking services and charging fees for them is risky. So there is the need to enhance the value account beyond the most basic checking services. And consumers have stated in studies and in their buying actions that they will happily pay for selected non-traditional checking account benefits.
If designed right, a value account can generate significant, customer-friendly revenue of at least $75 per year from about 40% of your customers. So while there’s not a perfect line-up that’s an easy “plug and play” into every financial institution, you can get very close to it and produce great results by following the guidelines mentioned above.