Free checking is the closest a bank or credit union comes to offering a basic, bare-bones core account.

All remaining checking accounts are simply the core account with additional features and assorted fees and requirements attached. As you move away from the core account, your checking accounts become less simple and more complex.

So the $64,000 question is this – what do consumers really want from their checking account? How important are the assortment of other features (a.k.a., bells and whistles) attached to the other checking accounts on your product menu? Is it possible to add too many additional features to an account?

A case can be made that there are four basic reasons why banks and credit unions offer so many different checking accounts:

• The competition offers a variety of checking account choices.
• Target segmenting requires different accounts for different target groups.
• Fees require that some accounts come with more features to justify the fees.
• Consumers demand a wide variety of choices.

In reality, it's possible that all four reasons are irrelevant when it comes to developing your checking account product line.

And then there's often those acquired accounts resulting from mergers and acquisitions.

If you were starting over with developing your checking account product line, here are seven aspects you should consider:

1. Free versus fee-based accounts
2. The paradox of choice and the optimal number of accounts
3. Feature fatigue and the optimal number of product features
4. The training and service issues
5. The high cost of attrition
6. The impact on marketing
7. The hidden cost of confusion

You'll notice that surveying the competition is not on this list for two reasons. One, as marketers, you should already be aware of your competitors' checking products. And two, you shouldn't let competitors dictate your choice of checking products. They may not be right.

FREE VERSUS FEE-BASED ACCOUNTS

Today, there's a lot of noise in the media about the demise of free checking.

Yet, it's unlikely that banks and credit unions will be dropping free checking anytime soon. Sure, a few might take the bait being offered by the consultants and vendors behind this rash of "free checking is dead" articles. But remember this…these consultants and vendors dislike free checking as it stands between them and their ability to convince you to pay them huge sums of money to restructure your checking product line.

The smart bankers realize that it would be a bad decision to eliminate free checking at the same time frugal consumers are spending less and becoming more value-focused. After all, what could be a better value than free checking?

Free checking is here to stay and will remain an anchor product for many banks and credit unions.

Bottom line – consumers want a free checking choice.

Here's something to remember should you find yourself pondering the future of free checking – when Walmart finally gets approval to offer checking accounts, you can be sure its lead account will be free checking.

Now, just imagine the amount of money Walmart will spend promoting free checking. And imagine what will happen if you aren't offering free checking.

The most important questions you should be asking concern fee-based checking accounts. These questions include:

1. Should you offer such accounts?
2. If so, how many?
3. How many additional features do you need to justify the fees?

Most consumers don't want to pay a monthly fee for a checking account. And many don't want to constantly worry about maintaining a minimum balance to avoid the fee.

If you truly believe that it's important to offer consumers products and services they want, then offering free checking is mandatory.

And most important – be sure to include the powerful marketing word "free" in the account name. It's shocking how many financial institutions miss this branding opportunity.

THE OPTIMAL NUMBER OF ACCOUNTS

Based on competitive research done over a number of years, it appears that banks and credit unions are simplifying their checking account product lines by offering fewer checking account choices today.

Here are the results of a recent online search of checking account choices offered by the largest banks and credit unions in America. These personal accounts exclude student checking.

One Checking Account:
• State Employees Credit Union
• Pentagon Federal Credit Union (PenFed)

Two Checking Accounts:
• Bank of America
• Boeing Employees Credit Union

Three Checking Accounts:
• Bank of the West
• PNC Bank
• Golden1 Credit Union
• Sun Trust
• U.S. Bank (excludes 3 banking packages anchored by a checking account)

Four Checking Accounts:
• Capital One
• Chase Bank
• Citibank
• Wells Fargo
• HSBC
• Navy Federal Credit Union

Five Checking Accounts:
• TD Bank

Eight Checking Accounts:
• Harris Bank

Among the 17 banks and credit unions listed, Harris Bank is the outlier. Including Harris Bank, the average number of checking account choices is 3.4. Excluding Harris, the average drops to 3.1.

Excluding credit unions, with Harris Bank, the bank average is 4 accounts. Without Harris Bank, the bank average drops to 3.5 accounts.

Assuming that the big banks and credit unions conduct significantly more consumer research than the smaller institutions, it appears the optimal number of checking account choices is three.

Assuming the optimal number is three, the case for product line simplicity would call for the following three checking account choices:

Free Checking
Premium Checking that pays interest
A checking account for seniors that is free and pays interest

At ACTON Marketing we advise clients to avoid using the term "senior" in the name of an account for older customers. One possible name is 50+ Checking. Depending on your age cut-off, it could be 55+ Checking or 60+ Checking.

