In a blog post titled NeoChecking Accounts I wrote:
“GoBank represents a new type of product in the market, which, for lack of a better name, I’ll call NeoChecking Accounts. [But] it isn’t just the new type of “bank” that firms [like GoBank, Moven, and Simple] have to educate consumers on, it’s a new type of product.”
Not surprisingly, a lot of attention is paid to the new entrants in the market that fit the NeoBank label. But NeoChecking accounts aren’t the sole purview of NeoBanks. Existing banks and credit unions need to create NeoChecking accounts to supplant the existing checking product.
Today’s typical checking account certainly generates a lot of revenue for FIs, but mostly through non-value added (from the customer’s perspective) fees like overdraft fees, ATM fees, inactivity fees, and what ever other penalties banks (and credit unions) dream up.
The value proposition of a NeoChecking account is adding value to the customer. The theory is that consumers willl be more accepting of paying a fee to use the product (I am not going to go as far as saying that consumers will “want” to pay a fee).
There are a couple of NeoChecking alternatives available to banks and credit unions today, and one that I’d like to see:
1) Kasasa. I know many of you are skeptical that Kasasa belongs in this category. But it does, and here’s why: As a product branded separately from the FI that provides it, a bank or CU offering Kasasa is telling its customers (or members), “we’ll offer the right products for you regardless of who offers it.” The value proposition of NeoBank’s NeoChecking accounts is “adding value to customers” and “helping them make the right decision.” A community bank or CU offering Kasasa is projecting that value, as well. Not to mention, leveraging the brand awareness, pull, and profitability that Kasasa provides.
2) BaZing. This product, from StrategyCorps, promises to deliver ~$75 in fee income per year from 40% of existing checking accounts and 30% of new accounts opened (and higher percentages if the FI doesn’t charge for the account). Why would a consumer pay for this type of account? To get benefits not traditionally associated with checking account like health and prescription savings, cell phone protection, and ID theft aid.
3) The Merchant-Funded Account. This one doesn’t exist yet (If I’m wrong, somebody will let me know). This type of account would be pitched as a “free” checking account if the customer accepts some number (or dollar amount) of merchant-funded offers on a monthly basis. In effect, the customer buys his or her way out of a monthly fee (not unlike what a lot of banks do today with account balances and/or opening additional products). Response rates on offers would go up astronomically because customers would have to redeem, increasing the incentive for retailers and merchants to participate.
The features — or value propositions — of these NeoChecking accounts aren’t foreign to existing banks and accounts. The problem is in the execution. Banks throw in these features on top of existing account functionality and — more importantly — on top of the existing price structure.
By giving away value-added features in the context of an account that continues to hit the customer with penalties and non-value added fees (sorry, but consumers simply don’t see $35 of value in an overdraft situation), the perceived value of the feature is diminished.
One point we need to discuss here: The value of merchant-funded offers (MFOs).
I remain a strong believer that consumers’ purchase data can be effectively used in marketing efforts.
But not from the perspective of convincing consumers that they’re getting more RELEVANT offers (and certainly not that they’re getting MORE relevant offers). The benefit of MFOs is to the retailer/merchant. In terms of reaching consumers who demonstrate certain purchase behaviors in a particular category.
Today, retailers/merchants have NO clue what any individual consumer spends on products in their category, and usually doesn’t even know how much that consumers spends with them.
The value of the MFO concept is in helping marketers improve their customer acquisition efforts. Today, they spend billions of dollars in poorly targeted mass media channels. The FI channel (i.e., MFOs) is about increasing efficiency of spend, and measurability (which Twitter really sucks at, by the way).
Consumers do NOT care about MFOs. It is NOT a selling point to a checking account. The promise that they will save money on the purchases “they already make” by signing up with MFOs doesn’t fool anyone. Consumers believe that they get the same coupons and deals from any number of sources.
On, and by the way: If the MFOs I’m seeing from my bank is based on my actual purchases, then someone has stolen my identity and using by debit card at nail salons all over Massachusetts.