Keep On Banking In The Free (Checking) World

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I’ve been having a recurring nightmare about what the world of banking will look like post-apocalypse.

If by “apocalypse” you think I mean post-financial crisis, ha ha, no. That’s not the apocalypse. The end of free checking? Now that’s the apocalypse.

Banks have relied on free checking accounts for a while now to attract new customers. OK, to be exact, they’ve relied on what they call free checking accounts. Because it seems to me they’ve been anything but free. Oh sure, there’s no monthly fee for the account, but the people who open them still end up paying overdraft fees, ATM fees, and who-knows-what-else fees.

I say “who-knows-what-else” because, well, I don’t know. My checking account isn’t free, but because I don’t overdraw, don’t use ATMs that I shouldn’t be using, and keep way too much in the bank across a number of accounts, my bank wouldn’t dare charge me any fees. So I’m really not clear which is really the free account, and which will go by the wayside in the near future.

But it does seem possible that the so-called free accounts will be discontinued — and, in fact, a number of banks have already changed their product line.

As a result, there’s a lot of discussion about what’s next and what banks will do in this post-apocalyptic, post-free checking world.

Personally, I’m not sure why there’s so much interest and speculation.

Despite claims that it’s really hard to switch banks, most banks I talk to still tell me their attrition rates are in the double digits. And this doesn’t even count what one bank calls “silent attrition” — accounts that don’t close, but see their balances and activity dwindle to next to nothing.

So the reality has been that free checking has hardly been the solution to anything, except possibly attracting new accounts that might not stick around for very long.

In 2008 I analyzed the site visitor data from for an Aite Group report I wrote. What I discovered was that the 4,000 consumers who had visited the site fell into one of three buckets: Those looking for accounts with: 1) No fees; 2) Superior technology-based features (i.e., online banking, bill pay, etc.);  and 3) The best interest rates (and who were willing and able to keep $5000 or more in their accounts to earn those rates).

This might not seem earth shattering, but walk into any bank branch, ask about checking accounts, and see if the person you talk to is able to explain anything but the free account.

The biggest problem banks have in this post-apocalyptic world is that they don’t know how to sell anything except their free account. If that goes away, what are they going to do?

That’s where my nightmare comes in. My nightmare is like that Bizarro Jerry episode from Seinfeld where there’s this parallel universe and three characters the exact opposite of Jerry, Kramer, and George.

My nightmare is bizarro banking. Except that in this parallel universe, the characters the banks meet aren’t their opposites, but an image of what they will become. Namely: The telcos.

Yes, in my nightmare of post-apocalyptic banking, banks adopt the tactics of telcos, and seek to reduce their attrition problem by locking customers in with contractual arrangements and promos.

Open up a new account, get your fees waived for six months, and agree to a 2 year term. Then after the six months are up, and the fees are about to kick in, the banks will tempt you with an offer to extend the fee waiver by another six months if you open up a savings account or another checking account, and extend your contract by another year. And so on.

Hey, if you can’t earn loyalty, you might as well buy it.

The problem, here, comes down to value. Or more specifically, lack thereof. Perhaps this is overly idealistic, but I was thinking that it might be nice if banks turned to providing more value to the customer relationship as a way to build loyalty, instead of searching for contractual ways to lock people in. Maybe it’s just me, but the last thing I want it is to deal with more firms like the telcos.

I guess the question is — in order to transform my nightmare into a pleasant dream — what could banks do to add more value? Plenty. Just not enough space here to get into it.

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