From a choice perspective, how does your checking product line compare with the list above?

Lastly, let's not forget the paradox of choice as it relates to the number of checking account choices offered. Studies involving choice show us that while some choice is good, more choice generally isn't better. In fact, too many choices depress response. Faced with too many options, consumers tend to have difficulty making a final choice. Surprisingly, they are more worried about making the wrong choice than making the right choice.

This is particularly problematic when banks offer too many checking account choices. Since most checking accounts have a large overlap of features, choosing the right account is difficult.

THE OPTIMAL NUMBER OF FEATURES

Loading a checking account or checking package with a long list of features does not necessarily make a better, more preferred checking account.

Yet this is what we often find with premium accounts offered by banks – especially the mega-banks.

Research has shown that consumer preferences during choice and after using the product change. Initially, consumers are tempted by products that provide more capability (features). But once a choice has been made and the product used, many consumers tend to have buyer's remorse…wishing they had chosen the simpler product with fewer features.

The tendency to pile on the features is called feature creep, feature bloat, and featuritis. The end result is feature fatigue.

An excellent article on feature fatigue, "Defeating Feature Fatigue," appeared in the February, 2006 issue of the Harvard Business Review. While it was written about technology products, the findings and recommendations are equally applicable to banking products – especially checking accounts. Information on obtaining a copy of this article is available in the sidebar to the right.

Too many features not only become overwhelming to your customers, they tend to cost the financial institution money to provide – especially features that must be provided via third parties, like insurance, theft protection, etc. Ultimately, you'll discover that most customers with a premium checking account use very few of the added features. At some point, some or many of these customers will conclude that they are paying – via fees or balances – for features they don’t need or use. Here you experience the impact of buyer's remorse which leads to an unsatisfied customer which ultimately leads to closing the account.

Often when you study a long list of premium account features you discover the old favorites:

• No fee travelers checks
• No fee cashiers checks
• No fee money orders
• Free small safe deposit box

These are really "throw-away" features that provide almost no value to the majority of your customers. After all, with debit cards and credit cards, how many consumers actually use travelers' checks, money orders, and cashiers checks today? Very few. And most branches don't offer safe deposit box vaults.

So why clutter your list of features with meaningless products and services.

In the early1980s, when annual fees were added to credit cards because of credit controls implemented by President Carter, it wasn't long before the major issuers began loading their cards with long lists of features in an effort to offset the negative impact of the fee. Soon, the other card issuing banks followed suit.

It got to the point where the list of features was both costly and ridiculous. Working for a mega-card issuing bank at the time, I still remember the startling research findings of a features study done by one of the major credit card companies – either MasterCard or Visa. If only I'd had the foresight to keep a copy of this study.

What we learned from the study was that consumers tend to focus on, and value, no more than three features and ignore the others. This was both a shock and a relief to us issuers back then. We could begin eliminating all those costly add-ons that we had to acquire from third parties. And, we could focus on determining the most valued three or four features.

It's okay to offer, as one of your checking account choices, a premium account that pays interest. What's important is that when creating this account, you don't load it down with a laundry list of needless features in order to justify the monthly fee to consumers.

The Harvard Review article mentioned above offers five suggestions to combat feature bloat or fatigue. Summarizing them:

1. Consider long-term customer equity and not just your customer's initial choice. What this means is, don't load your account with lots of features in an attempt to offset the high monthly fee. After obtaining and using your premium account, many customers will see they aren't using most of the features and will feel they are overpaying for the account.
2. Build simpler products. Your checking accounts should be easy to understand, easy to sell, and easy to use by your customers.
3. Give customers decision aids. Such aids help them make the right choice of a checking account. Such aids include online product reviews from existing customers, free trials, easy-to-read account comparison charts, and social proof. With social proof you merely advise prospects of the account or accounts favored by the majority of your customers. Don't force premium accounts on customers.
4. Design products that do one thing well. What's a checking account's primary function? To warehouse customers' money until they need it and then make it quick and easy to use via debit cards, checks, online bill pay, auto transfers, and ATMs. Any features should be relevant to this primary function.
5. Use prototypes and product-in-use research. Using marketing research to evaluate potential new checking accounts can be misleading as, without use, consumers tend to give too much value to lots of features. While it would be difficult to build checking account prototypes to test them, simply knowing what happens after purchase and use, should be sufficient to avoid feature bloat in the first place. Or perhaps during your focus groups and other research efforts, you can force people to prioritize the three or four most important features and validate this later by surveying what existing customers actually use frequently.

