The State of Consumer Checking Accounts

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Free checking has been around for well over a decade, and isn’t a difference-maker anymore. A la carte checking has apparently risen from the ashes of the 80s and — despite the public relations rhetoric from a few financial institutions experimenting with it — the results aren’t impressive… again. The best thing that’s happened to checking is mobile banking, but if financial institutions don’t do something to make it more relevant to their customers, it too will quickly fade from revolutionary to mundane.

What’s surprising is the lack of action by banks and credit unions despite the plethora of consumer based research out there about the potential of non-traditional, “emerging financial” services (e.g., personal couponing, identity theft protection, etc.) that fit naturally into a checking account with online/mobile banking. Consumers consistently say they want these services and are willing to pay for them. However, most financial institutions aren’t capitalizing on this, even though other banks embracing these ideas are seeing impressive returns. Most feel content to resort to tacking a new fee — typically penal in nature — on an existing product without providing any additional value. The market place has spoken loudly on this: consumers don’t and won’t pay for basic banking services (at least not gladly). You risk the relationship if you go this route rather than adding something new that customers will consider paying for.

Billions of dollars in checking-related fees have been extracted from the industry since 2010 due to regulation, and less branch traffic has led to decreasing employee interaction. Now financial institutions must seek new ways to incorporate non-traditional services that connect with consumers’ lifestyles.

Read More: The Tightrope Between Checking Fees And Consumer Defections

The Condition of Consumer Checking

Now, let’s address the financial condition of consumer checking. The ABA and other industry experts estimate the annual cost for a financial institution to maintain a checking account is between $250 and $400 per year. At StrategyCorps, we estimate $350 per year. So given this level for breakeven revenue, here’s the financial productivity of the average FI’s consumer checking portfolio account, based on StrategyCorps’ proprietary CheckingScore® that tracks data from nearly three million householded consumer checking relationships analyzed during the last 12 months:

  • 43% of accounts are unprofitable and represent less than 2% of relationship dollars (deposits and loans) and generate 3% of overall revenue (NIM and fees)
  • 12% of accounts are super profitable (over $2,500 in annual revenue) yet represent 61% of relationship dollars and generate 54% of overall revenue

Read More: Bank Switchers Who Love Checks Willing to Pay More Fees

How Consumer Checking Householded Relationships Break Down

% of
Accts
Avg.
Service
Fees
Avg.
Misc.
Fees
Avg.
OD/NS
Fees
Avg.
Monthly
Debit
Card
Swipes
Avg.
Acct.
Balance
Avg.
Relationship
Deposits
Avg.
Relationship
Loans
Unprofitable 43% $6 $4 $45 6 $832 $181 $55
Super
Profitable
12% $7 $13 $141 8 $24,618 $59,631 $66,460
Average
of All
100% $8 $7 $90 11 $5,686 $9,295 $9,189

The current financial state of a typical FI’s consumer checking portfolio is not healthy. There are a significant number of unprofitable accounts that need to be “fixed” from a revenue generation standpoint (moved closer to – or over the breakeven revenue line). The most practical way to do this is to find a way to either charge them more customer-friendly fees for things so they won’t sourly terminate their relationship and/or connect with these customers with better products and services so they will do more business with you (the elusive cross-sell).

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Read More: Making Checking Customers Feel Better About Paying Fees

On the other end of the spectrum, the super profitable accounts need to be “protected” from competitors that are working hard to steal them away. The best way to do that is to give them the best account you have at no charge. No matter what account they are in currently, waive the measly $20 in service and miscellaneous fees they incur annually and “love” them more than you currently do.

Linking the customer-unfriendly strategic assessment with the challenging financial condition clearly shows that financial institutions must start thinking differently about the consumer checking relationship — from product innovation, including mobile and online banking, to product pricing, relationship building and management strategies.

Otherwise, this most important retail banking product, in terms of how a customer identifies their primary financial institution, will continue to cost many banks and credit unions a lot of money as they carry way too many unprofitable accounts. This also puts the risk of the overall profitability of the institution’s checking portfolio in the hands of a small percentage of customers that competitors are constantly trying to lure away.

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