SEVEN GREAT REASONS TO OFFER CHECKING ACCOUNTS

The seven reasons your bank or credit union depends on checking accounts are:

1. It's the core account to establish a long-term customer relationship with your financial institution.
2. Unlike other bank accounts, the checking account is sticky which means it stays with you a long time.
3. The checking account provides your institution with ongoing cross-sell opportunities.
4. The checking account balances enable your bank to increase its loan volume.
5. They are a reliable source of funds for your institution.
6. They provide a source of fee income from a variety of fees.
7. They provide an ongoing branding opportunity both on checks and the debit card.

IT'S YOUR CORE ACCOUNT

This is the "my bank" perspective taken by most consumers. When asked where they bank, most consumers mention the bank or credit union where they have their primary checking account.

A checking account is a necessity – unlike savings accounts, money market accounts, and CDs which fall more into the luxury or nice-to-have category. Most consumers can get along without one or more types of savings accounts. But they find living without a checking account an unbearable burden.

And unlike these savings accounts where a customer has very little interaction on a day-to-day basis, the checking account receives daily attention, week after week, month after month, year after year.

Checking accounts are what bind most of your customers to your financial institution. As a result, they provide the foundation for your preferred customer group.

It would be very difficult – if not impossible – to build a stable, loyal customer base around a regular savings account, a money market account, a certificate of deposit, an auto loan, or secured home loan.

One thing all these accounts have in common is that they tend to be rate sensitive. This means more turnover in your customer base as some percentage of these customers will switch financial institutions for a better rate.

Not so with a checking account!

In short, the checking account is the one account that locks your customers into a long-term relationship with your bank or credit union.

It is both your and your customer's core account relationship.

CHECKING ACCOUNTS ARE STICKY

This is true for a number of reasons – including checks outstanding, online bill pay arrangements, automatic debits with utilities and merchants, and a Pay Pal account.

Aside from check float, the other financial arrangements are not easily changed. In fact, it's the advent of these payment methods that have made checking accounts even stickier – which is good news for financial institutions.

Unlike inactive savings accounts and CDs, most checking accounts see daily use, resulting in a constant churn in deposits and withdrawals. This constant activity makes checking accounts very tough to close and relocate to another bank or credit union.  

The thought of closing an active checking account and moving it to another financial institution probably ranks up there with visiting the dentist, the IRS office, or the neighborhood used car lot.

Whether true or not, it just seems to be a daunting task that most of us would rather forgo.

Bottom line, it isn't easy to close one checking account and open a new one elsewhere.

Although checking accounts are sticky, some types of accounts are stickier than others – especially free checking accounts. Generally, banks and credit unions that track checking account attrition by type of account discover that attrition tends to be lowest for free accounts and highest for those accounts with monthly fees, minimum balance requirements, and transaction fees.

Ideally, you want your checking product line to consist of the stickiest types of accounts.

THEY PROVIDE ONGOING CROSS-SELL OPPORTUNITIES

Even with fewer customers visiting the branch, cross-sell opportunities are abundant with checking accounts.

For the longest time, the monthly checking statement was the obvious place for a statement insert. Now, with a number of customers opting for online statements, you still have the website for cross-selling.

Thanks to the ease of online banking, many checking customers visit your website frequently – often daily or better. They are seeking their current balance, transferring funds from savings to checking or checking to savings, and looking to see last checks cleared and recent POS postings.

Each visit presents a cross-sell opportunity via bold headlines, strong visuals, and banner ads – all strategically placed to catch the attention of your visiting checking customers.

In addition, your ATM surrounds, screen messages, and receipts present cross-sell opportunities.

And don't forget about promotional inserts in check reorder boxes.

Sending replacement debit cards presents another cross-sell opportunity which is frequently overlooked by many financial institutions.

The most recent cross-sell opportunities are the result of the rapid growth of mobile banking.

If you're not already doing so, you should compile an exhaustive list of every possible cross-sell opportunity related to the use of a checking account and make sure you are using every one of them in some fashion.

You can bet your largest competitors – the mega banks – are doing so.

HELPS INCREASE LOAN VOLUME

Under normal financial circumstances, your bank needs deposits in order to make loans to both retail and business customers. Checking account deposits help make lending possible.

And since lending generally creates significantly more revenue than fees from deposits, senior management at banks and credit unions favor loan products – including auto loans, mortgage loans, equity lines and loans, credit cards, and a variety of business loans.