Given the paradox of choice and feature bloat, the right decision when it comes to checking account features is less is more. Limit your special features to no more than three or four.

THE TRAINING AND SERVICE PARADOX

No matter how much time you spend on employee training and how proficient they become in product knowledge, human nature and the pressures of everyday business causes them to favor just a few of your most popular products.

Branch employees are expected to be product experts. The more products, the tougher it is to be an expert on every product. Generally what you discover in any branch is that the new accounts persons have one or two favorite checking accounts they sell to every customer.

These favorites aren't selected at random. And they are not necessarily based on personal preference. No, these favorites are what most customers want and choose based on your marketing efforts, simplicity, and value. This is Professor Robert Cialdini's "Social Proof" in action. People tend to do what others are doing. Social proof was covered in detail in the September issue of the newsletter.

Another paradox is that while the checking accounts with the highest monthly fees and minimum balance requirements may be the most profitable for your bank, they are the least likely to be on your branch employees' favorite list.

The problem with premium checking accounts is that they are burdened with a long list of features…many of which are seldom used and of little value to your customers, as covered above.

The more checking account features, the greater the likelihood that prospects and customers will be told of only the most important one or two. It becomes extremely tedious to try and remember and explain a long list of features when most of them are not that important to most of your consumers and prospects.

Bottom line, your branch employees gravitate to selling the simple, value-oriented accounts like free checking as they are easy to understand and easy to sell. In fact, these accounts really sell themselves.

THE COST OF HIGH ATTRITION

As a long-time marketing rule of thumb says, it costs five times as much to get a new customer than to retain an existing one.

Today, this cost of acquiring a new banking customer averages over $250.

One of the biggest mistakes bank marketers make is concentrating heavily on new customer acquisition while ignoring retention.

This high cost of replacing customers who leave your financial institution is why it is so critical to track checking account closings monthly by type of account.

From our experience, when a bank or credit union takes the time to track attrition by type of account, they find that 80% or more of their customers use only one or two types of checking accounts – usually free checking. The remaining 20% are spread over the other, less desirable accounts – primarily fee-based accounts.

Our largest client in the 1990s was fanatical about tracking checking account attrition by type of account. The average annual attrition of its three free checking accounts was 10.1% while it averaged 25.4% for its four fee-based checking accounts.

Bottom line – free accounts are stickier, resulting in much lower rates of attrition. After all, why would a value-oriented customer give up a free checking account?

Remember, the true value of a customer is his or her lifetime value.

If you don't already do so, take the time to look at two important checking account metrics:

1. What percentage of your checking customers enjoys a free account versus the percentage that have a fee-based account?
2. What is the attrition rate of your free checking customers versus your fee-based customers?

THE IMPACT ON MARKETING

The fewer checking accounts you offer the easier, and more effective, it is to promote your checking account product line.

For example, at ACTON Bank, you have your choice of Free Checking and Interest Checking. Or what about, at Lincoln Bank you have your choice of Free Checking and Premium Checking.

If your third account is an account for seniors, there would be no need to market this account as it is really a variant of your two primary accounts — Free and Interest. Most seniors will inquire at the point of sale if you offer a special account for seniors.

Today, smaller banks and credit unions with an array of checking accounts tend to market their best product – often free checking. I've yet to see any financial marketing promoting a bank's complete menu of checking accounts. It would be too confusing.

For years, before being acquired by Chase, Washington Mutual focused its marketing budget almost exclusively on promoting Free Checking. WaMu's ongoing free checking promotion helped all banks and credit unions offering free checking in WaMu's markets.

By focusing on the "best" account, it tends to become a self-fulfilling prophecy that this is the primary account sold in the branch as it is the account most often requested by customers and prospects. Again, it’s an excellent example of Professor Robert Cialdini's social proof – people tend to buy what others are buying.

Others, like the mega-bank Wells Fargo, simply encourage prospects to open a new Wells Fargo checking account. Your editor has received two such self-mailers from Wells Fargo in the past few months. Nowhere in the self-mailer is there any mention of a specific account or the number of different checking accounts available. This requires a trip to the website or a trip to the local branch for more information.

Once on the website landing page for personal checking accounts, you see a comparison matrix of the bank's five accounts, including its student account. The amount of information is quickly overwhelming.

You quickly see why Wells Fargo prefers to promote generic checking instead of a specific account. Mega-banks generally push their most costly accounts in the branch and only promote a free account online…and then, infrequently.