The nice thing about checking account balances is that they are a very low cost source of funds as we'll see below.

And, unlike hot money CDs, checking account balances provide a more stable source of funds for lending.

A RELIABLE SOURCE OF FUNDS

There are major differences in the cost and stability of a financial institution's dollar deposit sources.

Checking account balances provide your financial institution with a stable and reliable source of funds.

The typical financial institution gets its funds from variety of funding sources consisting of:

• Core deposits
• Non-core deposits
• Fed Funds
• Capital
• A small catch-all category labeled "other"

Your checking account balances fall into the largest category known as core deposits. Joining checking account balances in this category are regular savings deposits, money market account balances, and CDs under $100,000.

The percent of total funding represented by core deposits has declined significantly from 1991 to 2002 as seen in the two pie charts in the sidebar. One of the primary reasons for this shift has been the outflow of large time deposits due to increased competition from non-bank competitors – specifically the large Wall Street firms offering cash management accounts.

Non-core funding consists of Jumbo CDs, brokered deposits, Internet-sourced deposits, and borrowed money. While the controversial brokered deposits category has been around since at least the 1970s, Internet-sourced funds are relatively new to financial institutions.

Basically, a bank or credit union's website gives it a national presence. If quick additional funding is needed, all the financial institution has to do is make a temporary high rate offer on one or more CD terms to gather funds outside its traditional market area.

The problem with brokered deposits and Internet-sourced funds is they are considered hot money due to the higher rates paid to acquire them. This makes them volatile and more likely to leave quickly for yet a higher rate.

Remember, as stated above, the checking account is your institution's only remaining franchise. And it is the most reliable, stable, and lowest-cost source of funds.

Therefore, one of your most important marketing activities year after year is increasing your number of checking account customers. And to this end, it is critical to have the optimal checking account product line (See December's newsletter on this topic) with accounts experiencing the lowest level of attrition.

A STEADY STREAM OF FEE INCOME

Checking accounts provide a wide variety of sources of fee income:

• Markup on paper checks
• Monthly maintenance or service fees
• NSF fees
• Balance transfer fees (e.g., moving funds from savings to checking to cover an overdraft situation)
• Return item fees
• Stop payment fees
• Per transaction fees
• Excess activity fees (e.g., write too many checks in one month)
• Dormant account fee
• Phone inquiry fees
• Research or balance checkbook fees
• ATM interchange
• POS interchange

Not that long ago, some banks tried charging a fee to see a live teller inside a branch.

Perhaps there are a few more innovative fees that your editor is not aware of at this time.

Historically, the primary source of fee income from checking accounts is NSF fees. But thanks to the easy access to balance information online and the now widespread use of debit cards, this fee source is being overtaken by POS interchange fee income.

And, soon to be enacted opt-in legislation will further diminish the revenue from NSF fees.

Regardless of legislation and changing consumer behavior, checking fees will remain a viable source of income for banks and credit unions.

PROVIDES AN ONGOING BRANDING OPPORTUNITY

One of the primary branding opportunities today is your bank or credit union name on your debit card. Your card gets displayed and handled by a wide variety of people at the point-of-sale on a daily basis.

Admit it, most of us take a quick peek at the name on the debit card being used by the person in front of us at the grocery store check out line. It's human nature to see where the other folks are banking. Every peek is another branding opportunity.

It wasn't always this way. In fact, it wasn't that long ago when the paper check was the primary method of payment…making it the branding vehicle. And while the use of paper checks is on the decline, they are still visible in most retail locations – including the grocery store.

And unlike your other deposit and loan accounts, your checking account provides additional branding opportunities.

1. Your monthly statements sent through the mail.
2. Statement inserts inside your monthly statements.
3. Your website where checking customers go frequently for account information.
4. Your ATMs which handle the bulk of your cash withdrawal volume.
5. Your personalized ATM receipts.

The nice thing about checking accounts from a branding perspective is they get used on a daily basis and impact a number of people beyond your customers.

What's important is that you realize this and take maximum advantage of this branding opportunity.

HANG ON TO YOUR LAST FRANCHISE

Do not take your checking accounts for granted. They are far too important to the success of your bank or credit union.

Remember, conventional wisdom states that it costs seven times as much to get a new customer than it costs to retain an existing customer.

Sourcing and retaining checking account customers should always be the cornerstone of every year's marketing plan.