Oddly enough, Wells Fargo doesn't offer Free Checking in California but does in Nebraska. You must select a state on the Wells Fargo site before getting to the appropriate personal checking account comparison chart.

Imagine trying to promote checking accounts if you were the deposit marketing manager at U.S. Bank. Its personal checking product line consists of three packaged accounts anchored by checking and four regular checking accounts, including student checking. Where would you start?

Chase Bank offers four different personal checking accounts – Chase Checking (free with direct deposit or five debit card purchases a month), Chase Better Banking Checking, Chase Premium Checking, and Chase Premium Platinum Checking. Confused?

Recently, the Chase marketing team made the decision to promote checking without mentioning any one of the four accounts. Instead, following Harvard Professor Ted Levitt's advice, they promoted the bank's debit card instead. Call it marketing the product behind the product.

Consumers don't need a checking account. They need a quick way to access the money held by their bank.

It was Professor Levitt who reminded his students that consumers don't need a drill, they need a hole. Details about the Chase newspaper and radio campaign are available in the ACTON Marketing blog.

Here's the reason you never see a bank or credit union promoting their most expensive, feature-laden checking account. Some consumers are always happy to pay more for your product if it provides them with prestige. The more prestige, the more they'll pay. Unfortunately, there's no prestige in a checking account.

It might be heresy to say, but checking accounts are basically a low-interest, commodity product. There is no "luxury goods" category with personal checking accounts.

What consumers want most in a checking account are few, if any, fees, no or low minimum balance requirements, flexibility when accessing their money, and error-free, hassle-free service. It's that simple.

The simpler your checking product line, the more effective you can be at marketing checking to prospects and customers.

THE HIDDEN COST OF CONFUSION

What we generally discover is that banks and credit unions with too many different checking accounts are periodically tweaking and changing them for a variety of reasons. The net effect of such change is confusion both with employees and customers.

Given the ubiquity of, and billions of dollars spent promoting, free checking, most consumers enter the branch seeking a free checking account. After all, it usually represents the most value for the least cost.

And it's the primary type of checking account sold via banner and pop-up ads on the Internet.

Since opening a new checking account is not like buying a new dress, suit, or HDTV, most consumers' goal is to get into and out of the branch as quickly as possible.

Unfortunately, thanks to increased emphasis on share of wallet, cross-sell ratios, and expensive sales training programs, most consumers can expect to hear a detailed sales pitch from the new accounts person.

As consumers, when we visit a new branch for the first time, we expect the branch employee at the new accounts desk to be well-versed about every detail of every checking account offered. The minute he or she stumbles over the checking account sales pitch, our confidence in the bank and its employees is shaken. We immediately question whether or not we've made the right choice in selecting a bank or credit union. It could be the difference in opening a new account or going elsewhere.

And when a customer or prospect becomes overwhelmed with too many choices – both in types of accounts and features – at the point of sale, the odds that confusion takes over is high.

The hidden costs of confusion result when:

• A customer or prospect walks out without selecting a new account.
• A customer or prospect selects the wrong account and closes it quickly.
• A customer or prospect selects the wrong account and remains unhappy with his or her choice for as long as he or she is a customer.

All three of these scenarios potentially result in poor word-of-mouth about your bank or credit union.

Once your bank or credit union gets beyond three simple checking accounts and begins adding premium accounts loaded with a variety of features, the increased complexity opens the door to ongoing confusion.

The most effective way to eliminate or minimize confusion is to offer customers and prospects a simple, easy-to-understand choice of checking accounts.

Remember, less is more here.

GET STARTED TODAY

With our economy struggling to recover and a majority of consumers becoming more frugal while seeking value in everything they acquire, now is the perfect time to simplify your checking account product line.

If your bank or credit union already offers only one or two personal checking accounts like State Employees, Pentagon Federal, or Boeing Employees Credit Union or Bank of America, then you already understand the value of a simplified checking account product line.

Congratulations!

If you are currently offering three different checking accounts, you may want to review your accounts given what you've learned in this issue of the newsletter. For example, instead of free checking and two premium accounts, you many want to combine the premium accounts and offer student checking.

If you are currently offering four or more personal checking accounts, you are probably in need of a complete review and restructuring of your checking product line. After all, there must be some rational reason why Bank of America is now offering only two personal checking account choices.

When restructuring your checking product line and developing the best possible choices, remember the paradox of choice and the pitfalls of feature creep.

There's a lot to be said for simplicity when it comes to your checking account choices.